e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark one)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2008
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
for to
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Commission file number 1-11588
SAGA COMMUNICATIONS,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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38-3042953
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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73 Kercheval Avenue
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48236
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Grosse Pointe Farms, Michigan
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(Zip Code)
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(Address of principal executive
offices)
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Registrants telephone number, including area code:
(313) 886-7070
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Class A Common Stock, $.01 par value
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NYSE Amex
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o 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 o 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 o
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 registrants 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. o
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. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
Company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o 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, 2008 on the NYSE
Amex: $87,034,983.
The number of shares of the registrants Class A
Common Stock, $.01 par value, and Class B Common
Stock, $.01 par value, outstanding as of March 27,
2009 was 3,664,104 and 599,614, respectively.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2009 Annual Meeting of
Stockholders (to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the
Companys fiscal year) are incorporated by reference in
Part III hereof.
Saga
Communications, Inc.
2008
Form 10-K
Annual Report
Table of Contents
2
Forward-Looking
Statements
Statements contained in this
Form 10-K
that are not historical facts are forward-looking statements
that are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition,
words such as believes, anticipates,
estimates, plans, expects,
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 2009 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, U.S. and local economic
conditions, our ability to successfully integrate acquired
stations, regulatory requirements, new technologies, natural
disasters and terrorist attacks. We cannot be sure that we will
be able to anticipate or respond timely to changes in any of
these factors, which could adversely affect the operating
results in one or more fiscal quarters. Results of operations in
any past period should not be considered, in and of itself,
indicative of the results to be expected for future periods.
Fluctuations in operating results may also result in
fluctuations in the price of our stock.
3
PART I
We are a broadcast company primarily engaged in acquiring,
developing and operating radio and television stations. As of
December 31, 2008 we owned or operated ninety-one radio
stations, five television stations, four low-power television
stations and five radio information networks serving twenty-six
markets throughout the United States.
Recent
Developments
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On September 5, 2008, in connection with a city of license
change for WJZK(FM), we exchanged $242,000 in cash and a tower,
antenna and transmitter with a fair market value (which
approximates cost) of approximately $1,591,000, with another
radio station for a broadcast license.
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On January 21, 2004, we entered into agreements to acquire
an FM radio station
(WOXL-FM)
serving the Asheville, North Carolina market. On
November 1, 2002 we began providing programming under a
Sub-Time
Brokerage Agreement to
WOXL-FM, and
on January 31, 2008 we closed on the acquisition for
approximately $9,463,000 of which approximately $9,354,000 was
paid in 2008 and $109,000 was paid in prior years.
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On January 31, 2008, in connection with the 2006
acquisition of one FM radio station
(WTMT-FM)
serving the Tazewell, Tennessee market for approximately
$4,186,000, we paid the seller $1,350,000, which had been
recorded as a note payable at December 31, 2007. We
relocated the tower to Weaverville, North Carolina (serving the
Asheville, North Carolina market) and started broadcasting in
Asheville on June 8, 2007.
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For additional information with respect to these acquisitions
and disposals, see Item 7. Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
4
Business
As of February 28, 2009, we owned
and/or
operated five television stations and four low-power television
stations serving three markets, five radio information networks,
and sixty-one FM and thirty AM radio stations serving
twenty-three markets, including Columbus, Ohio; Norfolk,
Virginia; Milwaukee, Wisconsin; Manchester, New Hampshire; Des
Moines, Iowa; and Joplin, Missouri.
The following table sets forth information about our radio
stations and the markets they serve as of February 28, 2009:
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2008
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2008
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Fall 2008
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Market
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Market
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Target
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Ranking
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Ranking
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Demographics
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By Radio
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by Radio
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Ranking (by
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Target
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Station
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Market (a)
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Revenue (b)
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Market (b)
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Station Format
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Listeners) (c)
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Demographics
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FM:
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WSNY
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Columbus, OH
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32
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37
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Adult Contemporary
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3
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Women 25-54
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WODB
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Columbus, OH
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32
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37
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Oldies
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7
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(e)
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Adults 45-64
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WJZA
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Columbus, OH
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32
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37
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Smooth Jazz
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17
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(e)
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Adults 35-54
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WVMX
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Columbus, OH
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32
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37
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Hot Adult Contemporary
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N/R
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Women 25-44
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WKLH
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Milwaukee, WI
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35
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36
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Classic Rock
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4
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Men 35-54
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WHQG
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Milwaukee, WI
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35
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36
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Rock
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3
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Men 25-44
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WJMR-FM
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Milwaukee, WI
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35
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36
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Urban Adult Contemporary
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2
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Women 25-54
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WJZX
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Milwaukee, WI
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35
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36
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Smooth Jazz
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19
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Adults 35-54+
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WNOR
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Norfolk, VA
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40
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41
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Rock
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4
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Men 18-49
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WAFX
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Norfolk, VA
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40
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41
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Classic Rock
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3
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Men 35-54
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KSTZ
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Des Moines, IA
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71
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91
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Hot Adult Contemporary
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2
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Women 25-44
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KIOA
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Des Moines, IA
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71
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91
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Oldies
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2
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Adults 45-64
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KAZR
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Des Moines, IA
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71
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91
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Rock
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1
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Men 18-34
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KLTI
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Des Moines, IA
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71
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91
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Soft Adult Contemporary
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2
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Women 35-54
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WMGX
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Portland, ME
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97
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167
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Hot Adult Contemporary
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4
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(e)
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Women 25-54
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WYNZ
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Portland, ME
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97
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167
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Classic Hits
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3
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Adults 45-64
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WPOR
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Portland, ME
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97
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167
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Country
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9
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(e)
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Adults 35-64
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WCLZ
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Portland, ME
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97
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167
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Adult Album Alternative
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10
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Adults 25-54
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WAQY
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Springfield, MA
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113
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86
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Classic Rock
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1
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Men 35-54
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WLZX
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Springfield, MA
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113
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86
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Rock
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3
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Men 18-34
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WRSI
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Northampton, MA
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113
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86
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Progressive
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22
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(e)(d)
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Adults 35-54
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WRSY
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Brattleboro, VT
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N/A
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N/A
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Progressive
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22
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(e)(d)
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Adults 35-54
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WHAI
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Greenfield, MA
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N/A
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N/A
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Adult Contemporary
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N/R
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Women 25-54+
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WPVQ
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Greenfield, MA
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N/A
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N/A
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Country
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N/R
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Adults 25-54
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WZID
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Manchester, NH
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111
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190
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Adult Contemporary
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1
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Adults 25-54
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WMLL
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Manchester, NH
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111
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190
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Classic Rock
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5
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(e)
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Men 35-54
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WLRW
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Champaign, IL
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168
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225
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Hot Adult Contemporary
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N/S
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Women 25-44
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WIXY
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Champaign, IL
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168
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225
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Country
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N/S
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Adults 25-54
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WCFF
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Champaign, IL
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168
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225
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Variety Hits
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N/S
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Adults 35-54
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WXTT
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Champaign, IL
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168
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225
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Rock
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N/S
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Men 18-49
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WYMG
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Springfield, IL
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N/A
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N/A
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Classic Hits
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N/R
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Men 25-54
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WQQL
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Springfield, IL
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N/A
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N/A
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Oldies
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N/R
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Adults 45-64
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WDBR
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Springfield, IL
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N/A
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N/A
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Contemporary Hits
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N/R
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Women 18-34
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WABZ
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Springfield, IL
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N/A
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N/A
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Variety Hits
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N/R
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Adults 25-54
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WOXL
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Asheville, NC
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165
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160
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Adult Contemporary
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N/S
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Women 25-54
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WTMT
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Asheville, NC
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165
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160
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Rock
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N/S
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Men 18-49
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WNAX
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Sioux City IA
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206
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277
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Country
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N/S
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Adults 35+
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WWWV
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Charlottesville, VA
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204
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233
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Rock
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N/S
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Men 25-54
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(footnotes follow
tables)
5
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2008
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2008
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Fall 2008
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Market
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Market
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Target
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Ranking
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Ranking
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Demographics
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By Radio
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by Radio
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Ranking (by
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Target
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Station
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Market (a)
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Revenue (b)
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Market (b)
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Station Format
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Listeners) (c)
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Demographics
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WQMZ
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Charlottesville, VA
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204
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233
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Adult Contemporary
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N/S
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Women 25-54
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WCNR
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Charlottesville, VA
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204
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233
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Adult Album Alternative
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N/S
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Adults 18-49
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KEGI
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Jonesboro, AR
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256
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294
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Classic Rock
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3
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(e)(f)
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Men 25-54
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KDXY
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Jonesboro, AR
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256
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294
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Country
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1
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(e)(f)
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Adults 25-54
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KJBX
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Jonesboro, AR
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256
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294
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Adult Contemporary
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1
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(e)(f)
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Women 25-54
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WCVQ
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Clarksville, TN
Hopkinsville, KY
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231
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211
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Hot Adult Contemporary
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N/S
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Women 25-54
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WVVR
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Clarksville, TN
Hopkinsville, KY
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231
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211
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Country
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N/S
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Adults 25-54
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WZZP
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Clarksville, TN
Hopkinsville, KY
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231
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211
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Rock
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N/S
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Men 18-34
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WEGI
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Clarksville, TN
Hopkinsville, KY
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231
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211
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Classic Hits
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N/S
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Adults 35-54
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KISM
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Bellingham, WA
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N/A
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N/A
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Classic Rock
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N/R
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Men 35-54
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KAFE
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Bellingham, WA
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N/A
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N/A
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Adult Contemporary
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N/R
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Women 25-54
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KICD
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Spencer, IA
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N/A
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N/A
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Country
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N/R
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Adults 35+
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KLLT
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Spencer, IA
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N/A
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N/A
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Adult Contemporary
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N/R
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Women 25-54
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KMIT
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Mitchell, SD
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N/A
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N/A
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Country
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N/R
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Adults 35+
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KUQL
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Mitchell, SD
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N/A
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N/A
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Classic Hits
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N/R
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Adults 45-64
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WKVT
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Brattleboro, VT
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N/A
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N/A
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Classic Hits
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N/R
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Men 35-54
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WKNE
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Keene, NH
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N/A
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N/A
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Hot Adult Contemporary
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N/R
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Women 25-54
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WSNI
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Keene, NH
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N/A
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N/A
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Adult Contemporary
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N/R
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Women 35-54
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WINQ
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Keene, NH
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N/A
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N/A
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Country
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N/R
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Adults 35+
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WQEL
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Bucyrus, OH
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N/A
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N/A
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Classic Hits
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N/R
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Men 25-54
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WIII
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Ithaca, NY
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284
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285
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Rock
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N/S
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Men 25-54
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WQNY
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Ithaca, NY
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284
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|
285
|
|
|
Country
|
|
|
N/S
|
|
|
Adults 25-54+
|
WYXL
|
|
Ithaca, NY
|
|
284
|
|
|
285
|
|
|
Adult Contemporary
|
|
|
N/S
|
|
|
Women 25-54
|
AM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WJYI
|
|
Milwaukee, WI
|
|
35
|
|
|
36
|
|
|
Contemporary Christian
|
|
|
N/R
|
|
|
Adults 18+
|
WJOI
|
|
Norfolk, VA
|
|
40
|
|
|
41
|
|
|
Nostalgia
|
|
|
13
|
(e)
|
|
Adults 45+
|
KRNT
|
|
Des Moines, IA
|
|
71
|
|
|
91
|
|
|
Nostalgia/Sports
|
|
|
8
|
(e)
|
|
Adults 45+
|
KPSZ
|
|
Des Moines, IA
|
|
71
|
|
|
91
|
|
|
Contemporary Christian
|
|
|
30
|
(e)
|
|
Adults 18+
|
WGAN
|
|
Portland, ME
|
|
97
|
|
|
167
|
|
|
News/Talk
|
|
|
1
|
(e)
|
|
Adults 35+
|
WZAN
|
|
Portland, ME
|
|
97
|
|
|
167
|
|
|
News/Talk/Sports
|
|
|
17
|
(e)
|
|
Men 25-54
|
WBAE
|
|
Portland, ME
|
|
97
|
|
|
167
|
|
|
News/Talk
|
|
|
13
|
(d)
|
|
Adults 45+
|
WVAE
|
|
Portland, ME
|
|
97
|
|
|
167
|
|
|
News/Talk/Sports
|
|
|
13
|
(d)
|
|
Adults 45+
|
WHMP
|
|
Northampton, MA
|
|
113
|
|
|
86
|
|
|
News/Talk
|
|
|
23
|
(d)(e)
|
|
Adults 35+
|
WHNP
|
|
Springfield, MA
|
|
113
|
|
|
86
|
|
|
News/Talk
|
|
|
23
|
(d)(e)
|
|
Adults 35+
|
WHMQ
|
|
Greenfield, MA
|
|
N/A
|
|
|
N/A
|
|
|
News/Talk
|
|
|
23
|
(d)(e)
|
|
Adults 35+
|
WFEA
|
|
Manchester, NH
|
|
111
|
|
|
190
|
|
|
Adult Standards/Sports
|
|
|
5
|
(e)
|
|
Adults 45+
|
WTAX
|
|
Springfield, IL
|
|
N/A
|
|
|
N/A
|
|
|
News/Talk
|
|
|
N/R
|
|
|
Adults 35+
|
WISE
|
|
Asheville, NC
|
|
165
|
|
|
160
|
|
|
Sports/Talk
|
|
|
N/S
|
|
|
Men 18+
|
WYSE
|
|
Asheville, NC
|
|
165
|
|
|
160
|
|
|
Sports/Talk
|
|
|
N/S
|
|
|
Men 18+
|
WNAX
|
|
Yankton, SD
|
|
206
|
|
|
277
|
|
|
News/Talk
|
|
|
N/S
|
|
|
Adults 35+
|
WINA
|
|
Charlottesville, VA
|
|
204
|
|
|
233
|
|
|
News/Talk
|
|
|
N/S
|
|
|
Adults 35+
|
WVAX
|
|
Charlottesville, VA
|
|
204
|
|
|
233
|
|
|
News/Talk
|
|
|
N/S
|
|
|
Adults 35+
|
WJQI
|
|
Clarksville, TN
Hopkinsville, KY
|
|
231
|
|
|
211
|
|
|
Southern Gospel
|
|
|
N/S
|
|
|
Adults 18+
|
(footnotes follow
tables)
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2008
|
|
|
|
|
Fall 2008
|
|
|
|
|
|
|
|
Market
|
|
Market
|
|
|
|
|
Target
|
|
|
|
|
|
|
|
Ranking
|
|
Ranking
|
|
|
|
|
Demographics
|
|
|
|
|
|
|
|
By Radio
|
|
by Radio
|
|
|
|
|
Ranking (by
|
|
|
Target
|
Station
|
|
Market (a)
|
|
Revenue (b)
|
|
Market (b)
|
|
|
Station Format
|
|
Listeners) (c)
|
|
|
Demographics
|
|
WKFN
|
|
Clarksville, TN
Hopkinsville, KY
|
|
231
|
|
|
211
|
|
|
Sports/Talk
|
|
|
N/S
|
|
|
Men 18+
|
KGMI
|
|
Bellingham, WA
|
|
N/A
|
|
|
N/A
|
|
|
News/Talk
|
|
|
N/R
|
|
|
Adults 35+
|
KPUG
|
|
Bellingham, WA
|
|
N/A
|
|
|
N/A
|
|
|
Sports/Talk
|
|
|
N/R
|
|
|
Men 18+
|
KBAI
|
|
Bellingham, WA
|
|
N/A
|
|
|
N/A
|
|
|
Progressive Talk
|
|
|
N/R
|
|
|
Adults 35+
|
KICD
|
|
Spencer, IA
|
|
N/A
|
|
|
N/A
|
|
|
News/Talk
|
|
|
N/R
|
|
|
Adults 35+
|
WKVT
|
|
Brattleboro, VT
|
|
N/A
|
|
|
N/A
|
|
|
News/Talk
|
|
|
N/R
|
|
|
Adults 35+
|
WKBK
|
|
Keene, NH
|
|
N/A
|
|
|
N/A
|
|
|
News/Talk
|
|
|
N/R
|
|
|
Adults 35+
|
WZBK
|
|
Keene, NH
|
|
N/A
|
|
|
N/A
|
|
|
Nostalgia
|
|
|
N/R
|
|
|
Adults 45+
|
WBCO
|
|
Bucyrus, OH
|
|
N/A
|
|
|
N/A
|
|
|
Adult Standards
|
|
|
N/R
|
|
|
Adults 45+
|
WNYY
|
|
Ithaca, NY
|
|
284
|
|
|
285
|
|
|
Progressive Talk
|
|
|
N/S
|
|
|
Adults 35-54
|
WHCU
|
|
Ithaca, NY
|
|
284
|
|
|
285
|
|
|
News/Talk
|
|
|
N/S
|
|
|
Adults 35+
|
|
|
|
(a) |
|
Actual city of license may differ from metropolitan market
actually served. |
|
(b) |
|
Derived from Investing in Radio 2008 Market Report. |
|
(c) |
|
Information derived from most recent available Arbitron Radio
Market Report. |
|
(d) |
|
Since stations are simulcast, ranking information pertains to
the combined stations. |
|
(e) |
|
Tied for position. |
|
(f) |
|
Arbitron defines as a Condensed Market, meaning
ratings for Fall 2008 are a combination of Spring 2008 and Fall
2008 data. |
N/A Information is currently not available.
N/R Station does not appear in Arbitron Radio Market
Report.
N/S Station is a non-subscriber to the Arbitron Radio
Market Report.
The following table sets forth information about our television
stations and the markets they serve as of February 28, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Market
|
|
|
|
|
|
|
|
|
|
|
Ranking by
|
|
|
|
|
Fall 2008
|
|
|
|
|
|
Number of TV
|
|
|
Station
|
|
Station Ranking
|
|
Station
|
|
Market (a)
|
|
Households (b)
|
|
|
Affiliate
|
|
(by # of viewers) (b)
|
|
|
KOAM
|
|
Joplin, MO Pittsburg, KS
|
|
|
148
|
|
|
CBS
|
|
|
1
|
|
KFJX(d)
|
|
Joplin, MO Pittsburg, KS
|
|
|
148
|
|
|
FOX
|
|
|
4
|
|
WXVT
|
|
Greenwood Greenville, MS
|
|
|
187
|
|
|
CBS
|
|
|
2
|
|
KAVU
|
|
Victoria, TX
|
|
|
205
|
|
|
ABC
|
|
|
1
|
|
KVCT(c)
|
|
Victoria, TX
|
|
|
205
|
|
|
FOX
|
|
|
3
|
|
KMOL-LP
|
|
Victoria, TX
|
|
|
205
|
|
|
NBC
|
|
|
4
|
|
KXTS-LP
|
|
Victoria, TX
|
|
|
205
|
|
|
MYTV
|
|
|
5
|
|
KUNU-LP
|
|
Victoria, TX
|
|
|
205
|
|
|
Univision
|
|
|
2
|
|
KVTX-LP
|
|
Victoria, TX
|
|
|
205
|
|
|
Telemundo
|
|
|
6
|
|
|
|
|
(a) |
|
Actual city of license may differ from metropolitan market
actually served. |
|
(b) |
|
Derived from Fall 2008 A.C. Nielson ratings and data. |
|
(c) |
|
Station operated under the terms of a TBA. |
|
(d) |
|
Station operated under the terms of a Shared Services Agreement. |
7
For purposes of business segment reporting, we have aligned
operations with similar characteristics into two business
segments: Radio and Television. The Radio segment includes
twenty-three markets, which includes all ninety-one of our radio
stations and five radio information networks. The Television
segment includes three markets and consists of five television
stations and four low power television (LPTV)
stations. For more information regarding our reportable
segments, see Note 13 to the consolidated financial
statements, which is incorporated herein by reference.
Strategy
Our strategy is to operate top billing radio and television
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 and Investing in Television Market Report.
Based on the most recent information available, 5 of our
26 FM radio stations that subscribe to independent ratings
services were ranked number one (by number of listeners) in
their target demographic markets, and 2 of our 9 television
stations were ranked number one (by number of viewers), in their
markets. Programming and marketing are key components in our
strategy to achieve top ratings in both our radio and television
operations. In many of our markets, the three or four most
highly rated stations (radio
and/or
television) receive a disproportionately high share of the
markets advertising revenues. As a result, a
stations revenue is dependent upon its ability to maximize
its number of listeners/viewers within an advertisers
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 Contemporary, Classic Rock, News/Talk,
Country and Classical. 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 own
and/or
operate are comprised of two CBS affiliates, one ABC affiliate,
two Fox affiliates, one Univision affiliate, one NBC affiliate,
one MYTV affiliate and one Telemundo affiliate. In addition to
securing network programming, we carefully select available
syndicated programming to maximize viewership. We also develop
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
stations 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 8 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
and compliance with the Communications Act of 1934 (the
Communications Act) and FCC rules.
8
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 may be limited by certain
network affiliation and syndication agreements and, with respect
to childrens programs, federal regulation. We determine
the number of advertisements broadcast hourly that can maximize
a stations 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 stations 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 $132,411,000 or 85% of our gross revenue for the
year ended December 31, 2008 (approximately $134,692,000 or
85% in fiscal 2007 and approximately $134,567,000 or 85% in
fiscal 2006) was generated from the sale of local
advertising. 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 engage 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 in fiscal 2008
was approximately $22,552,000 or 15% of our gross revenue
(approximately $24,588,000 or 15% in fiscal 2007 and
approximately $23,845,000 or 15% in fiscal 2006).
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 and 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. We cannot
predict what effect, if any, any of these technologies may have
on us or the broadcasting industry.
9
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, 2008, we had approximately
871 full-time employees and 374 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
located at 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 and Television Broadcasting
Introduction. The ownership, operation
and sale of radio and television 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 and television
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 FCCs 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,
10
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. We have filed applications
to renew the Companys radio and television station
licenses, as necessary, and we intend to timely file renewal
applications, as required for the Companys stations. 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 refused to exercise such discretion.
The following table sets forth the market and broadcast power of
each of our broadcast stations and the date on which each such
stations FCC license expires:
|
|
|
|
|
|
|
|
|
|
|
Power
|
|
Expiration Date of
|
Station
|
|
Market (1)
|
|
(Watts) (2)
|
|
FCC Authorization
|
|
FM:
|
|
|
|
|
|
|
WSNY
|
|
Columbus, OH
|
|
50,000
|
|
October 1, 2012
|
WODB
|
|
Columbus, OH
|
|
6,000
|
|
October 1, 2012
|
WJZA
|
|
Columbus, OH
|
|
6,000
|
|
October 1, 2012
|
WVMX
|
|
Columbus, OH
|
|
6,000
|
|
October 1, 2012
|
WQEL
|
|
Bucyrus, OH
|
|
3,000
|
|
October 1, 2012
|
WKLH
|
|
Milwaukee, WI
|
|
50,000
|
|
December 1, 2012
|
WHQG
|
|
Milwaukee, WI
|
|
50,000
|
|
December 1, 2012
|
WJZX
|
|
Milwaukee, WI
|
|
6,000
|
|
December 1, 2012
|
WJMR
|
|
Milwaukee, WI
|
|
6,000
|
|
December 1, 2012
|
WNOR
|
|
Norfolk, VA
|
|
50,000
|
|
October 1, 2011
|
WAFX
|
|
Norfolk, VA
|
|
100,000
|
|
October 1, 2011
|
KSTZ
|
|
Des Moines, IA
|
|
100,000
|
|
February 1, 2013
|
KIOA
|
|
Des Moines, IA
|
|
100,000
|
|
February 1, 2013
|
KAZR
|
|
Des Moines, IA
|
|
100,000
|
|
February 1, 2013
|
KLTI
|
|
Des Moines, IA
|
|
100,000
|
|
February 1, 2013
|
WMGX
|
|
Portland, ME
|
|
50,000
|
|
April 1, 2014
|
WYNZ
|
|
Portland, ME
|
|
25,000
|
|
April 1, 2014
|
WPOR
|
|
Portland, ME
|
|
50,000
|
|
April 1, 2014
|
WCLZ
|
|
Portland, ME
|
|
50,000
|
|
April 1, 2014
|
WLZX
|
|
Springfield, MA
|
|
6,000
|
|
April 1, 2014
|
WAQY
|
|
Springfield, MA
|
|
50,000
|
|
April 1, 2006(6)
|
WZID
|
|
Manchester, NH
|
|
50,000
|
|
April 1, 2014
|
WMLL
|
|
Manchester, NH
|
|
6,000
|
|
April 1, 2014
|
WYMG
|
|
Springfield, IL
|
|
50,000
|
|
December 1, 2012
|
WQQL
|
|
Springfield, IL
|
|
50,000
|
|
December 1, 2012
|
WDBR
|
|
Springfield, IL
|
|
50,000
|
|
December 1, 2012
|
WABZ
|
|
Springfield, IL
|
|
25,000
|
|
December 1, 2012
|
WLRW
|
|
Champaign, IL
|
|
50,000
|
|
December 1, 2012
|
WIXY
|
|
Champaign, IL
|
|
25,000
|
|
December 1, 2012
|
WCFF
|
|
Champaign, IL
|
|
25,000
|
|
December 1, 2012
|
WXTT
|
|
Champaign, IL
|
|
50,000
|
|
December 1, 2012
|
WNAX
|
|
Yankton, SD
|
|
100,000
|
|
April 1, 2013
|
KISM
|
|
Bellingham, WA
|
|
100,000
|
|
February 1, 2014
|
(footnotes follow
tables)
11
|
|
|
|
|
|
|
|
|
|
|
Power
|
|
Expiration Date of
|
Station
|
|
Market (1)
|
|
(Watts) (2)
|
|
FCC Authorization
|
|
KAFE
|
|
Bellingham, WA
|
|
100,000
|
|
February 1, 2014
|
KICD
|
|
Spencer, IA
|
|
100,000
|
|
February 1, 2013
|
KLLT
|
|
Spencer, IA
|
|
25,000
|
|
February 1, 2013
|
WCVQ
|
|
Clarksville,TN/Hopkinsville, KY
|
|
100,000
|
|
August 1, 2012
|
WZZP
|
|
Clarksville,TN/Hopkinsville, KY
|
|
6,000
|
|
August 1, 2012
|
WVVR
|
|
Clarksville,TN/Hopkinsville, KY
|
|
100,000
|
|
August 1, 2012
|
WEGI
|
|
Clarksville,TN/Hopkinsville, KY
|
|
6,000
|
|
August 1, 2012
|
KMIT
|
|
Mitchell, SD
|
|
100,000
|
|
April 1, 2013
|
KUQL
|
|
Mitchell, SD
|
|
100,000
|
|
April 1, 2013
|
WHAI
|
|
Greenfield, MA
|
|
3,000
|
|
April 1, 2014
|
WKNE
|
|
Keene, NH
|
|
50,000
|
|
April 1, 2014
|
WRSI
|
|
Northampton, MA
|
|
3,000
|
|
April 1, 2014
|
WRSY
|
|
Brattleboro, VT
|
|
3,000
|
|
April 1, 2014
|
WPVQ
|
|
Greenfield, MA
|
|
3,000
|
|
April 1, 2014
|
WKVT
|
|
Brattleboro, VT
|
|
6,000
|
|
April 1, 2014
|
WSNI
|
|
Keene, NH
|
|
6,000
|
|
April 1, 2014
|
WINQ
|
|
Keene, NH
|
|
6,000
|
|
April 1, 2014
|
WOXL
|
|
Asheville, NC
|
|
25,000
|
|
December 1, 2011
|
WTMT
|
|
Asheville, NC
|
|
50,000
|
|
December 1, 2011
|
KEGI
|
|
Jonesboro, AR
|
|
50,000
|
|
June 1, 2012
|
KDXY
|
|
Jonesboro, AR
|
|
25,000
|
|
June 1, 2012
|
KJBX
|
|
Jonesboro, AR
|
|
6,000
|
|
June 1, 2012
|
WWWV
|
|
Charlottesville, VA
|
|
50,000
|
|
October 1, 2011
|
WQMZ
|
|
Charlottesville, VA
|
|
6,000
|
|
October 1, 2011
|
WCNR
|
|
Charlottesville, VA
|
|
6,000
|
|
October 1, 2011
|
WYXL
|
|
Ithaca, NY
|
|
50,000
|
|
June 1, 2014
|
WQNY
|
|
Ithaca, NY
|
|
50,000
|
|
June 1, 2014
|
WIII
|
|
Ithaca, NY
|
|
50,000
|
|
June 1, 2014
|
AM:
|
|
|
|
|
|
|
WJYI
|
|
Milwaukee, WI
|
|
1,000
|
|
December 1, 2012
|
WJOI
|
|
Norfolk, VA
|
|
1,000
|
|
October 1, 2011
|
KRNT
|
|
Des Moines, IA
|
|
5,000
|
|
February 1, 2013
|
KPSZ
|
|
Des Moines, IA
|
|
10,000
|
|
February 1, 2013
|
WGAN
|
|
Portland, ME
|
|
5,000
|
|
April 1, 2014
|
WZAN
|
|
Portland, ME
|
|
5,000
|
|
April 1, 2014
|
WBAE
|
|
Portland, ME
|
|
1,000
|
|
April 1, 2014
|
WVAE
|
|
Portland, ME
|
|
1,000
|
|
April 1, 2014
|
WHNP
|
|
Springfield, MA
|
|
2,500(5)
|
|
April 1, 2014
|
WHMP
|
|
Northampton, MA
|
|
1,000
|
|
April 1, 2014
|
WFEA
|
|
Manchester, NH
|
|
5,000
|
|
April 1, 2014
|
WTAX
|
|
Springfield, IL
|
|
1,000
|
|
December 1, 2012
|
WNAX
|
|
Yankton, SD
|
|
5,000
|
|
April 1, 2013
|
KGMI
|
|
Bellingham, WA
|
|
5,000
|
|
February 1, 2014
|
KPUG
|
|
Bellingham, WA
|
|
10,000
|
|
February 1, 2014
|
KBAI
|
|
Bellingham, WA
|
|
1,000(5)
|
|
February 1, 2014
|
KICD
|
|
Spencer, IA
|
|
1,000
|
|
February 1, 2013
|
(footnotes follow
tables)
12
|
|
|
|
|
|
|
|
|
|
|
Power
|
|
Expiration Date of
|
Station
|
|
Market (1)
|
|
(Watts) (2)
|
|
FCC Authorization
|
|
WJQI
|
|
Clarksville,TN/Hopkinsville, KY
|
|
1,000(5)
|
|
August 1, 2012
|
WKFN
|
|
Clarksville, TN
|
|
1,000(5)
|
|
August 1, 2012
|
WHMQ
|
|
Greenfield, MA
|
|
1,000
|
|
April 1, 2014
|
WKBK
|
|
Keene, NH
|
|
5,000
|
|
April 1, 2014
|
WZBK
|
|
Keene, NH
|
|
1,000(5)
|
|
April 1, 2014
|
WKVT
|
|
Brattleboro, VT
|
|
1,000
|
|
April 1, 2014
|
WISE
|
|
Asheville, NC
|
|
5,000(5)
|
|
December 1, 2011
|
WYSE
|
|
Asheville, NC
|
|
5,000(5)
|
|
December 1, 2011
|
WBCO
|
|
Bucyrus, OH
|
|
5,000(5)
|
|
October 1, 2012
|
WINA
|
|
Charlottesville, VA
|
|
5,000
|
|
October 1, 2011
|
WVAX
|
|
Charlottesville, VA
|
|
1,000
|
|
October 1, 2011
|
WHCU
|
|
Ithaca, NY
|
|
5,000(5)
|
|
June 1, 2014
|
WNYY
|
|
Ithaca, NY
|
|
5,000(5)
|
|
June 1, 2014
|
TV/Channel:
|
|
|
|
|
|
|
KOAM (DTV Ch 7)
|
|
Joplin, MO/Pittsburg, KS
|
|
DTV 14,800
|
|
June 1, 2006(6)
|
KAVU (DTV Ch 15)
|
|
Victoria, TX
|
|
DTV 900,000
|
|
August 1, 2006(6)
|
KVCT(3) (DTV Ch 11)
|
|
Victoria, TX
|
|
DTV 11,350
|
|
August 1, 2006(6)
|
KUNU-LP(4) (Ch 21)
|
|
Victoria, TX
|
|
1,000 (vis)
|
|
August 1, 2006(6)
|
KVTX-LP(4) (Ch 45)
|
|
Victoria, TX
|
|
1,000 (vis)
|
|
August 1, 2006(6)
|
KXTS-LP(4) (Ch 41)
|
|
Victoria, TX
|
|
1,000 (vis)
|
|
August 1, 2006(6)
|
KMOL-LP(4) (Ch 17)
|
|
Victoria, TX
|
|
50,000 (vis)
|
|
August 1, 2006(6)
|
WXVT (DTV Ch 15)
|
|
Greenville, MS
|
|
DTV 330,000
|
|
June 1, 2005(6)
|
|
|
|
(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. The ERP of television stations is expressed in
terms of visual (vis) components. WYSE, WISE, KPSZ,
KPUG, KGMI, KBAI, WZBK, WBCO, WJQI, WKFN, WNYY and WHCU operate
with lower power at night than the power shown. |
|
(3) |
|
We program this station pursuant to a TBA with the licensee of
KVCT, Surtsey Media, LLC. See Note 10 of the Notes to
Consolidated Financial Statements included with this
Form 10-K
for additional information on our relationship with Surtsey
Media, LLC. |
|
(4) |
|
KUNU-LP, KXTS-LP, KVTX-LP, and KMOL-LP are low power
television stations that operate as secondary
stations (i.e., if they conflict with the operations of a
full power television station, the low power
stations must change their facilities or terminate operations). |
|
(5) |
|
Operates daytime only or with greatly reduced power at night. |
|
(6) |
|
An application for renewal of license is pending before the FCC. |
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 Acts 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, 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,
13
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.
Since we serve as a holding company for our various radio
station subsidiaries, we cannot have more than 25% of our stock
owned or voted by Aliens.
The Communications Act and FCC rules also generally prohibit or
restrict the common ownership, operation or control of a radio
broadcast station and a television broadcast station serving the
same geographic market. In its 2008 Quadrennial Regulatory
Review, released February 4, 2008, the FCC adopted a
presumption, in the top 20 Designated Market Areas
(DMAs), that it is not inconsistent with the public
interest for one entity to own a daily newspaper and a radio
station or, under the following limited circumstances, a daily
newspaper and a television station, if (1) the television
station is not ranked among the top four stations in the DMA and
(2) at least eight independent major media
voices remain in the DMA. In all other instances, the FCC
adopted a presumption that a newspaper/broadcast station
combination would not be in the public interest, with two
limited exceptions, and emphasized that the Commission is
unlikely to approve such transactions. Taking into account these
respective presumptions, in determining whether the grant of a
transaction that would result in newspaper/broadcast
cross-ownership is in the public interest, the Commission will
consider the following factors: (1) whether the
cross-ownership will increase the amount of local news
disseminated through the affected media outlets in the
combination; (2) whether each affected media outlet in the
combination will exercise its own independent news judgment;
(3) the level of concentration in the Nielsen DMA; and
(4) the financial condition of the newspaper or broadcast
outlet, and if the newspaper or broadcast station is in
financial distress, the proposed owners commitment to
invest significantly in newsroom operations.
The FCC established criteria for obtaining a waiver of the rules
to permit the ownership of two television stations in the same
DMA that would not otherwise comply with the FCCs rules.
Under certain circumstances, a television station may merge with
a failed or failing station or an
unbuilt station if strict criteria are satisfied.
Additionally, the FCC now permits a party to own up to two
television stations (if permitted under the modified TV duopoly
rule) and up to six radio stations (if permitted under the local
radio ownership rules), or one television station and up to
seven radio stations, in any market where at least 20
independently owned media voices remain in the market after the
combination is effected (Qualifying Market). The FCC
will permit the common ownership of up to two television
stations and four radio stations in any market where at least 10
independently owned media voices remain after the combination is
effected. The FCC will permit the common ownership of up to two
television stations and one radio station notwithstanding the
number of voices in the market. The FCC also adopted rules that
make television time brokerage agreements or TBAs count as
if the brokered station were owned by the brokering station in
making a determination of compliance with the FCCs
multiple ownership rules. TBAs entered into before
November 5, 1996, are grandfathered until the FCC announces
a required termination date. As a result of the FCCs
rules, we would not be permitted to acquire a television
broadcast station (other than low power television) in a
non-Qualifying Market in which we now own any television
properties. The FCC revised its rules to permit a television
station to affiliate with two or more major networks of
television broadcast stations under certain conditions. (Major
existing networks are still subject to the FCCs dual
network ban).
We are permitted to own an unlimited number of radio stations on
a nationwide basis (subject to the local ownership restrictions
described below). We are permitted to own an unlimited number of
television stations on a nationwide basis so long as the
ownership of the stations would not result in an aggregate
national audience reach (i.e., the total number of television
households in the Arbitron Area of Dominant Influence
(ADI) markets in which the relevant stations are
located divided by the total national television households as
measured by ADI data at the time of a grant, transfer or
assignment of a license) of 35%. This so-called national
television station ownership rule was appealed to the
court, and on February 21, 2002, the United States
Court of Appeals for the District of Columbia Circuit remanded
the rule to the FCC for further consideration and vacated
outright a related rule that prohibited a cable television
system from carrying the signal of any television station it
owned in the same local market. As a result, on July 2,
2003, the FCC released a Report and Order and Notice of
Proposed Rulemaking in MB Docket
No. 02-277
that
14
significantly modified the FCCs multiple ownership rules.
The multiple ownership rules now permit opportunities for
newspaper-broadcast combinations, as follows:
|
|
|
|
|
In markets with three or fewer TV stations, no cross-ownership
is permitted among TV, radio and newspapers. A company may
obtain a waiver of that ban if it can show that the television
station does not serve the area served by the cross-owned
property (i.e. the radio station or the newspaper).
|
|
|
|
In markets with between 4 and 8 TV stations, combinations are
limited to one of the following:
|
|
|
|
|
(A)
|
A daily newspaper; one TV station; and up to half of the radio
station limit for that market (i.e. if the radio limit in
the market is 6, the company can only own 3) OR
|
|
|
|
|
(B)
|
A daily newspaper; and up to the radio station limit for that
market; (i.e. no TV stations) OR
|
|
|
(C)
|
Two TV stations (if permissible under local TV ownership rule);
and up to the radio station limit for that market (i.e.
no daily newspapers).
|
|
|
|
|
|
In markets with nine or more TV stations, the FCC eliminated the
newspaper-broadcast cross-ownership ban and the television-radio
cross-ownership ban.
|
Under the rules, the number of radio stations one party may own
in a local Arbitron-rated radio market is determined by the
number of commercial and noncommercial radio stations in the
market as determined by Arbitron and BIA Financial, Inc. Radio
markets that are not Arbitron rated are determined by analysis
of the broadcast coverage contours of the radio stations
involved. Numerous parties, including the Company, have sought
reconsideration of the new rules. In Prometheus Radio v.
FCC, Case
No. 03-3388,
on September 3, 2003, the U.S. Court of Appeals for
the Third Circuit granted a stay of the effective date of the
FCCs new rules. On June 24, 2004, the court remanded
the case to the FCC for the FCC to justify or modify its
approach to setting numerical limits and for the FCC to
reconsider or better explain its decision to repeal the failed
station solicitation rule, and lifted its stay on the effect of
the new radio multiple ownership rules. By Further Notice of
Proposed Rule Making (2006 Quadrennial Regulatory
Review), released July 24, 2006, the Commission
solicited comments. The only changes made to the multiple
ownership rules in the 2006 Quadrennial Regulatory Review,
were to the local television multiple ownership rule as
noted above. The new rules could restrict the Companys
ability to acquire additional radio and television stations in
some markets and could require the Company to terminate its
arrangements with Surtsey Media, LLC. The Court and FCC
proceedings are ongoing and we cannot predict what action, if
any, the Court may take or what action the FCC may take to
further modify its rules. The statements herein are based solely
on the FCCs 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.
Under the Communications Act, we are permitted to own radio
stations (without regard to the audience shares of the stations)
based upon the number of 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).
|
The FCC has eliminated its previous scrutiny of some proposed
acquisitions and mergers on antitrust grounds that was manifest
in a policy of placing a flag soliciting public
comment on concentration of control issues based on advertising
revenue shares or other criteria, on the public notice
announcing the acceptance of assignment and transfer
applications. Notwithstanding this action, we cannot predict
whether the FCC will adopt rules that would restrict our ability
to acquire additional stations.
15
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.
In April 2003, the FCC issued a Report and Order resolving a
proceeding in which it sought comment on the procedures it
should use to license non-reserved broadcast
channels (i.e., those FM channels not specifically reserved for
noncommercial use) in which both commercial and noncommercial
educational (NCE) entities have an interest. The FCC
adopted a proposal to allow applicants for NCE stations to
submit applications for non-reserved spectrum in a filing
window, subject to being returned as unacceptable for filing if
there is any mutually exclusive application for a commercial
station, and to allow applicants for AM stations and secondary
services a prior opportunity to resolve their mutually exclusive
applications through settlements. Applicants for NCE stations in
the full-power FM and TV services also have an opportunity to
reserve channels at the allocation stage of the licensing
process for use of those channels; however, this opportunity is
not available to commercial applicants such as the Company.
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 corporations 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, three of our officers and directors have an
attributable interest or interests in companies applying for or
licensed to operate broadcast stations other than us.
In 2001, the FCC revised its ownership attribution rules to
(a) apply to limited liability companies and registered
limited liability partnerships the same attribution rules that
the FCC applies to limited partnerships; and (b) create a
new 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 stations total weekly
broadcast programming hours, or (2) a same-market media
entity subject to the FCCs 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, in December 2001 the FCC
suspended the elimination of this exemption until
the FCC resolved issues concerning cable television ownership.
In addition to the FCCs 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
stations 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, we are
subject to the registration requirements. The Childrens
16
Television Act of 1990 and the FCCs rules promulgated
thereunder require television broadcasters to limit the amount
of commercial matter which may be aired in childrens
programming to 10.5 minutes per hour on weekends and 12 minutes
per hour on weekdays. The Childrens Television Act and the
FCCs rules also require each television licensee to serve,
over the term of its license, the educational and informational
needs of children through the licensees programming (and
to present at least three hours per week of core
educational programming specifically designed to serve such
needs). Licensees are required to publicize the availability of
this programming and to file quarterly a report with the FCC on
these programs and related matters. In its Standardized and
Enhanced Disclosure Requirements for Television Broadcast
Licensee Public Interest Obligations, released
January 24, 2008, the Commission required television
stations to file on a quarterly basis, a new Standardized
Television Disclosure form setting forth in detail the
average hours per week of programming devoted to, inter alia,
high definition programs, national news, local news, local
civic affairs, local electoral affairs, independently produced
programs and public service announcements. This requirement is
not yet in effect. When it becomes effective, the form must also
be posted on the television station licensees internet web
site. It is possible that the FCC will use the data recorded on
these forms to more stringently scrutinize licensees
applications for renewal of their licenses, but at this time,
the Company cannot predict the impact, if any, this new form may
have on its television stations.
Television stations are required to provide closed captioning
for certain video programming according to a schedule that
gradually increases the amount of video programming that must be
provided with captions.
On January 24, 2008, the Commission released its Report
on Broadcast Localism and Notice of Proposed Rulemaking in
the Commissions proceeding on Broadcast Localism which
requested comment on several proposed rule changes. Those
changes include, inter alia, proposals to require each
broadcast licensee to convene a permanent community advisory
board that would meet at least quarterly; require each station
to locate its main studio in its community of license; require
each station to have personnel present and on duty at all times
when the station is on the air; and establish license renewal
processing guidelines concerning the amount of local programming
aired during the preceding license term. If adopted, these
proposals could significantly increase the amount the Company
would have to expend on regulatory compliance matters.
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, 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 entered into what have commonly been
referred to as Time Brokerage Agreements, or
TBAs. 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 FCCs 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
17
station maintaining independent control over the 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 licensees station, subject to
ultimate editorial and other controls being exercised by the
latter licensee, and sells advertising time during such program
segments. Such arrangements are an extension of the concept of
time brokerage 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.
The FCCs 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 FCCs 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
FCCs multiple ownership rules. The FCCs 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 FCCs multiple ownership rules count stations brokered
under a joint sales agreement (JSA) toward the
brokering stations permissible ownership totals, as long
as (1) the brokering entity owns or has an attributable
interest in one or more stations in the local market, and
(2) the joint advertising sales amount to more than 15% of
the brokered stations advertising time per week. In a
Notice of Proposed Rulemaking in MB Docket
No. 04-256,
released August 2, 2004, the FCC sought comment from the
public on whether television JSAs should also be attributable to
the brokering station. The latest ownership review commenced in
2006 and the FCC has not yet released a decision in the
proceeding resolving the issue of whether to attribute JSAs. The
FCC adopted rules that permit, under certain circumstances, the
ownership of two or more television stations in a Qualifying
Market and requires the termination of certain non-complying
existing television TBAs. We currently have a television
TBA in the Victoria, Texas market with Surtsey. Even though the
Victoria market is not a Qualifying Market such that the duopoly
would otherwise be permissible, as discussed above, we believe
that the TBA is grandfathered under the FCCs
rules and need not be terminated earlier than the date to be
established in the ownership review proceeding. See
Ownership Matters above.
On March 7, 2003 we entered into an agreement of
understanding with Surtsey, whereby we have guaranteed up to
$1,250,000 of the debt incurred by Surtsey in closing on the
acquisition of a construction permit for
KFJX-TV
station in Pittsburg, Kansas. In consideration for our
guarantee, Surtsey has entered into various agreements with us
relating to the station, including a Shared Services Agreement,
Technical Services Agreement, Agreement for the Sale of
Commercial Time, Option Agreement and Broker Agreement
(not a TBA). Under the FCCs ownership rules, we are
prohibited from owning or having an attributable or cognizable
interest in this station. As noted above, if the FCC decides to
attribute television JSAs, we would be required to
terminate the Agreement for the Sale of Commercial Time.
Other FCC
Requirements
The V-Chip. The FCC adopted
methodology that will be used to send program ratings
information to consumer TV receivers (implementation of
V-Chip legislation contained in the Communications
Act). The FCC also adopted the TV Parental Guidelines, developed
by the Industry Ratings Implementation Group, which apply to all
broadcast television programming except for news and sports. As
a part of the legislation, television station licensees are
required to attach as an exhibit to their applications for
license renewal a summary of written comments and suggestions
received from the public and maintained by the licensee that
comment on the licensees programming characterized as
violent.
Digital Television. The FCCs
rules provide for the conversion by all U.S. television
broadcasters to digital television (DTV), including
build-out construction schedules, NTSC (current analog system)
and DTV channel simulcasting, and the return of NTSC channels to
the government. The FCC has attempted to
18
provide DTV coverage areas that are comparable to the NTSC
service areas. DTV licensees may use their DTV channels for a
multiplicity of services such as high-definition television
broadcasts, multiple standard definition television broadcasts,
data, audio, and other services so long as the licensee provides
at least one free video channel equal in quality to the current
NTSC technical standard. Our television stations have begun
providing DTV service on channels separate from their NTSC
channels. On February 11, 2009, the President signed the
DTV Delay Act which extends the date on which our television
stations are required to cease broadcasting on the NTSC channels
from February 17, 2009, to June 12, 2009, and return
the NTSC channels to the government to be auctioned. The Company
has constructed full, authorized DTV facilities serving at least
80% of their analog population coverage. On August 4, 2004,
the FCC adopted a Report and Order (Order) that
implements several steps necessary for the conversion to DTV.
This Order commenced a process for electing the channels on
which DTV stations will operate. The Companys television
stations have timely filed with the FCC forms electing their
preferred DTV channels and have obtained construction permits to
broadcast on those channels. The Order also required
broadcasters to include Program and System Information Protocol
(PSIP) information in their digital broadcast
signals. The Order eliminated, for now, the requirement that
analog and digital programs be simulcast for part of the time;
clarified the digital closed captioning rules and mandated that,
after an
18-month
transition period, all digital television receivers contain
V-Chip functionality that will permit the current TV ratings
system to be modified.
The Deficit Reduction Act of 2005 has established
February 17, 2009 (extended to June 12, 2009), as the
date on which analog spectrum must be returned to the government
to be auctioned. The Deficit Reduction Act creates a program
through which households in the United States may obtain coupons
that can be applied toward the purchase of
digital-to-analog
converter boxes. At present
KOAM-TV is
providing DTV service on Channel 7.
KAVU-TV is
providing DTV service on Channel 15. WXVT is providing DTV
service on Channel 15. Brokered Station KVCT is providing DTV
service on Channel 11.
KOAM-TV
elected to use Channel 7 for DTV operations at the end of the
digital transition and to make available to Surtsey the use of
Channel 13 for
KFJX-TV. We
hold construction permits that authorize
KOAM-TV to
operate on Channel 7 for DTV and WXVT to operate on Channel 15
for DTV and a license for
KAVU-TV to
operate on Channel 15 for DTV. All of the Companys
television stations terminated analog broadcasts on
February 17, 2009.
On January 22, 2001, the FCC adopted rules on how the law
requiring the carriage of television signals on local cable
television systems should apply to DTV signals. The FCC decided
that a DTV-only station could immediately assert its right to
carriage on a local cable television system; however, the FCC
decided that a television station may not assert a right to
carriage of both its NTSC and DTV channels. On February 10,
2005, the FCC affirmed its conclusion. In October 2003, the FCC
adopted rules requiring plug and play cable
compatibility that will allow consumers to plug their cable
directly into their digital TV set without the need for a
set-top box. The FCC has adopted rules whereby television
licensees are charged a fee of 5% of gross revenue derived from
the offering of ancillary or supplementary services on DTV
spectrum for which a subscription fee is charged. Licensees and
permittees of DTV stations must file with the FCC a
report by December 1 of each year describing such services. None
of the Companys stations to date are offering ancillary or
supplementary services on their DTV channels.
Must-Carry Rules. The Cable
Television Consumer Protection and Competition Act of 1992,
among other matters, requires cable television system operators
to carry the signals of local commercial and non-commercial
television stations and certain low power television stations.
Cable television operators and other multi-channel video
programming distributors may not carry broadcast signals
without, in certain circumstances, obtaining the transmitting
stations consent. A local television broadcaster must make
a choice every three years whether to proceed under the
must-carry rules or waive the right to
mandatory-uncompensated coverage and negotiate a grant of
retransmission consent in exchange for consideration from the
cable system operator. As noted above, such must-carry rights
will extend to the new DTV signal to be broadcast by our
stations, but will not extend simultaneously to the analog
signal.
Low Power and Class A Television
Stations. Currently, the service areas of low
power television (LPTV) stations are not protected.
LPTV stations can be required to terminate their operations if
they cause interference to full power stations. LPTV stations
meeting certain criteria were permitted to certify to the FCC
their eligibility to be reclassified as Class A
Television Stations whose signal contours would be
protected
19
against interference from other stations. Stations deemed
Class A Stations by the FCC would thus be
protected from interference. We own four operating LPTV
stations, KUNU-LP, KVTX-LP, KXTS-LP, and KMOL-LP, Victoria,
Texas. None of the stations qualifies under the FCCs
established criteria for Class A Status. In its Report
on Broadcast Localism and Notice of Proposed Rule Making,
released January 24, 2008, the Commission tentatively
concluded that it should allow additional qualified LPTV
stations to be granted Class A status, and sought comment
on this tentative conclusion. In January 2006, the FCC announced
a filing window from May 1 through May 12, 2006, during
which analog LPTV stations may apply for a digital companion
channel or implement DTV operation on their existing analog
channels. The Companys LPTV stations did not apply for a
companion channel, and instead, intend to flash-cut
to implement DTV operation on their existing analog channels.
Low Power FM Radio. The FCC created a
low power radio service (LPFM) in which
the FCC authorizes the construction and operation of two classes
of noncommercial educational FM stations, LP100 (up to 100 watts
effective radiated power (ERP) with antenna height
above average terrain (HAAT) at up to 30 meters
(100 feet) which is calculated to produce a service area
radius of approximately 3.5 miles, and LP10 (up to 10 watts
ERP and up to 30 meters HAAT) with a service area radius of
approximately 1 to 2 miles. The FCC will not permit any
broadcaster or other media entity subject to the FCCs
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 to 108 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. On
December 11, 2007, the FCC released its Third Report and
Order and Second Further Notice of Proposed Rulemaking that
modified some rules and sought comment on proposed rules. In its
Third Report and Order, the FCC revised its rules to
permit certain ownership changes, to extend on a showing of good
cause up to 36 months the period in which a LPFM station
must be constructed, to limit ownership of LPFM stations to one
licensee each and to require LPFM operators to provide service
to their local communities. The FCC also modified its
application processing standards it will apply to full-service
station modification applications where the modification would
place an LPFM station at risk of displacement and no alternate
channel is available. In such circumstances, the FCC will
consider waiving the Commissions Rule making LPFM stations
secondary to subsequently-authorized full-service stations and
denying the modification application to protect an LPFM station
that is demonstrably serving the need of the public from being
required to cease operations. The FCC stated that where an LPFM
station will be displaced by a full-power FM station
and no alternative channel will be available, the Commission
will generally favor grant of the full-service station
modification application. However, the FCC applied a presumption
that the public interest would be better served by a waiver of
the FCC Rule making LPFM stations secondary to subsequently
authorized full-service stations and the dismissal of an
encroaching community of license reallotment
application when the threatened LPFM station can demonstrate
that it has regularly provided at least eight hours per day of
locally originated programming, as that term is defined for the
LPFM service. This presumption will apply only under certain
specified conditions, but application of this rule could limit
the Companys options in modifying its authorizations to
serve different communities. In the Second Further Notice of
Proposed Rulemaking, the FCC sought comment on technical
rules that could potentially expand LPFM licensing
opportunities; tentatively concluded that full service stations
must provide technical and financial assistance to LPFM stations
when implementation of a full service station facility proposal
would cause interference to an LPFM station; tentatively
concluded that the FCC should adopt a contour-based protection
methodology to expand LPFM licensing opportunities; stated its
intent to address the issues in the FNPRM within 6 months,
and that the next filing window for a non-tabled aural licensed
service will be for LPFM only; and recommended to Congress that
it remove the requirement that LPFM stations protect full-power
stations operating on third adjacent channels. If adopted, these
rule changes could possibly have an adverse effect on our FM
stations, but we cannot predict at this time what specific
adverse affect such rule changes might have.
20
Digital Audio Radio Satellite Service and Internet
Radio. The FCC has adopted rules for the
Digital Audio Radio Satellite Service (DARS) in the
2310-2360 MHz
frequency band. In adopting the rules, 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 has
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.
On July 25, 2008, the Commission voted to approve 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. We cannot predict the
extent to which DARS will have an adverse impact on our
business. Various companies have introduced devices (e.g. the
iPhone) that permit the reception of audio programming streamed
over the internet on portable receivers. We cannot predict
whether, or the extent to which, such reception devices will
have an adverse impact on our business.
Satellite Carriage of Local TV
Stations. The Satellite Home Viewer
Improvement Act (SHVIA), a copyright law, prevents
direct-to-home
satellite television carriers from retransmitting broadcast
network television signals to consumers unless those consumers
(1) are unserved by the
over-the-air
signals of their local network affiliate stations, and
(2) have not received cable service in the preceding
90 days. According to the SHVIA, unserved means
that a consumer cannot receive, using a conventional outdoor
rooftop antenna, a television signal that is strong enough to
provide an adequate television picture. In December 2001 the
U.S. Court of Appeals for the District of Columbia upheld
the FCCs rules for satellite carriage of local television
stations which require satellite carriers to carry upon request
all local TV broadcast stations in local markets in which the
satellite carriers carry at least one TV broadcast station, also
known as the carry one, carry all rule. In December
2004, Congress passed and the President signed the Satellite
Home Viewer Extension and Reauthorization Act of 2004
(SHVERA), which again amends the copyright laws and
the Communications Act. The SHVIA governs the manner in which
satellite carriers offer local broadcast programming to
subscribers, but the SHVIA copyright license for satellite
carriers was more limited than the statutory copyright license
for cable operators. Specifically, for satellite purposes,
local, though
out-of-market
(i.e., significantly viewed) signals were
treated the same as truly distant (e.g.,
hundreds of miles away) signals for purposes of the SHVIAs
statutory copyright licenses. The SHVERA is intended to address
this inconsistency by giving satellite carriers the option to
offer Commission-determined significantly viewed
signals to subscribers. In November, 2005, the FCC adopted a
Report and Order to implement SHVERA to enable satellite
carriers to offer FCC-determined significantly
viewed signals of
out-of-market
broadcast stations to subscribers subject to certain constraints
set forth in SHVERA. The Order includes an updated list
of stations currently deemed significantly viewed.
In-Band On-Channel Hybrid Digital
Radio. On May 31, 2007, the FCC released
its Second Report and Order, First Order on Reconsideration
and Second Further Notice of Proposed Rulemaking (Digital Audio
Broadcasting Systems) that adopted rules permitting 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. IBOC
technology permits hybrid operations, the
simultaneous transmission of analog and digital signals with a
single AM and FM channel. IBOC technology can provide near
CD-quality sound on FM channels and FM quality on AM channels.
Hybrid IBOC also permits the transmission of up to two
additional program streams over the radio stations. Hybrid IBOC
operations will have minimal impact on the present broadcast
service. At the present time, we are broadcasting in HD radio on
36 stations and we continue to convert stations to HD radio on
an ongoing basis.
Use of FM Translators by AM Stations and Digital Program
Streams. FM translator stations are
relatively low power stations that rebroadcast the programs of
full-power 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 has proposed to permit AM
stations to be rebroadcast on FM translator stations in order to
improve reception of programs broadcast by AM stations. In the
interim, the FCC has granted several requests by the
21
Company for special temporary authority. If the rules are
modified to permit regular use of FM translators 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.
Hart-Scott-Rodino
Antitrust Improvements Act of 1976. The
Federal Trade Commission and the Department of Justice, the
federal agencies responsible for enforcing the federal antitrust
laws, may investigate certain acquisitions. Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, an acquisition meeting
certain size thresholds requires the parties to file
Notification and Report Forms with the Federal Trade Commission
and the Department of Justice and to observe specified waiting
period requirements before consummating the acquisition. Any
decision by the Federal Trade Commission or the Department of
Justice to challenge a proposed acquisition could affect our
ability to consummate the acquisition or to consummate it on the
proposed terms.
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 Balanced Budget Act of 1997 authorizes
the FCC 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.
Congress, the courts and the FCC have recently taken actions
that may lead to the provision of video services by telephone
companies. The 1996 Telecommunications Act has lifted previous
restrictions on a local telephone company providing video
programming directly to customers within the telephone
companys service areas. The law now permits a telephone
company to distribute video services either under the rules
applicable to cable television systems or as operators of
so-called wireless cable systems as common carriers
or under new FCC rules regulating open video systems
subject to common carrier regulations. We cannot predict what
effect these services may have on us. Likewise, we cannot
predict what other changes might be considered in the future,
nor can we judge in advance what impact, if any, such changes
might have on our business.
Executive
Officers
Our current executive officers are:
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Name
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Age
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Position
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Edward K. Christian
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64
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President, Chief Executive Officer and Chairman; Director
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Steven J. Goldstein
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52
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Executive Vice President and Group Program Director
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Warren S. Lada
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54
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Senior Vice President, Operations
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Samuel D. Bush
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51
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Senior Vice President, Chief Financial Officer and Treasurer
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Marcia K. Lobaito
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60
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Senior Vice President, Corporate Secretary, and Director of
Business Affairs
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Catherine A. Bobinski
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49
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Vice President, Chief Accounting Officer and Corporate
Controller
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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. Goldstein has been Executive Vice President and
Group Program Director since 1988. Mr. Goldstein has been
employed by us since our inception in 1986.
22
Mr. Lada has been Senior Vice President, Operations
since 2000. He was Vice President, Operations from 1997 to 2000.
From 1992 to 1997 he was Regional Vice President of our
subsidiary, Saga Communications of New England, Inc.
Mr. Bush has been Senior Vice President since 2002,
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 Vice President since March
1999 and Chief Accounting Officer and Corporate Controller since
September 1991. Ms. Bobinski is a certified public
accountant.
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.
Our
Business Has Been Affected by the Global Economic
Crisis
Our revenues continue to be impacted by economic trends that
have caused a general downturn in the advertising sector. The
capital and credit markets have been experiencing unprecedented
volatility and disruption. The markets have produced downward
pressure on stock prices and credit capacity for many companies,
including us. If economic trends continue to worsen, there can
be no assurance that we will not experience a further adverse
effect, which may be material to our business, financial
condition, results of operations and our ability to access
capital. In addition, our ability to access the capital markets
may be severely restricted 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.
We
Have Substantial Indebtedness and Debt Service
Requirements
At December 31, 2008 our long-term debt (including the
current portion thereof and our guarantee of debt of Surtsey
Productions) was approximately $135,411,000. We have borrowed
and expect to continue to borrow to finance acquisitions and for
other corporate purposes. Because of our substantial
indebtedness, a significant 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. On March 9, 2009, the Revolving Commitments (as
defined in the Credit Agreement) were permanently reduced to
$150,000,000, will be reduced on September 30, 2009 to
$148,750,000 and will continue to be permanently reduced at the
end of each calendar quarter in amounts ranging from 4.375% to
12.5% of the total Revolving Commitments that was in effect on
March 31, 2008. In addition, the Revolving Commitments
shall be further reduced by specified percentages of Excess Cash
Flow (as defined in the Credit Agreement) based on leverage
ratios. Any outstanding balance under the Credit Agreement will
be due on the maturity date of July 29, 2012. We believe
that cash flows from operations will be sufficient to meet our
debt service requirements for interest and scheduled quarterly
payments of principal under the Credit Agreement. 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
effect any such transactions on favorable terms, if at all.
Our
Debt Covenants Restrict our Financial and Operational
Flexibility
Our Credit Agreement 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 investment, additional indebtedness, dividends,
repurchase of equity, 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
23
we cannot assure you that we will meet those ratios. Certain
events of default under our Credit Agreement 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. Our indebtedness under the Credit Agreement is
secured by a first priority lien on substantially all of our
assets and of our subsidiaries, by a pledge of our
subsidiaries stock and by a guarantee of our subsidiaries.
If the amounts outstanding under the Credit Agreement were
accelerated, the lenders could proceed against such available
collateral.
The current economic crisis has reduced demand for advertising
in general, including advertising on our radio and television
stations. If our revenues were to be significantly less than
planed due to difficult market conditions or for other reasons,
our ability to maintain compliance with the financial covenants
in our credit agreements would become increasingly difficult.
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, 2014, and certain other key
personnel, including on-air personalities, we cannot be sure
that such key personnel will remain with us. We do not maintain
key man life insurance on Mr. Christians life. 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 six markets when combined represented 46%,
47% and 48% of our net operating revenue for the years ended
December 31, 2008, 2007 and 2006, 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
is 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, such as we are currently experiencing. As a result,
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
Both radio and television broadcasting are highly competitive
businesses. Our stations compete for listeners/viewers and
advertising revenues within their respective markets directly
with other radio
and/or
television stations, as well as with other media, such as
broadcast television
and/or 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
24
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 or television 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 and television stations,
subject to the terms of our credit agreement. 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 and television
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. 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
managements attention from other business concerns, risk
of entering new markets, and the potential loss of key employees
of the acquired stations.
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 fines 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
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. Moreover, the
FCC may impose additional public service obligations on
television broadcasters in return for their use of the digital
television spectrum. This could add to our operational costs.
One issue yet to be resolved is the extent to which cable
systems will be required to carry broadcasters new digital
channels. Our television stations are highly dependent on their
carriage by cable systems in the areas they serve. FCC rules
that impose no or limited obligations on cable systems to
25
carry the digital television signals of television broadcast
stations in their local markets could adversely affect our
television operations.
The
Company is Controlled by our President, Chief Executive Officer
and Chairman
As of March 2, 2009, Edward K. Christian, our President,
Chief Executive Officer and Chairman, holds approximately 62% 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 11 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.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
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 stations 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, 2008 the studios and offices of 27 of
our 32 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 6 months to 5 years. We own or
lease our transmitter and antenna sites, with lease terms that
expire in 5 months to 81 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.
Our bank indebtedness is secured by a first priority lien on all
of our assets and those of our subsidiaries.
|
|
Item 3.
|
Legal
Proceedings
|
We currently and from time to time are involved in litigation
incidental to the conduct of our business. We are not a party to
any lawsuit or proceeding which, in the opinion of management,
is likely to have a material adverse effect on our financial
position, cash flows or results of operations.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
Not applicable.
26
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
On January 28, 2009 the Company consummated a
one-for-four
reverse stock split of its Class A and Class B Common
Stock, resulting in a reduction of issued and outstanding shares
of approximately 10,820,000 and 1,802,000, respectively, for
holders of record on such date.
The Companys Class A Common Stock began trading on
the NYSE Amex on February 5, 2009 under the ticker symbol
SGA. The Company delisted its Class A Common Stock from the
New York Stock Exchange at the close of business on
February 4, 2009. There is no public trading market for the
Companys Class B Common Stock. The following table
sets forth the high and low sales prices of the Class A
Common Stock as reported by the New York Stock Exchange for the
calendar quarters indicated (as adjusted for the
one-for-four
reverse stock split):
|
|
|
|
|
|
|
|
|
Year
|
|
High
|
|
|
Low
|
|
|
2007:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
40.88
|
|
|
$
|
36.88
|
|
Second Quarter
|
|
$
|
41.16
|
|
|
$
|
35.80
|
|
Third Quarter
|
|
$
|
40.36
|
|
|
$
|
26.04
|
|
Fourth Quarter
|
|
$
|
34.00
|
|
|
$
|
16.84
|
|
2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
26.60
|
|
|
$
|
20.28
|
|
Second Quarter
|
|
$
|
24.76
|
|
|
$
|
18.20
|
|
Third Quarter
|
|
$
|
26.72
|
|
|
$
|
19.04
|
|
Fourth Quarter
|
|
$
|
22.84
|
|
|
$
|
4.40
|
|
The closing price for the Companys Class A Common
Stock on March 26, 2009 as reported by the NYSE Amex was
$3.95. As of March 27, 2009, there were approximately 172
holders of record of the Companys Class A Common
Stock, and one holder of the Companys Class B Common
Stock.
The Company has not paid any cash dividends on its Common Stock
during the three most recent fiscal years. The Company is
prohibited by the terms of its bank loan agreement from paying
dividends on its Common Stock without the banks prior
consent. See Item 7. Managements Discussion and
Analysis of Financial Position and Results of
Operations Liquidity and Capital Resources and
Note 4 of the Notes to Consolidated Financial Statements.
27
Securities
Authorized for Issuance Under Equity Compensation Plan
Information
The following table sets forth as of December 31, 2008, the
number of securities outstanding under our equity compensation
plans, the weighted average exercise price of such securities
and the number of securities available for grant under these
plans (as adjusted for the
one-for-four
reverse stock split):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Shares to
|
|
|
|
|
|
Remaining Available for
|
|
|
|
be Issued Upon
|
|
|
Weighted-Average
|
|
|
Future Issuance
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Under Equity
|
|
|
|
Outstanding Options
|
|
|
Outstanding Options,
|
|
|
Compensation Plans
|
|
Plan Category
|
|
Warrants, and Rights
|
|
|
Warrants and Rights
|
|
|
(Excluding Column (a))
|
|
|
Equity Compensation Plans Approved by Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees 401(k) Savings and Investment Plan
|
|
|
|
|
|
$
|
|
|
|
|
390,500
|
|
1992 Stock Option Plan
|
|
|
192,751
|
|
|
$
|
62.587
|
|
|
|
|
|
2003 Stock Option Plan
|
|
|
41,396
|
|
|
$
|
77.035
|
|
|
|
|
|
2005 Incentive Compensation Plan
|
|
|
269,561
|
(1)
|
|
$
|
42.141
|
(2)
|
|
|
332,690
|
|
1997 Non-Employee Director Stock Option Plan
|
|
|
1,036
|
|
|
$
|
.035
|
|
|
|
|
|
Equity Compensation Plans Not Approved by Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
504,744
|
|
|
|
|
|
|
|
723,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 53,649 shares of restricted stock; |
|
(2) |
|
Weighted-Average Exercise Price of Outstanding Options. |
Recent
Sales of Unregistered Securities
Not applicable.
Issuer
Purchases of Equity Securities
The following table summarizes our repurchases of our
Class A Common Stock during the three months ended
December 31, 2008 (as adjusted for the
one-for-four
reverse stock split). All shares repurchased during the quarter
were repurchased in block purchases and open market transactions
on the New York Stock Exchange.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Value of Shares
|
|
|
|
Total Number
|
|
|
|
|
|
as Part of Publicly
|
|
|
that May Yet be
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Announced
|
|
|
Purchased Under the
|
|
Period
|
|
Purchased
|
|
|
Paid per Share
|
|
|
Program
|
|
|
Program(a)
|
|
|
October 1 October 31, 2008
|
|
|
306,981
|
|
|
$
|
19.67
|
|
|
|
306,981
|
|
|
$
|
15,899,236
|
|
November 1 November 30, 2008
|
|
|
71,431
|
|
|
$
|
19.05
|
|
|
|
71,431
|
|
|
$
|
14,538,204
|
|
December 1 December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,538,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
378,412
|
|
|
$
|
19.55
|
|
|
|
378,412
|
|
|
$
|
14,538,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On August 7, 1998 our Board of Directors approved a Stock
Buy-Back Program of up to $2,000,000 of our Class A Common
Stock. Since August 1998, the Board of Directors has authorized
several increases to the Stock Buy-Back Program, the most recent
occurring in January 2008, which increased the total amount
authorized for repurchase of our Class A Common Stock to
$60,000,000. |
28
Performance
Graph
COMMON
STOCK PERFORMANCE
Set forth below is a line graph comparing the cumulative total
stockholder return for the years ended December 31, 2003,
2004, 2005, 2006, 2007 and 2008 of our Class A Common Stock
against the cumulative total return of the NYSE Stock Market (US
Companies) and a Peer Group selected by us consisting of the
following radio
and/or
television broadcast companies: Arbitron Inc., Beasley Broadcast
Group Inc., CBS Corp. Citadel Broadcasting Corp., Clear Channel
Communications Inc., Cox Radio Inc., Cumulus Media Inc., Emmis
Communications Corp., Entercom Communications Corp., Entravision
Communications Corp., Fisher Communications Inc., Journal
Communications Inc., Radio One Inc., Regent Communications Inc.,
Saga Communications Inc., Salem Communications Corp., Sirius
Satellite Radio Inc., Spanish Broadcasting System Inc, and
Westwood One Inc. The graph and table assume that $100 was
invested on December 31, 2003, in each of our Class A
Common Stock, the NYSE Stock Market (US Companies) and the Peer
Group and that all dividends were reinvested. The information
contained in this graph shall not be deemed to be
soliciting material or filed with the
SEC or subject to the liabilities of Section 18 of the
Exchange Act, except to the extent that we specifically
incorporate it by reference into a document filed under the
Securities Act or the Exchange Act.
Comparison
of Five-Year Cumulative Total Return
The comparisons in the above table are required by the SEC. This
table is not intended to forecast or to be indicative of any
future return of our Class A Common Stock.
29
|
|
Item 6.
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008(1)
|
|
|
2007(1)(2)
|
|
|
2006(1)(3)
|
|
|
2005(1)(4)
|
|
|
2004(1)(5)
|
|
|
|
(In thousands except per share amounts)
|
|
|
OPERATING DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Revenue
|
|
$
|
139,956
|
|
|
$
|
144,023
|
|
|
$
|
142,946
|
|
|
$
|
140,790
|
|
|
$
|
134,644
|
|
Station Operating Expense
|
|
|
105,805
|
|
|
|
106,302
|
|
|
|
104,396
|
|
|
|
104,411
|
|
|
|
94,914
|
|
Corporate General and Administrative
|
|
|
9,979
|
|
|
|
9,800
|
|
|
|
8,870
|
|
|
|
8,174
|
|
|
|
8,343
|
|
Gain on Asset Exchange
|
|
|
(506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operating Income
|
|
|
|
|
|
|
|
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
Impairment of Intangible Assets
|
|
|
116,443
|
|
|
|
|
|
|
|
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
(91,765
|
)
|
|
|
27,921
|
|
|
|
29,992
|
|
|
|
27,037
|
|
|
|
31,387
|
|
Interest Expense
|
|
|
7,173
|
|
|
|
8,954
|
|
|
|
9,379
|
|
|
|
7,586
|
|
|
|
4,522
|
|
Net Income (Loss)
|
|
$
|
(66,492
|
)
|
|
$
|
11,004
|
|
|
$
|
12,448
|
|
|
$
|
10,566
|
|
|
$
|
15,842
|
|
Basic Earnings (Loss) Per Share(1)
|
|
$
|
(14.05
|
)
|
|
$
|
2.19
|
|
|
$
|
2.44
|
|
|
$
|
2.06
|
|
|
$
|
3.05
|
|
Cash Dividends Declared Per Common Share(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares(1)
|
|
|
4,734
|
|
|
|
5,023
|
|
|
|
5,111
|
|
|
|
5,121
|
|
|
|
5,188
|
|
Diluted Earnings (Loss) Per Share(1)
|
|
$
|
(14.05
|
)
|
|
$
|
2.19
|
|
|
$
|
2.43
|
|
|
$
|
2.04
|
|
|
$
|
2.99
|
|
Weighted Average Common Shares and Common Equivalents(1)
|
|
|
4,734
|
|
|
|
5,029
|
|
|
|
5,115
|
|
|
|
5,169
|
|
|
|
5,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008(1)
|
|
|
2007(1)(2)
|
|
|
2006(1)(3)
|
|
|
2005(1)(4)
|
|
|
2004(1)(5)
|
|
|
|
(In thousands)
|
|
|
BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital
|
|
$
|
20,438
|
|
|
$
|
24,075
|
|
|
$
|
21,617
|
|
|
$
|
22,618
|
|
|
$
|
21,778
|
|
Net Property and Equipment
|
|
|
73,383
|
|
|
|
76,217
|
|
|
|
73,658
|
|
|
|
69,669
|
|
|
|
66,364
|
|
Net Intangible and Other Assets
|
|
|
113,276
|
|
|
|
220,045
|
|
|
|
210,044
|
|
|
|
205,434
|
|
|
|
176,166
|
|
Total Assets
|
|
|
221,460
|
|
|
|
337,644
|
|
|
|
322,641
|
|
|
|
318,865
|
|
|
|
280,154
|
|
Long-term Debt Including Current Portion
|
|
|
135,411
|
|
|
|
129,911
|
|
|
|
133,911
|
|
|
|
148,911
|
|
|
|
121,161
|
|
Stockholders Equity
|
|
|
65,097
|
|
|
|
149,076
|
|
|
|
136,236
|
|
|
|
125,824
|
|
|
|
117,225
|
|
|
|
|
(1) |
|
All periods presented include the weighted average shares and
common equivalents related to certain stock options. In January
2009, the Company consummated a
one-for-four
reverse stock split of its Class A and Class B Common
Stock. All share and per share information has been adjusted to
reflect the retroactive equivalent change in the weighted
average shares. |
|
(2) |
|
Reflects the results of WIII acquired in September 2007, and
WCLZ acquired in November 2007. |
|
(3) |
|
Reflects the results of WTMT, acquired in August 2006 and the
results of a time brokerage agreement (TBA) for WCNR
which began in September 2006. |
|
(4) |
|
Reflects the results of WINA, WWWV, WQMZ, WISE and KXTS-LP
acquired in January 2005; WQNY, WYXL, WNYY and WHCU acquired in
June 2005; and WVAX acquired in November 2005. |
|
(5) |
|
Reflects the results of Minnesota News Network and Minnesota
Farm Network, acquired in March 2004; WRSI, WPVQ and WRSY
acquired in April 2004; WXTT acquired in July 2004; and the
disposition of WJQY in August 2004. |
30
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read in conjunction with
Item 1. Business, Item 6. Selected Financial Data and
the consolidated financial statements and notes thereto of Saga
Communications, Inc. and its subsidiaries contained elsewhere
herein. The following discussion is presented on both a
consolidated and segment basis. Corporate general and
administrative expenses, interest expense, other (income)
expense, and income tax expense (benefit) are managed on a
consolidated basis and are reflected only in our discussion of
consolidated results.
Our discussion of the results of operations of our operating
segments focuses on their operating income because we manage our
operating segments primarily based on their operating income. We
evaluate the operating performance of our markets individually.
For purposes of business segment reporting, we have aligned
operations with similar characteristics into two business
segments: Radio and Television. The Radio segment includes
twenty-three markets, which includes all ninety-one of our radio
stations and five radio information networks. The Television
segment includes three markets and consists of five television
stations and four low power television (LPTV)
stations.
General
We are a broadcast company primarily engaged in developing and
operating radio and television stations.
Radio
Segment
Our radio segments primary source of revenue is from the
sale of advertising for broadcast on our stations. Depending on
the format of a particular radio station, there are a
predetermined number of advertisements available to be broadcast
each hour.
Most advertising contracts are short-term, and generally run
only for a few weeks to a few months. The majority of our
revenue is generated from local advertising, which is sold
primarily by each radio markets sales staff. For the years
ended December 31, 2008, 2007 and 2006, approximately 86%,
85% and 85%, respectively, of our radio segments gross
revenue was from local advertising. To generate national
advertising sales, we engage independent national advertising
sales representative firms that specialize in national sales for
each of our broadcast markets.
Our revenue varies throughout the year, however, we have had a
significant increase in revenue due to political advertising for
2008. Since 2009 is not an election year, we expect political
revenue in 2009 to significantly decline. Advertising
expenditures, our primary source of revenue, generally have been
lowest during the winter months, which include the first quarter
of each year.
Our net operating revenue, station operating expense and
operating income varies from market to market based upon the
markets rank or size which is based upon population and
the available radio advertising revenue in that particular
market.
Our financial results are dependent on a number of factors, the
most significant of which is our ability to generate advertising
revenue through rates charged to advertisers. The rates a
station is able to charge are, in large part, based on a
stations ability to attract audiences in the demographic
groups targeted by its advertisers. In a number of our markets
this is measured by periodic reports generated by independent
national rating services. In the remainder of our markets it is
measured by the results advertisers obtain through the actual
running of an advertising schedule. Advertisers measure these
results based on increased demand for their goods or services
and/or
actual revenues generated from such demand. Various factors
affect the rate a station can charge, including the general
strength of the local and national economies, population growth,
ability to provide popular programming, local market
competition, target marketing capability of radio compared to
other advertising media and signal strength. Because reaching a
large and demographically attractive audience is crucial to a
stations financial success, we endeavor to develop strong
listener loyalty.
When we acquire
and/or begin
to operate a station or group of stations we generally increase
programming and advertising and promotion expenses to increase
our share of our target demographic
31
audience. Our strategy sometimes requires levels of spending
commensurate with the revenue levels we plan on achieving in two
to five years. During periods of economic downturns, or when the
level of advertising spending is flat or down across the
industry, this strategy may result in the appearance that our
cost of operations are increasing at a faster rate than our
growth in revenues, until such time as we achieve our targeted
levels of revenue for the acquired station or group of stations.
The number of advertisements that can be broadcast without
jeopardizing listening levels (and the resulting ratings) is
limited in part by the format of a particular radio station. Our
stations strive to maximize revenue by constantly managing the
number of commercials available for sale and adjusting prices
based upon local market conditions and ratings. While there may
be shifts from time to time in the number of advertisements
broadcast during a particular time of the day, the total number
of advertisements broadcast on a particular station generally
does not vary significantly from year to year. Any change in our
revenue, with the exception of those instances where stations
are acquired or sold, is generally the result of inventory sell
out ratios and pricing adjustments, which are made to ensure
that the station efficiently utilizes available inventory.
Our radio stations employ a variety of programming formats. We
periodically perform market research, including music
evaluations, focus groups and strategic vulnerability studies.
Our stations also employ audience promotions to further develop
and secure a loyal following. We believe that the
diversification of formats on our radio stations helps to
insulate us from the effects of changes in musical tastes of the
public on any particular format.
The primary operating expenses involved in owning and operating
radio stations are employee salaries including commissions,
depreciation, programming expenses, and advertising and
promotion expenses.
Similar to the fluctuations in the current general economic
climate, radio revenue growth has been declining or stagnant
over the last several years primarily in major markets that are
dependent on national advertising. We believe that this decline
in major market radio advertising revenue is the result of a
lack of pricing discipline by radio operators and new
technologies and media (such as the Internet, satellite radio,
and MP3 players). These new technologies and media are gaining
advertising share against radio and other traditional media.
Conversely, radio revenue in the small to mid markets had been
trending upward in the earlier months of 2008, however fourth
quarter 2008 revenue was negatively affected by the significant
slowdown in the general economy and revenue for the first half
of 2009 is continuing to trend significantly downward.
We have begun several initiatives to offset the declines. We are
continuing to expand our interactive initiative to provide a
seamless audio experience across numerous platforms to connect
with our listeners where and when they want, and are adding
online components including streaming our stations over the
Internet and on-demand options. We are seeing development
potential in this area and believe that revenues from our
interactive initiatives will continue to increase.
We also continue the rollout of HD
Radiotm.
HD Radio utilizes digital technology that provides improved
sound quality over standard analog broadcasts and also allows
for the delivery of additional channels of diversified
programming or data streams in each radio market. It is unclear
what impact HD Radio will have on the industry and our revenue
as the availability of HD receivers, particularly in
automobiles, is not widely available.
In response to the declining trend in revenue caused by the
global economic crisis, we have continued to evaluate and reduce
operating expenses. We have made reductions in our workforce,
implemented a Company wide 5% salary decrease, renegotiated
and/or eliminated certain contracts, and are continuing to
evaluate every area of our operations for additional savings in
expenses. Given the current economic environment, we anticipate
these reductions to decrease our operating expenses by at least
5%.
During the years ended December 31, 2008, 2007 and 2006,
our Columbus, Ohio; Manchester, New Hampshire; Milwaukee,
Wisconsin; and Norfolk, Virginia markets, when combined,
represented approximately 58%, 60% and 64%, respectively, of our
consolidated operating income (excluding non-cash
32
impairment charge). An adverse change in any of these radio
markets or our relative market position in those markets could
have a significant impact on our operating results as a whole.
A significant decline in the total available radio advertising
dollars in the Columbus, Ohio (11%) and Norfolk, Virginia (23%)
markets has resulted in a significant decline in our net
operating revenue for the year ended December 31, 2008 as
compared to the corresponding period of 2007. This decline in
net operating revenue has directly affected the operating income
of our radio stations in these markets. Additionally, we have
experienced historical ratings softness in these markets which
has also affected revenue. We do not expect any significant
improvements in revenue in the Columbus and Norfolk markets in
the foreseeable future.
The following tables describe the percentage of our consolidated
operating income (excluding non-cash impairment charge)
represented by each of these markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Consolidated
|
|
|
|
Operating Income (Excluding
|
|
|
|
Non-Cash Impairment Charge)
|
|
|
|
for the Years
|
|
|
|
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbus, Ohio
|
|
|
5
|
%
|
|
|
7
|
%
|
|
|
10
|
%
|
Manchester, New Hampshire
|
|
|
18
|
%
|
|
|
15
|
%
|
|
|
14
|
%
|
Milwaukee, Wisconsin
|
|
|
33
|
%
|
|
|
31
|
%
|
|
|
30
|
%
|
Norfolk, Virginia
|
|
|
2
|
%
|
|
|
7
|
%
|
|
|
10
|
%
|
We use certain financial measures that are not calculated in
accordance with generally accepted accounting principles in the
United States of America (GAAP) to assess our financial
performance. For example, we evaluate the performance of our
markets based on station operating income (operating
income plus corporate general and administrative expenses,
depreciation and amortization). Station operating income is
generally recognized by the broadcasting industry as a measure
of performance, is used by analysts who report on the
performance of the broadcasting industry and it serves as an
indicator of the market value of a group of stations. In
addition, we use it to evaluate individual stations,
market-level performance, overall operations and as a primary
measure for incentive based compensation of executives and other
members of management. Station operating income is not
necessarily indicative of amounts that may be available to us
for debt service requirements, other commitments, reinvestment
or other discretionary uses. Station operating income is not a
measure of liquidity or of performance in accordance with GAAP,
and should be viewed as a supplement to, and not a substitute
for our results of operations presented on a GAAP basis.
During the years ended December 31, 2008, 2007 and 2006,
the radio stations in our four largest markets when combined,
represented approximately 37%, 40% and 45%, respectively, of our
consolidated station operating income. The following tables
describe the percentage of our consolidated station operating
income represented by each of these markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Consolidated Station
|
|
|
|
Operating Income (*)
|
|
|
|
for the Years
|
|
|
|
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbus, Ohio
|
|
|
4
|
%
|
|
|
6
|
%
|
|
|
8
|
%
|
Manchester, New Hampshire
|
|
|
11
|
%
|
|
|
10
|
%
|
|
|
9
|
%
|
Milwaukee, Wisconsin
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
21
|
%
|
Norfolk, Virginia
|
|
|
2
|
%
|
|
|
4
|
%
|
|
|
7
|
%
|
33
|
|
|
(*) |
|
Operating income (excluding non-cash impairment charge) plus
corporate general and administrative expenses, depreciation and
amortization |
Television
Segment
Our television segments primary source of revenue is from
the sale of advertising for broadcast on our stations. The
number of advertisements available for broadcast on our
television stations is limited by network affiliation and
syndicated programming agreements and, with respect to
childrens programs, federal regulation. Our television
stations local market managers determine the number of
advertisements to be broadcast in locally produced programs
only, which are primarily news programming and occasionally
local sports or information shows.
Our net operating revenue, station operating expense and
operating income vary from market to market based upon the
markets rank or size, which is based upon population,
available television advertising revenue in that particular
market, and the popularity of programming being broadcast.
Our financial results are dependent on a number of factors, the
most significant of which is our ability to generate advertising
revenue through rates charged to advertisers. The rates a
station is able to charge are, in large part, based on a
stations ability to attract audiences in the demographic
groups targeted by its advertisers, as measured principally by
periodic reports by independent national rating services.
Various factors affect the rate a station can charge, including
the general strength of the local and national economies,
population growth, ability to provide popular programming
through locally produced news, sports and weather and as a
result of syndication and network affiliation agreements, local
market competition, the ability of television broadcasting to
reach a mass appeal market compared to other advertising media,
and signal strength including cable/satellite coverage, and
government regulation and policies.
For the period commencing on January 1, 2009, we generally
elected retransmission consent in notifying the
Multichannel Video Programming Distributors (MVPDs) that carry
our television programming in our television markets. We have in
negotiations with the MVPDs as to the terms of the carriage of
our television stations and the compensation we receive for
granting such carriage rights. These negotiations resulted in
agreements that will provide approximately $600,000 in revenue
in 2009.
When we acquire
and/or begin
operating a station or group of stations we generally increase
programming expenses including local news, sports and weather
programming, new syndicated programming, and advertising and
promotion expenses to increase our viewership. Our strategy
sometimes requires levels of spending commensurate with the
revenue levels we plan on achieving in two to five years. During
periods of economic downturns, or when the level of advertising
spending is flat or down across the industry, this strategy may
result in the appearance that our cost of operations are
increasing at a faster rate than our growth in revenues, until
such time as we achieve our targeted levels of revenue for the
acquired/operated station or group of stations.
Our stations strive to maximize revenue by constantly adjusting
prices for our commercial spots based upon local market
conditions, advertising demands and ratings. While there may be
shifts from time to time in the number of advertisements
broadcast during a particular time of day, the total number of
advertisements broadcast on a 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.
Because audience ratings in the local market are crucial to a
stations financial success, we endeavor to develop strong
viewer loyalty by providing locally produced news, weather and
sports programming. We believe that this emphasis on the local
market provides us with the viewer loyalty we are trying to
achieve.
Most of our revenue is generated from local advertising, which
is sold primarily by each television markets sales staff.
For the years ended December 31, 2008, 2007 and 2006,
approximately 81%, 80% and 83%, respectively, of our television
segments gross revenue was from local advertising. To
generate national
34
advertising sales, we engage independent advertising sales
representatives that specialize in national sales for each of
our television markets.
Our revenue varies throughout the year, however, we have had a
significant increase in revenue due to political advertising for
2008. Since 2009 is not an election year, we expect political
revenue in 2009 to significantly decline. Advertising
expenditures, our primary source of revenue, generally have been
lowest during the winter months, which include the first quarter
of each year.
Our revenue for 2009 has been negatively affected by the
significant slowdown in the general economy and revenue for the
first half of 2009 is continuing to trend significantly downward.
In response to the declining trend in revenue caused by the
global economic crisis, we have continued to evaluate and reduce
operating expenses. We have made reductions in our workforce,
implemented a Company wide 5% salary decrease, renegotiated
and/or eliminated certain contracts, and are continuing to
evaluate every area of our operations for additional savings in
expenses. Given the current economic environment, we anticipate
these reductions to decrease our operating expenses by at least
5%.
The primary operating expenses involved in owning and operating
television stations are employee salaries including commissions,
depreciation, programming expenses, including news production
and the cost of acquiring certain syndicated programming, and
advertising and promotion expenses.
Our television market in Joplin, Missouri represented
approximately 14%, 9% and 9%, respectively, of our consolidated
operating income (excluding non-cash impairment charge) for the
years ended December 31, 2008, 2007 and 2006.
Results
of Operations
The following tables summarize our results of operations for the
three years ended December 31, 2008, 2007 and 2006.
Consolidated
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 vs. 2007
|
|
|
2007 vs. 2006
|
|
|
|
Years Ended December 31,
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
139,956
|
|
|
$
|
144,023
|
|
|
$
|
142,946
|
|
|
$
|
(4,067
|
)
|
|
|
(2.8
|
)%
|
|
$
|
1,077
|
|
|
|
0.8
|
%
|
Station operating expense
|
|
|
105,805
|
|
|
|
106,302
|
|
|
|
104,396
|
|
|
|
(497
|
)
|
|
|
(0.5
|
)%
|
|
|
1,906
|
|
|
|
1.8
|
%
|
Corporate G&A
|
|
|
9,979
|
|
|
|
9,800
|
|
|
|
8,870
|
|
|
|
179
|
|
|
|
1.8
|
%
|
|
|
930
|
|
|
|
10.5
|
%
|
Gain on asset exchange
|
|
|
(506
|
)
|
|
|
|
|
|
|
|
|
|
|
(506
|
)
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
Other operating income
|
|
|
|
|
|
|
|
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
(312
|
)
|
|
|
N/M
|
|
Impairment of intangible assets
|
|
|
116,443
|
|
|
|
|
|
|
|
|
|
|
|
116,443
|
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(91,765
|
)
|
|
|
27,921
|
|
|
|
29,992
|
|
|
|
(119,686
|
)
|
|
|
N/M
|
|
|
|
(2,071
|
)
|
|
|
(6.9
|
)%
|
Interest expense
|
|
|
7,173
|
|
|
|
8,954
|
|
|
|
9,379
|
|
|
|
(1,781
|
)
|
|
|
(20.0
|
)%
|
|
|
(425
|
)
|
|
|
(4.5
|
)%
|
Other (income) expense
|
|
|
76
|
|
|
|
273
|
|
|
|
(500
|
)
|
|
|
(197
|
)
|
|
|
N/M
|
|
|
|
773
|
|
|
|
N/M
|
|
Income taxes
|
|
|
(32,522
|
)
|
|
|
7,690
|
|
|
|
8,665
|
|
|
|
(40,212
|
)
|
|
|
N/M
|
|
|
|
(975
|
)
|
|
|
(11.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(66,492
|
)
|
|
$
|
11,004
|
|
|
$
|
12,448
|
|
|
$
|
(77,496
|
)
|
|
|
N/M
|
|
|
$
|
(1,444
|
)
|
|
|
(11.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(14.05
|
)
|
|
$
|
2.19
|
|
|
$
|
2.44
|
|
|
$
|
(16.24
|
)
|
|
|
N/M
|
|
|
$
|
(.25
|
)
|
|
|
(10.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(14.05
|
)
|
|
$
|
2.19
|
|
|
$
|
2.43
|
|
|
$
|
(16.24
|
)
|
|
|
N/M
|
|
|
$
|
(.24
|
)
|
|
|
(9.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Radio
Broadcasting Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 vs. 2007
|
|
|
2007 vs. 2006
|
|
|
|
Years Ended December 31,
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
121,072
|
|
|
$
|
126,596
|
|
|
$
|
125,274
|
|
|
$
|
(5,524
|
)
|
|
|
(4.4
|
)%
|
|
$
|
1,322
|
|
|
|
1.1
|
%
|
Station operating expense
|
|
|
90,540
|
|
|
|
92,162
|
|
|
|
90,627
|
|
|
|
(1,622
|
)
|
|
|
(1.8
|
)%
|
|
|
1,535
|
|
|
|
1.7
|
%
|
Other operating income
|
|
|
|
|
|
|
|
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
(312
|
)
|
|
|
N/M
|
|
Impairment of intangible assets
|
|
|
114,979
|
|
|
|
|
|
|
|
|
|
|
|
114,979
|
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(84,447
|
)
|
|
$
|
34,434
|
|
|
$
|
34,959
|
|
|
$
|
(118,881
|
)
|
|
|
N/M
|
|
|
$
|
(525
|
)
|
|
|
(1.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
Broadcasting Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 vs. 2007
|
|
|
2007 vs. 2006
|
|
|
|
Years Ended December 31,
|
|
|
% Increase
|
|
|
% Increase
|
|
|
% Increase
|
|
|
% Increase
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
18,884
|
|
|
$
|
17,427
|
|
|
$
|
17,672
|
|
|
$
|
1,457
|
|
|
|
8.4
|
%
|
|
$
|
(245
|
)
|
|
|
(1.4
|
)%
|
Station operating expense
|
|
|
15,265
|
|
|
|
14,140
|
|
|
|
13,769
|
|
|
|
1,125
|
|
|
|
8.0
|
%
|
|
|
371
|
|
|
|
2.7
|
%
|
Gain on asset exchange
|
|
|
(506
|
)
|
|
|
|
|
|
|
|
|
|
|
(506
|
)
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
1,464
|
|
|
|
|
|
|
|
|
|
|
|
1,464
|
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
2,661
|
|
|
$
|
3,287
|
|
|
$
|
3,903
|
|
|
$
|
(626
|
)
|
|
|
(19.0
|
)%
|
|
$
|
(616
|
)
|
|
|
(15.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M=Not meaningful
Reconciliation
of segment operating income (loss) to consolidated operating
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008:
|
|
Radio
|
|
|
Television
|
|
|
Corporate and Other
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenue
|
|
$
|
121,072
|
|
|
$
|
18,884
|
|
|
$
|
|
|
|
$
|
139,956
|
|
Station operating expense
|
|
|
90,540
|
|
|
|
15,265
|
|
|
|
|
|
|
|
105,805
|
|
Corporate general and administrative
|
|
|
|
|
|
|
|
|
|
|
9,979
|
|
|
|
9,979
|
|
Gain on asset exchange
|
|
|
|
|
|
|
(506
|
)
|
|
|
|
|
|
|
(506
|
)
|
Impairment of intangible assets
|
|
|
114,979
|
|
|
|
1,464
|
|
|
|
|
|
|
|
116,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(84,447
|
)
|
|
$
|
2,661
|
|
|
$
|
(9,979
|
)
|
|
$
|
(91,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007:
|
|
Radio
|
|
|
Television
|
|
|
Corporate and Other
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenue
|
|
$
|
126,596
|
|
|
$
|
17,427
|
|
|
$
|
|
|
|
$
|
144,023
|
|
Station operating expense
|
|
|
92,162
|
|
|
|
14,140
|
|
|
|
|
|
|
|
106,302
|
|
Corporate general and administrative
|
|
|
|
|
|
|
|
|
|
|
9,800
|
|
|
|
9,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
34,434
|
|
|
$
|
3,287
|
|
|
$
|
(9,800
|
)
|
|
$
|
27,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006:
|
|
Radio
|
|
|
Television
|
|
|
Corporate and Other
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenue
|
|
$
|
125,274
|
|
|
$
|
17,672
|
|
|
$
|
|
|
|
$
|
142,946
|
|
Station operating expense
|
|
|
90,627
|
|
|
|
13,769
|
|
|
|
|
|
|
|
104,396
|
|
Corporate general and administrative
|
|
|
|
|
|
|
|
|
|
|
8,870
|
|
|
|
8,870
|
|
Other operating income
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
34,959
|
|
|
$
|
3,903
|
|
|
$
|
(8,870
|
)
|
|
$
|
29,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Consolidated
For the year ended December 31, 2008, consolidated net
operating revenue was $139,956,000 compared with $144,023,000
for the year ended December 31, 2007, a decline of
$4,067,000 or 3%. We had a decrease of approximately $5,083,000
in net operating revenue generated by stations that we owned or
operated for the comparable period in 2007 (same
station), and an increase in net operating revenue of
approximately $1,016,000 attributable to stations we did not own
and operate for the entire comparable period. Same station gross
national revenue and gross local revenue decreased approximately
$2,103,000 and $8,613,000, respectively, in the current year.
These decreases were offset by an increase in same station gross
political revenue of approximately $5,311,000. The increase in
gross political revenue was directly attributable to advertising
for the 2008 presidential, congressional, senatorial and local
races. The decrease in local revenue was primarily the result of
the significant declines in gross local revenue of our radio
stations in the Norfolk (26%) and Columbus (13%) markets. These
declines are attributable to the significant declines in radio
advertising spending in these specific markets. We do not expect
any significant improvements in these markets in the foreseeable
future. We have also experienced an overall decline in
advertising revenue as a result of the slowdown in the economy
and advertising spending in general, which we expect to continue
into the first half of 2009. Since 2009 is not an election year,
we expect gross political revenue to significantly decline from
2008.
Station operating expense was $105,805,000 for the year ended
December 31, 2008, compared with $106,302,000 for the year
ended December 31, 2007, a decrease of approximately
$497,000 or less than 1%. We had a decrease in station operating
expense of approximately $1,257,000 attributable to stations we
owned and operated for the entire comparable period, partially
offset by an increase of approximately $760,000 from those
stations that we did not own or operate for the comparable
period in 2007. The decrease in same station operating expense
was the direct result of the expense reductions in our radio
segment we began instituting in 2007 as a result of declines in
revenue, particularly in programming and advertising and
promotions. We also had a decline in selling and commission
expense directly attributable to the decrease in revenue. These
decreases were partially offset by an increase in depreciation
expense as a result of a change in estimated useful lives of
television analog equipment.
Operating loss for the year ended December 31, 2008 was
$91,765,000 compared to operating income of $27,921,000 for the
year ended December 31, 2007, a decrease of approximately
$119,686,000. The decrease in operating income to an operating
loss was due to a non-cash impairment charge of $116,443,000 in
connection with our review of broadcast licenses and goodwill
during the fourth quarter of 2008 (see Note 2 in the
accompanying notes to the consolidated financial statements).
The impairment charge was the result of a decrease in estimated
advertising revenue growth, a decrease in station transaction
multiples, and the decline in the Companys market
capitalization value. Additionally, the decrease in operating
income was the result of reduced net operating revenue described
in detail above, a $179,000 or 2% increase in corporate general
and administrative expenses partially offset by a $506,000 gain
from the exchange of equipment under an arrangement we have with
Sprint Nextel Corporation. The increase in corporate general and
administrative charges was primarily attributable to an increase
in officers life insurance expense of approximately
$477,000 that is the result of a decline in the cash surrender
value of the life insurance policies, and an increase in expense
related to launching our Interactive Media department of
approximately $234,000.
We reported a net loss of $66,492,000 ($14.05 per share on a
fully diluted basis) during the year ended December 31,
2008, compared with net income of $11,004,000 ($2.19 per share
on a fully diluted basis) for the year ended December 31,
2007, a decrease of approximately $77,496,000 (per share
information has been adjusted for the one-for-four reverse stock
split). The decrease was primarily the result of an operating
loss in 2008, as discussed above, offset by decreases in
interest expense and income tax expense of $1,781,000 and
$40,212,000, respectively. The decrease in interest expense was
attributable to an average reduction in market interest rates of
1.4%. The decrease in income tax expense was directly
attributable to operating performance and the fourth quarter
non-cash impairment charge.
37
Radio
Segment
For the year ended December 31, 2008, net operating revenue
of the radio segment was $121,072,000 compared with $126,596,000
for the year ended December 31, 2007, a decrease of
$5,524,000 or 4%. During 2008 we had an increase in net
operating revenue of approximately $1,016,000 attributable to
stations we did not own and operate for the entire comparable
period. We had a decrease of approximately $6,540,000 in net
operating revenue generated by radio stations that we owned or
operated for the comparable period in 2007 (same
station). The decrease in same station revenue was
primarily attributable to same station gross national revenue
and same station gross local revenue decreases of approximately
$2,135,000 and $8,158,000, respectively, partially offset by an
increase in same station gross political revenue of $3,119,000.
The decrease in local revenue was primarily the result of the
significant declines in gross local revenue of our radio
stations in the Norfolk (26%) and Columbus (13%) markets. These
declines are attributable to the significant declines in radio
advertising spending in these specific markets. We do not expect
any significant improvements in these markets in the foreseeable
future. We have also experienced an overall decline in
advertising revenue as a result of the slowdown in the economy
and advertising spending in general, which we expect to continue
into the first half of 2009. The increase in gross political
revenue was directly attributable to advertising for the 2008
presidential, congressional, senatorial and local races. Since
2009 is not an election year, we expect gross political revenue
to significantly decline from 2008.
Station operating expense for the radio segment was $90,540,000
for the year ended December 31, 2008, compared with
$92,162,000 for the year ended December 31, 2007, a
decrease of approximately $1,622,000 or 2%. The decrease
resulted from a decrease of $2,382,000 in same station operating
expense, offset by an increase of $760,000 from the operation of
radio stations that we did not own or operate for the comparable
period in 2007. The decrease in same station radio operating
expense was the direct result of the expense reductions in our
radio segment we began instituting in 2007 as a result of
declines in revenue, particularly in programming and advertising
and promotions. We also had a decline in selling and commission
expense directly attributable to the decrease in revenue.
Operating loss in the radio segment for the year ended
December 31, 2008 was $84,447,000 compared to operating
income of $34,434,000 for the year ended December 31, 2007,
a decrease of approximately $118,881,000. The decrease in
operating income to an operating loss was due to a non-cash
impairment charge of $114,979,000 in connection with our review
of broadcast licenses and goodwill during the fourth quarter of
2008 (see Note 2 in the accompanying notes to the
consolidated financial statements). The impairment charge was
the result of a decrease in estimated advertising revenue
growth, a decrease in station transaction multiples and the
decline in the Companys market capitalization value. The
reduction in net operating revenue, described in detail above,
also contributed to the decrease in operating income in the
current year.
Television
Segment
For the year ended December 31, 2008, net operating revenue
of our television segment was $18,884,000 compared with
$17,427,000 for the year ended December 31, 2007, an
increase of $1,457,000 or 8%. The improvement in net operating
revenue was attributable to an increase in gross political
revenue of approximately $2,192,000 as compared to the prior
year period. The increase in gross political revenue was
directly attributable to advertising for the 2008 presidential,
congressional, senatorial and local races. These increases were
partially offset by a decline in gross local revenue in our
Victoria, TX market. Since 2009 is not an election year, we
expect gross political revenue to significantly decline from
2008.
Station operating expense in the television segment for the year
ended December 31, 2008 was $15,265,000 compared with
$14,140,000 for the year ended December 31, 2007, an
increase of approximately $1,125,000 or 8%. This increase was
attributed to increased expenses as a result of the improvement
in sales, and higher depreciation expense of approximately
$674,000 as a result of an acceleration in the estimated useful
life of television analog equipment.
Operating income in the television segment for the year ended
December 31, 2008 was $2,661,000 compared to $3,287,000 for
the year ended December 31, 2007, a decrease of
approximately $626,000 or 19%. The decrease in operating income
was due to a non-cash impairment charge of $1,464,000 in
connection
38
with our review of broadcast licenses and goodwill during the
fourth quarter of 2008 (see Note 2 in the accompanying
notes to the consolidated financial statements). The impairment
charge was the result of a decrease in estimated advertising
revenue growth, a decrease in station transaction multiples and
the decline in the Companys market capitalization value.
The 2008 operating income also includes an increase in political
revenue, offset by an increase in depreciation expense, as
discussed above. Also contributing to the change in operating
results for the current year were gains of $506,000 from the
exchange of equipment under an arrangement we have with Sprint
Nextel Corporation in our Victoria, TX and Greenville, MS
markets. We expect to record additional gains of $300,000 to
$400,000 in the third quarter of 2009 as these asset exchanges
occur in our Joplin, MO television market.
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006
Consolidated
For the year ended December 31, 2007, consolidated net
operating revenue was $144,023,000 compared with $142,946,000
for the year ended December 31, 2006, an increase of
$1,077,000 or 1%. Net operating revenue generated by stations we
owned and operated for the entire comparable period (same
station) increased approximately $81,000. Although, same
station gross national and gross local revenue increased 3% and
1%, respectively, these increases were offset by a decrease in
same station gross political revenue of approximately
$2,475,000. During 2007 we had an increase of $996,000 in net
revenue generated by stations that we did not own or operate for
the comparable period in 2006.
Station operating expense increased by $1,906,000 or 2% to
$106,302,000 for the year ended December 31, 2007, compared
with $104,396,000 for the year ended December 31, 2006.
Station operating expense increased approximately $626,000 from
the operation of radio stations that we did not own or operate
for the comparable period in 2006. The balance of the increase,
$1,280,000 was from same station operating expense, $1,143,000
of which was related to our decision to continue to invest in
the future of our business with additional advertising,
promotion and selling expenses, including additional sales
compensation.
Operating income for the year ended December 31, 2007 was
$27,921,000 compared to $29,992,000 for the year ended
December 31, 2006, a decrease of $2,071,000 or 7%. The
majority of the decrease was attributable to the increase in net
operating revenue, offset by the increase in station operating
expense, as discussed above, and an increase in corporate
general and administrative charges of approximately $930,000.
The increase in corporate general and administrative charges
resulted primarily from an increase in stock based compensation
expense of $272,000 and from the creation of an Interactive
Media department for $420,000. Operating income for the year
ended December 31, 2006 included $312,000 related primarily
to business interruption proceeds recorded in our Springfield,
Illinois market.
We generated net income in the amount of approximately
$11,004,000 ($2.19 per share on a fully diluted basis) during
the year ended December 31, 2007 compared with $12,448,000
($2.43 per share on a fully diluted basis) for the year ended
December 31, 2006, a decrease of approximately $1,444,000
or 12%. The decrease was the result of the decrease in operating
income discussed above, a $773,000 increase in other expense,
offset by decrease in interest expense and income tax expense of
approximately $425,000 and $975,000, respectively. The decrease
in interest expense was primarily the result of the decrease in
debt from the prior year. The decrease in income tax expense was
attributable to our operating performance. The change in other
expense was principally the result of a $500,000 gain recognized
in the prior year for a slight alteration to one of our Keene,
New Hampshire FMs signal patterns.
Radio
Segment
For the year ended December 31, 2007, net operating revenue
in the radio segment was $126,596,000 compared with $125,274,000
for the year ended December 31, 2006, an increase of
$1,322,000. Net operating revenue generated by radio stations
that we owned and operated for the entire comparable period
increased by approximately $326,000, and approximately $996,000
increase in revenue was generated by radio stations and radio
networks that we did not own or operate for the comparable
period in 2006. Same station gross national revenue (excluding
political) and same station gross local revenue increased
approximately 1% each, but were
39
offset by a decrease in gross political revenue of approximately
44%. We had significantly increased operating revenue (10% or
greater than comparable period) in our Clarksville, Ithaca and
Keene markets, which were offset by significantly decreased
revenue in our Norfolk market.
Station operating expense in our radio segment increased by
$1,535,000 to $92,162,000 for the year ended December 31,
2007, compared with $90,627,000 for the year ended
December 31, 2006. On a same station basis, station
operating expense increased by approximately $909,000 or 1%. The
majority of the increase is attributable to higher selling and
commission expense. Radio segment station operating expense
increased by approximately $626,000 from the operation of
stations that we did not own or operate for the comparable
period in 2006.
Operating income in the radio segment for the year ended
December 31, 2007 was $34,434,000 compared to $34,959,000
for the year ended December 31, 2006, a decrease of
approximately $525,000 or 2%. The decrease was the result of the
increase in net operating revenue, offset by the increase in
station operating expense and a decrease in other operating
income of $312,000 related primarily to business interruption
proceeds recorded in our Springfield, Illinois market in 2006.
Television
Segment
For the year ended December 31, 2007, net operating revenue
in the television segment decreased $245,000 or 1% to
$17,427,000 compared with $17,672,000 for the year ended
December 31, 2006. The change in net operating revenue was
attributable to a $1,451,000 decrease in gross political
revenue, partially offset by an increase in gross national
revenue (excluding political) and gross local revenue (excluding
political) of approximately 14% and 5%, respectively.
Station operating expense in our television segment increased by
$371,000 or 3% to $14,140,000 for the year ended
December 31, 2007, compared with $13,769,000 for the year
ended December 31, 2006. The increase in station operating
expense was primarily attributable to an increase in selling and
commission expenses as a result of increased national and local
revenue (excluding political).
Operating income in the television segment for the year ended
December 31, 2007 was $3,287,000 compared to $3,903,000 for
the year ended December 31, 2006, a decrease of
approximately $616,000 or 16%. The decrease was primarily
attributable to the decrease in gross political revenue of
approximately 83%.
Liquidity
and Capital Resources
Debt
Arrangements and Debt Service Requirements
As of December 31, 2008, we had $135,411,000 of current and
long-term debt outstanding and approximately $40,650,000 of
unused borrowing capacity under our Credit Agreement.
Our Credit Agreement is a $175,000,000 reducing revolving line
of credit maturing on July 29, 2012. Our indebtedness under
the Credit Agreement is secured by a first priority lien on
substantially all of our assets and of our subsidiaries, by a
pledge of our subsidiaries stock and by a guarantee of our
subsidiaries.
The Credit Agreement may be used for general corporate purposes,
including working capital and capital expenditures. On each of
March 31, 2008, June 30, 2008, September 30, 2008
and December 31, 2008, the Revolving Commitments (as
defined in the Credit Agreement) were permanently reduced by
$6,250,000.
Interest rates under the Credit Agreement are payable, at our
option, at alternatives equal to LIBOR at the reset date (0.50%
to 2.5625% at December 31, 2008) plus 0.75% to 1.25%
or the Agent banks base rate plus 0%.
On March 9, 2009, we amended our Credit Agreement to
(i) exclude certain items from the definition of Fixed
Charges effective December 31, 2008, (ii) increase the
minimum Fixed Charge Coverage ratio effective December 31,
2008, (iii) increase the maximum Leverage Ratio effective
December 31, 2008, (iv) reduce the Revolving
Commitments to $150,000,000, (v) revise the interest rates
and commitment fees and (vi) impose certain other
limitations on the Company with respect to restricted payments,
acquisitions and stock purchases.
40
In addition, we agreed to pay each lender a fee. The lender fee
plus amendment costs were approximately $1 million.
On September 30, 2009, the Revolving Commitments will be
permanently reduced by $1,250,000 and will continue to be
permanently reduced at the end of each calendar quarter
thereafter in amounts ranging from 4.375% to 12.5% of the total
Revolving Commitments that was in effect on March 31, 2008.
In addition, the Revolving Commitments shall be further reduced
by specified percentages of Excess Cash Flow (as defined in the
Credit Agreement) based on leverage ratios. Any outstanding
balance under the Credit Agreement will be due on the maturity
date of July 29, 2012.
Beginning March 9, 2009, as part of the amendment to the
Credit Agreement, interest on borrowings are payable, at our
option, at an annual rate equal to LIBOR at the reset date plus
2.75% to 4.75% or the Agent banks base rate plus 1.75% to
3.75%. The spread over LIBOR and the base rate vary from time to
time, depending upon our financial leverage. We are also
required to pay quarterly commitment fees of 0.375% to 0.750%
per annum on the unused portion of the Credit Agreement.
The Credit Agreement contains a number of financial covenants
(all of which we were in compliance with at December 31,
2008) 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.
In 2003, we entered into an agreement of understanding with
Surtsey, whereby we have guaranteed up to $1,250,000 of the debt
incurred by Surtsey to acquire the broadcast license for
KFJX-TV
station in Pittsburg, Kansas, a full power Fox affiliate. At
December 31, 2008 there was $1,061,000 outstanding under
this agreement. Under the FCCs ownership rules we are
prohibited from owning or having an attributable or cognizable
interest in this station. We do not have any recourse provision
in connection with our guarantee that would enable us to recover
any amounts paid under the guarantee. As a result, at
December 31, 2008 we have recorded $1,061,000 in debt and
$1,061,000 in intangible assets, primarily broadcast licenses.
In consideration for our guarantee, Surtsey has entered into
various agreements with us relating to the station, including a
Shared Services Agreement, Technical Services Agreement,
Agreement for the Sale of Commercial Time, Option Agreement and
Broker Agreement.
Sources
and Uses of Cash
During the years ended December 31, 2008, 2007 and 2006, we
had net cash flows from operating activities of $25,291,000,
$26,774,000 and $29,648,000, respectively. We believe that cash
flow from operations will be sufficient to meet quarterly debt
service requirements for interest and scheduled payments of
principal under the Credit Agreement. However, if such cash flow
is not sufficient, we may be required to sell additional equity
securities, refinance our obligations or dispose of one or more
of our properties in order to make such scheduled payments.
There can be no assurance that we would be able to effect any
such transactions on favorable terms, if at all.
The following acquisitions in 2008 were financed through funds
generated from operations and additional borrowings of
$10,500,000 under our credit agreement:
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On September 5, 2008, in connection with a city of license
change for WJZK(FM), we exchanged $242,000 in cash and a tower,
antenna, and transmitter with a fair market value (which
approximates cost) of approximately $1,591,000, with another
radio station for a broadcast license.
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On January 21, 2004, we entered into agreements to acquire
an FM radio station
(WOXL-FM)
serving the Asheville, North Carolina market. On
November 1, 2002 we began providing programming under a
Sub-Time
Brokerage Agreement to
WOXL-FM, and
on January 31, 2008 we closed on the acquisition for
approximately $9,463,000 of which approximately $9,354,000 was
paid in 2008 and $109,000 was paid in prior years.
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41
The following acquisitions in 2007 were financed through funds
generated from operations:
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On November 1, 2007, we acquired an FM radio station
(WCLZ-FM)
serving the Portland, Maine market for approximately $3,555,000.
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On August 31, 2007, we acquired two radio stations
(WKRT-AM and
WIII-FM
licensed to Cortland, New York, and an FM translator station
that rebroadcasts WIII) serving the Ithaca, New York market for
approximately $3,843,000. Due to FCC ownership rules we were not
permitted to own
WKRT-AM and
as part of the transaction we donated
WKRT-AM to a
non-profit organization.
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On January 2, 2007, we acquired one FM radio station
(WCNR-FM)
serving the Charlottesville, Virginia market for $3,330,000. On
September 1, 2006 we began providing programming under an
LMA to
WCNR-FM. We
funded this acquisition on December 31, 2006.
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On January 16, 2007, we agreed to pay $50,000 to cancel a
clause in our 2003 purchase agreement of
WSNI-FM in
the Winchendon, Massachusetts market that would require us to
pay the seller an additional $500,000 if within five years of
closing we obtained approval from the FCC for a city of license
change.
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On January 2, 2007, in connection with the 2003 acquisition
of one FM radio station
(WJZA-FM)
serving the Columbus, Ohio market, we paid an additional
$850,000 to the seller upon obtaining approval from the FCC for
a city of license change.
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The following acquisitions in 2006 were financed through funds
generated from operations:
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On August 7, 2006, we acquired one FM radio station
(WTMT-FM)
serving the Tazewell, Tennessee market for approximately
$4,186,000 of which approximately $789,000 was paid in 2006,
$2,047,000 was paid in 2007, and $1,350,000 was paid in 2008. We
relocated the tower to Weaverville, North Carolina (serving the
Asheville, North Carolina market) and started broadcasting in
Asheville on June 8, 2007.
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In October 2006, we acquired a tower, antenna and transmitter
and entered into agreements with another radio station in
connection with the city of license change for
WJZA-FM
mentioned above for approximately $2,069,000.
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In January 2008, our board of directors authorized an increase
to our Stock Buy-Back Program so that we may purchase a total of
$60,000,000 of our Class A Common Stock. From the inception
of the Stock Buy-Back program in 1998 through December 31,
2008, we have repurchased 1,376,403 shares of our
Class A Common Stock for approximately $45,462,000. During
the year ended December 31, 2008 we repurchased an
aggregate of 899,601 shares for approximately $19,210,000.
The terms of the Credit Agreement, as amended on March 9,
2009, restrict our ability to repurchase our Class A Common
Stock.
Our capital expenditures, exclusive of acquisitions, for the
year ended December 31, 2008 were approximately $7,127,000
($9,852,000 in 2007). We anticipate capital expenditures in 2009
to be approximately $3,500,000, which we expect to finance
through funds generated from operations or additional borrowings
under the Credit Agreement.
Summary
Disclosures About Contractual Obligations
We have future cash obligations under various types of contracts
under the terms of our Credit Agreement, operating leases,
programming contracts, employment agreements, and other
operating contracts.
42
The following table reflects a summary of our contractual cash
obligations and other commercial commitments as of
December 31, 2008:
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Payments Due By Period
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Less Than
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More Than
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Contractual Obligations(1):
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Total
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1 Year
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1 to 3 Years
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4 to 5 Years
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5 Years
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(In thousands)
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Long-Term Debt Obligations(2)
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$
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135,411
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$
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1,061
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$
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84,350
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$
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50,000
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$
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Operating Leases
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6,994
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1,587
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2,218
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1,276
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1,913
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Purchase Obligations(3)
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29,790
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13,384
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11,567
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4,069
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770
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Other Long-Term Liabilities
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Total Contractual Cash Obligations
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$
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172,195
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$
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16,032
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$
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98,135
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$
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55,345
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$
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2,683
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(1) |
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The above amounts do not include interest, which is primarily
variable in amount. |
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(2) |
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Under our Credit Agreement, the maturity on outstanding debt of
$134,350,000 could be accelerated if we do not maintain certain
covenants. Includes the guarantee of debt of a related party of
$1,061,000 (see Note 10 of the Notes to Consolidated
Financial Statements). |
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(3) |
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Includes $17,124,000 in obligations under employment agreements
and contracts with on-air personalities, other employees, and
our president, CEO, and chairman, Edward K. Christian and
$12,666,000 in purchase obligations under general operating
agreements and contracts including but not limited to syndicated
programming contracts; sports programming rights; software
rights; ratings services; television advertising; and other
operating expenses. |
We anticipate that the above contractual cash obligations will
be financed through funds generated from operations or
additional borrowings under the Credit Agreement, or a
combination thereof.
Critical
Accounting Policies and Estimates
Our consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States, which require us to make estimates, judgments and
assumptions that affect the reported amounts of certain assets,
liabilities, revenues, expenses and related disclosures and
contingencies. We evaluate estimates used in preparation of our
financial statements on a continual basis, including estimates
related to the following:
Revenue Recognition: Revenue from the sale of
commercial broadcast time to advertisers is recognized when
commercials are broadcast. Revenue is reported net of
advertising agency commissions. Agency commissions, when
applicable, are based on a stated percentage applied to gross
billing. All revenue is recognized in accordance with the
Securities and Exchange Commissions (SEC)
Staff Accounting Bulletin (SAB) No. 104, Topic
13, Revenue Recognition Revised and Updated.
Carrying Value of Accounts Receivable and Related Allowance
for Doubtful Accounts: We evaluate the
collectability of our accounts receivable based on a combination
of factors. In circumstances where we are aware of a specific
customers inability to meet its financial obligations to
us (e.g., bankruptcy filings, credit history, etc.), we record a
specific reserve for bad debts against amounts due to reduce the
net recognized receivable to the amount we reasonably believe
will be collected. For all other customers, we recognize
reserves for bad debts based on past loss history and the length
of time the receivables are past due, ranging from 50% for
amounts 90 days outstanding to 100% for amounts over
120 days outstanding. If our evaluations of the
collectability of our accounts receivable differ from actual
results, additional bad debt expense and allowances may be
required. Our historical estimates have been a reliable method
to estimate future allowances and our reserves have averaged
approximately 4% of our outstanding receivables. At
December 31, 2008 we increased the average reserves to 5%
of our outstanding receivables and we expect bad debt expense to
continue to trend upward in 2009 as a result of the current
economic conditions. The effect of an increase in our allowance
of 1% of our outstanding receivables as of December 31,
2008, from 5.06% to 6.06% or
43
from $1,071,000 to $1,282,000 would result in a decrease in net
income of $122,000, net of taxes for the year ended
December 31, 2008.
Purchase Accounting: We account for our
acquisitions under the purchase method of accounting. The total
cost of acquisitions is allocated to the underlying net assets,
based on their respective estimated fair values as of the
acquisition date. The excess of consideration paid over the
estimated fair values of the net assets acquired is recorded as
goodwill. Determining the fair values of the net assets acquired
and liabilities assumed requires managements judgment and
often involves the use of significant estimates including
assumptions with respect to future cash inflows and outflows,
discount rates, asset lives and market multiples, among other
items.
Broadcast Licenses and Goodwill: We have made
acquisitions in the past for which a significant amount of the
purchase price was allocated to broadcast licenses and goodwill
assets. As of December 31, 2008, we have recorded
approximately $107,673,000 in broadcast licenses, which
represents 48.6% of our total assets at that date. In assessing
the recoverability of these assets, we must conduct impairment
testing required by SFAS No. 142 and charge to
operations an impairment expense only in the periods in which
the recorded value of these assets is more than their fair
value. During the fourth quarter of 2008, we recorded an
impairment loss of $116,443,000 for broadcast licenses and
goodwill. We believe our estimate of the value of our broadcast
licenses and goodwill assets is a critical accounting estimate
as the value is significant in relation to our total assets, and
our estimate of the value uses assumptions that incorporate
variables based on past experiences and judgments about future
operating performance of our stations. These variables include
but are not limited to: (1) the forecast growth rate of
each radio and television market, including population,
household income, retail sales and other expenditures that would
influence advertising expenditures; (2) market share and
profit margin of an average station within a market;
(3) estimated capital
start-up
costs and losses incurred during the early years;
(4) risk-adjusted discount rate; (5) the likely media
competition within the market area; and (6) terminal
values. Changes in our estimates of the fair value of these
assets could result in material future period write-downs in the
carrying value of our broadcast licenses. Please refer to
Note 2 Broadcast Licenses, Goodwill and Other
Intangible Assets, in the accompanying notes to the consolidated
financial statements for a discussion of several key assumptions
used in the fair value estimate of our broadcast licenses and
goodwill during our fourth quarter interim impairment test.
Market Capitalization: As of December 31,
2008, our total market capitalization was $37.3 million
less than our book value. We believe this difference can be
attributed to the recent volatility of our stock price in the
current economic environment and to the control premium that a
market participant may pay in the event we were acquired. In the
accompanying notes to the financial statements, please refer to
Note 2 Broadcast Licenses, Goodwill and Other
Intangible Assets, for a discussion of the impact to our equity
book value as a result of the fourth quarter 2008 impairment
loss.
Stock Based Compensation: We adopted the
Revised SFAS No. 123, Share-Based Payment,
(SFAS 123R) on January 1, 2006 using the
modified prospective transition method and the Black-Scholes
valuation model. Under the fair value recognition provisions of
SFAS 123R, stock based compensation cost is measured at the
grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the vesting
period. Determining the fair value of share-based awards at
grant date requires assumptions and judgments about expected
volatility and forfeiture rates, among other factors. If actual
results differ significantly from these assumptions, then stock
based compensation expense may differ materially in the future
from that previously recorded.
Litigation and Contingencies: On an ongoing
bases, we evaluate our exposure related to litigation and
contingencies and record a liability when available information
indicates that a liability is probable and estimable. We also
disclose significant matters that are reasonably possible to
result in a loss or are probable but not estimable.
Market
Risk and Risk Management Policies
Our earnings are affected by changes in short-term interest
rates as a result of our long-term debt arrangements. If market
interest rates averaged 1% more in 2008 than they did during
2008, our interest
44
expense would increase, and income before taxes would decrease
by $1,340,000 ($1,322,000 in 2007). These amounts are determined
by considering the impact of the hypothetical interest rates on
our borrowing cost, short-term investment balances, and interest
rate swap agreements, if applicable. This analysis does not
consider the effects of the reduced level of overall economic
activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management would likely
take actions to further mitigate its exposure to the change.
However, due to the uncertainty of the specific actions that
would be taken and their possible effects, the sensitivity
analysis assumes no changes in our financial structure.
Inflation
The impact of inflation on our operations has not been
significant to date. There can be no assurance that a high rate
of inflation in the future would not have an adverse effect on
our operations.
Recent
Accounting Pronouncements
In April 2008, the Financial Accounting Standards Board
(FASB) issued FSP
FAS 142-3,
Determination of the Useful Life of Intangible
Assets (FSP
FAS 142-3).
The FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. The intent of the FSP is to improve the
consistency between the useful life of a recognized intangible
asset under SFAS No. 142 and the period of expected
cash flows used to measure the fair value of the asset under
other accounting principles generally accepted in the United
States of America. The FSP is effective for financial statements
issued for fiscal years beginning after December 15, 2008
(as of January 1, 2009 for the Company), and interim
periods within those fiscal years. Early adoption is prohibited.
The guidance for determining the useful life of a recognized
intangible asset shall be applied prospectively to intangible
assets acquired after the effective date. Certain disclosure
requirements shall be applied prospectively to all intangible
assets recognized as of, and subsequent to, the effective date.
We do not currently expect the adoption of
FSP 142-3
to have a material impact on our consolidated financial
position, results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS 141R), which changes the principles
and requirements for how the acquirer of a business recognizes
and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. SFAS 141R also provides guidance
for recognizing and measuring the goodwill acquired in the
business combination and determines what information to disclose
to enable users of the financial statements to evaluate the
nature and financial effect of the business combination.
SFAS 141R is effective prospectively for fiscal years
beginning after December 15, 2008 (as of January 1,
2009 for the Company). This standard will change the
Companys accounting treatment for business combinations on
a prospective business.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 151
(SFAS 160), which establishes new
accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008 (as of
January 1, 2009 for the Company). We do not currently
expect the adoption of SFAS 160 to have a material impact
on our consolidated financial position, results of operations
and cash flows.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157) which defines fair value,
establishes a framework for measuring fair value and expands
disclosures about fair value measurements. Companies were
required to apply the recognition and disclosure provision of
SFAS 157 for financial assets and financial liabilities
effective January 1, 2008. In February 2008, the FASB
issued FSP
FAS 157-2
that delayed by one year, the effective date of SFAS 157
for the majority of nonfinancial assets and nonfinancial
liabilities. We adopted the provisions of SFAS 157
effective January 1, 2008 for certain assets which were not
included in FSP
FAS 157-2,
which did not have a material impact or effect on our
consolidated financial position, results of operations and cash
flows. We do not expect the adoption of the deferred portion of
SFAS 157 to have a material impact on our consolidated
financial position, results of operations and cash flows.
45
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Item 7A.
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Quantitative
and Qualitative Disclosures About Market Risk.
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Information appearing under the caption Market Risk and
Risk Management Policies in Item 7 is hereby
incorporated by reference.
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Item 8.
|
Financial
Statements and Supplementary Data
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The financial statements attached hereto are filed as part of
this annual report.
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Item 9.
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Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
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None.
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Item 9A.
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Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company
carried out an evaluation, under the supervision and with the
participation of the Companys management, including its
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to
Rule 13a-15
of the Securities Exchange Act of 1934 (the Exchange
Act). Based upon that evaluation, the Companys Chief
Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures over financial
reporting were effective to ensure that material information
required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act to be recorded,
processed, summarized and reported within the time periods
specified in the Commissions rules and forms.
Changes
in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial
reporting during the quarter ended December 31, 2008 that
have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rule 13a-15(f).
Under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Based on our evaluation, management concluded that our internal
control over financial reporting was effective as of
December 31, 2008. Our internal control over financial
reporting as of December 31, 2008 has been audited by
Ernst & Young LLP, an independent registered public
accounting firm, as stated in its report which appears below.
46
Attestation
Report of the Independent Registered Public Accounting
Firm
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Saga Communications, Inc.
We have audited Saga Communications, Inc.s internal
control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Saga Communications, Inc.s management is responsible for
maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Saga Communications, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2008, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Saga Communications, Inc. as of
December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2008 of Saga Communications, Inc. and our
report dated March 30, 2009 expressed an unqualified
opinion thereon.
Detroit, Michigan
March 30, 2009
47
|
|
Item 9B.
|
Other
Information
|
None.
Part III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item is incorporated by
reference to the information contained in our Proxy Statement
for the 2009 Annual Meeting of Stockholders to be filed not
later than 120 days after the end of the Companys
fiscal year. See also Item 1. Business
Executive Officers.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is incorporated by
reference to the information contained in our Proxy Statement
for the 2009 Annual Meeting of Stockholders to be filed not
later than 120 days after the end of the Companys
fiscal year.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item is incorporated by
reference to the information contained in our Proxy Statement
for the 2009 Annual Meeting of Stockholders to be filed not
later than 120 days after the end of the Companys
fiscal year. In addition, the information contained in the
Securities Authorized for Issuance Under Equity
Compensation Plan Information subheading under Item 5
of this report is incorporated by reference herein.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is incorporated by
reference to the information contained in our Proxy Statement
for the 2009 Annual Meeting of Stockholders to be filed not
later than 120 days after the end of the Companys
fiscal year.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item is incorporated by
reference to the information contained in our Proxy Statement
for the 2009 Annual Meeting of Stockholders to be filed not
later than 120 days after the end of the Companys
fiscal year.
48
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
(a)
|
1.
Financial Statements
|
|
|
|
|
|
|
|
|
|
|
The following consolidated financial statements attached hereto
are filed as part of this annual report:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
|
Financial
Statement Schedules
|
Schedule II Valuation and qualifying accounts is disclosed
in Note 1 to the Consolidated Financial Statements attached
hereto and filed as part of this annual report. All other
schedules for which provision are made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
The Exhibits filed in response to Item 601 of
Regulation S-K
are listed in the Exhibit Index, which is incorporated
herein by reference.
49
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Saga Communications, Inc.
We have audited the accompanying consolidated balance sheets of
Saga Communications, Inc. (the Company) as of
December 31, 2008 and 2007, and the related consolidated
statements of operations, shareholders equity, and cash
flows for each of the three years in the period ended
December 31, 2008. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Saga Communications, Inc. at
December 31, 2008 and 2007, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2008, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Saga
Communications, Inc.s internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 30, 2009 expressed an
unqualified opinion thereon.
Detroit, Michigan
March 30, 2009
50
Saga
Communications, Inc.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,992
|
|
|
$
|
13,343
|
|
Accounts receivable, less allowance of $1,071 ($988 in 2007)
|
|
|
20,091
|
|
|
|
23,449
|
|
Prepaid expenses and other current assets
|
|
|
5,072
|
|
|
|
2,197
|
|
Barter transactions
|
|
|
1,532
|
|
|
|
1,580
|
|
Deferred income taxes
|
|
|
1,114
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
34,801
|
|
|
|
41,382
|
|
Net property and equipment
|
|
|
73,383
|
|
|
|
76,217
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Broadcast licenses, net
|
|
|
107,673
|
|
|
|
163,102
|
|
Goodwill, net
|
|
|
|
|
|
|
49,661
|
|
Other intangibles, deferred costs and investments, net of
accumulated amortization of $12,964 ($12,571 in 2007)
|
|
|
5,603
|
|
|
|
7,282
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
113,276
|
|
|
|
220,045
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
221,460
|
|
|
$
|
337,644
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,447
|
|
|
$
|
3,017
|
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
Payroll and payroll taxes
|
|
|
7,326
|
|
|
|
7,722
|
|
Other
|
|
|
3,804
|
|
|
|
4,848
|
|
Barter transactions
|
|
|
1,786
|
|
|
|
1,720
|
|
Current portion of long-term debt
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
15,424
|
|
|
|
17,307
|
|
Deferred income taxes
|
|
|
3,294
|
|
|
|
36,829
|
|
Long-term debt
|
|
|
134,350
|
|
|
|
129,911
|
|
Broadcast program rights
|
|
|
1,367
|
|
|
|
1,589
|
|
Other
|
|
|
1,928
|
|
|
|
2,932
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, 1,500 shares authorized, none issued and
outstanding
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
Class A common stock, $.01 par value,
35,000 shares authorized, 4,770 issued (4,744 in 2007)
|
|
|
47
|
|
|
|
47
|
|
Class B common stock, $.01 par value,
3,500 shares authorized, 600 issued and outstanding (598 in
2007)
|
|
|
6
|
|
|
|
6
|
|
Additional paid-in capital
|
|
|
51,951
|
|
|
|
50,760
|
|
Retained earnings
|
|
|
45,645
|
|
|
|
112,137
|
|
Treasury stock (1,163 shares in 2008 and 271 in 2007, at
cost)
|
|
|
(32,552
|
)
|
|
|
(13,874
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
65,097
|
|
|
|
149,076
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
221,460
|
|
|
$
|
337,644
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
51
Saga
Communications, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Net operating revenue
|
|
$
|
139,956
|
|
|
$
|
144,023
|
|
|
$
|
142,946
|
|
Station operating expense
|
|
|
105,805
|
|
|
|
106,302
|
|
|
|
104,396
|
|
Corporate general and administrative
|
|
|
9,979
|
|
|
|
9,800
|
|
|
|
8,870
|
|
Gain on asset exchange
|
|
|
(506
|
)
|
|
|
|
|
|
|
|
|
Other operating income
|
|
|
|
|
|
|
|
|
|
|
(312
|
)
|
Impairment of intangible assets
|
|
|
116,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231,721
|
|
|
|
116,102
|
|
|
|
112,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(91,765
|
)
|
|
|
27,921
|
|
|
|
29,992
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
7,173
|
|
|
|
8,954
|
|
|
|
9,379
|
|
Other
|
|
|
76
|
|
|
|
273
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
(99,014
|
)
|
|
|
18,694
|
|
|
|
21,113
|
|
Income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
1,357
|
|
|
|
2,546
|
|
|
|
3,482
|
|
Deferred
|
|
|
(33,879
|
)
|
|
|
5,144
|
|
|
|
5,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,522
|
)
|
|
|
7,690
|
|
|
|
8,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(66,492
|
)
|
|
$
|
11,004
|
|
|
$
|
12,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(14.05
|
)
|
|
$
|
2.19
|
|
|
$
|
2.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
4,734
|
|
|
|
5,023
|
|
|
|
5,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(14.05
|
)
|
|
$
|
2.19
|
|
|
$
|
2.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares
|
|
|
4,734
|
|
|
|
5,029
|
|
|
|
5,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
52
Saga
Communications, Inc.
Consolidated
Statements of Stockholders Equity
Years ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Stock-
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury
|
|
|
Unearned
|
|
|
holders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Compensation
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2006
|
|
|
4,698
|
|
|
$
|
47
|
|
|
|
592
|
|
|
$
|
6
|
|
|
$
|
48,798
|
|
|
$
|
88,685
|
|
|
$
|
(11,002
|
)
|
|
$
|
(710
|
)
|
|
$
|
125,824
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,448
|
|
|
|
|
|
|
|
|
|
|
|
12,448
|
|
Reclassification of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(710
|
)
|
|
|
|
|
|
|
|
|
|
|
710
|
|
|
|
|
|
Net proceeds from exercised options
|
|
|
3
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
|
|
Issuance of restricted stock
|
|
|
22
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334
|
|
Share-based compensation cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
760
|
|
Purchase of shares held in treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,487
|
)
|
|
|
|
|
|
|
(3,487
|
)
|
Employee stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202
|
)
|
|
|
|
|
|
|
408
|
|
|
|
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
4,723
|
|
|
$
|
47
|
|
|
|
599
|
|
|
$
|
6
|
|
|
$
|
49,131
|
|
|
$
|
101,133
|
|
|
$
|
(14,081
|
)
|
|
$
|
|
|
|
$
|
136,236
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,004
|
|
|
|
|
|
|
|
|
|
|
|
11,004
|
|
Conversion of shares from Class B to Class A
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from exercised options
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434
|
|
Issuance of restricted stock
|
|
|
9
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted stock
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423
|
|
Share-based compensation cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
943
|
|
Purchase of shares held in treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
(126
|
)
|
Employee stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(171
|
)
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
4,744
|
|
|
$
|
47
|
|
|
|
598
|
|
|
$
|
6
|
|
|
$
|
50,760
|
|
|
$
|
112,137
|
|
|
$
|
(13,874
|
)
|
|
$
|
|
|
|
$
|
149,076
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66,492
|
)
|
|
|
|
|
|
|
|
|
|
|
(66,492
|
)
|
Conversion of shares from Class B to Class A
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from exercised options
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
Issuance of restricted stock
|
|
|
23
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted stock
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
508
|
|
Share-based compensation cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
925
|
|
Purchase of shares held in treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,210
|
)
|
|
|
|
|
|
|
(19,210
|
)
|
Employee stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(410
|
)
|
|
|
|
|
|
|
532
|
|
|
|
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
4,770
|
|
|
$
|
47
|
|
|
|
600
|
|
|
$
|
6
|
|
|
$
|
51,951
|
|
|
$
|
45,645
|
|
|
$
|
(32,552
|
)
|
|
$
|
|
|
|
$
|
65,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
53
Saga
Communications, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(66,492
|
)
|
|
$
|
11,004
|
|
|
$
|
12,448
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
8,961
|
|
|
|
8,186
|
|
|
|
8,154
|
|
Impairment of intangible assets
|
|
|
116,443
|
|
|
|
|
|
|
|
|
|
Share based compensation expense
|
|
|
925
|
|
|
|
943
|
|
|
|
760
|
|
Barter expense (revenue)
|
|
|
24
|
|
|
|
(114
|
)
|
|
|
(205
|
)
|
Broadcast program rights amortization
|
|
|
673
|
|
|
|
619
|
|
|
|
603
|
|
Deferred income taxes
|
|
|
(33,879
|
)
|
|
|
5,144
|
|
|
|
5,183
|
|
Income tax expense on exercise of options
|
|
|
42
|
|
|
|
14
|
|
|
|
4
|
|
Loss (gain) on sale of assets
|
|
|
76
|
|
|
|
273
|
|
|
|
(501
|
)
|
Gain on asset exchange
|
|
|
(506
|
)
|
|
|
|
|
|
|
|
|
Deferred and other compensation
|
|
|
(359
|
)
|
|
|
205
|
|
|
|
198
|
|
Compensation expense related to restricted stock awards
|
|
|
508
|
|
|
|
423
|
|
|
|
334
|
|
Amortization of deferred costs
|
|
|
265
|
|
|
|
265
|
|
|
|
288
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in receivables and prepaid expenses
|
|
|
645
|
|
|
|
510
|
|
|
|
456
|
|
Payments for broadcast program rights
|
|
|
(663
|
)
|
|
|
(610
|
)
|
|
|
(611
|
)
|
(Decrease) increase in accounts payable, accrued expenses, and
other liabilities
|
|
|
(1,372
|
)
|
|
|
(88
|
)
|
|
|
2,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
91,783
|
|
|
|
15,770
|
|
|
|
17,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
25,291
|
|
|
|
26,774
|
|
|
|
29,648
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
|
(7,127
|
)
|
|
|
(9,852
|
)
|
|
|
(10,504
|
)
|
Decrease (increase) in other intangibles and other assets
|
|
|
237
|
|
|
|
(180
|
)
|
|
|
(2,887
|
)
|
Acquisition of broadcast properties
|
|
|
(11,099
|
)
|
|
|
(10,298
|
)
|
|
|
(2,869
|
)
|
Proceeds from sale and disposal of assets
|
|
|
99
|
|
|
|
50
|
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(17,890
|
)
|
|
|
(20,280
|
)
|
|
|
(15,233
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
10,500
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(5,000
|
)
|
|
|
(4,000
|
)
|
|
|
(15,000
|
)
|
Payments for debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
(350
|
)
|
Purchase of shares held in treasury
|
|
|
(19,210
|
)
|
|
|
(126
|
)
|
|
|
(3,487
|
)
|
Other financing activities
|
|
|
(42
|
)
|
|
|
176
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(13,752
|
)
|
|
|
(3,950
|
)
|
|
|
(18,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(6,351
|
)
|
|
|
2,544
|
|
|
|
(4,369
|
)
|
Cash, beginning of year
|
|
|
13,343
|
|
|
|
10,799
|
|
|
|
15,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
6,992
|
|
|
$
|
13,343
|
|
|
$
|
10,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
54
Saga
Communications, Inc.
|
|
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, 2008 we owned or
operated ninety-one radio stations, five television stations,
four low-power television stations and five radio information
networks serving twenty-six markets throughout the United States.
Basis of
Presentation
On January 27, 2009 the Company declared a one-for-four
reverse stock split of its Class A and Class B Common
Stock, effective January 28, 2009. The reverse stock split
reduced the Companys issued and outstanding shares of
common stock from approximately 14,426,119 shares of
Class A Common Stock and 2,402,338 shares of
Class B Common Stock to approximately 3,606,530 and
600,585 shares, respectively.
All share and per share information in the accompanying
financial statements have been restated retroactively to reflect
the reverse stock split. The common stock and additional paid-in
capital accounts at December 31, 2008 and 2007 reflect the
retroactive capitalization of the 2009 reverse stock split.
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.
Change in
Accounting Estimate
In the second quarter of 2008, the Company reviewed the
estimated useful lives of its television analog equipment. This
review was performed because of the Federal Communications
Commissions (FCC) mandatory requirement that
all television stations convert from analog to digital spectrum
by February 2009. As a result of this review, the Companys
depreciation rate of its analog equipment was increased to
reflect the estimated period during which these assets will
remain in service. In accordance with FASB 154,
Accounting Changes and Error Corrections,
this change of estimated useful lives is deemed as a change
in accounting estimate and has been accounted for prospectively,
effective April 1, 2008. The effect of this change in
estimate was to decrease net income approximately $347,000 and
decrease basic and diluted earnings per share by $.07 for the
year ended December 31, 2008.
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
Our top six markets when combined represented 46%, 47% and 48%
of our net operating revenue for the years ended
December 31, 2008, 2007 and 2006, 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.
55
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Financial
Instruments
Our financial instruments are comprised of cash, accounts
receivable, accounts payable and long-term debt. The carrying
value of cash, 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, 2008.
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, 2008, 2007 and 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write Off of
|
|
|
|
|
|
|
Balance
|
|
|
Charged to
|
|
|
Uncollectible
|
|
|
Balance at
|
|
|
|
at Beginning
|
|
|
Costs and
|
|
|
Accounts, Net of
|
|
|
End of
|
|
Year Ended
|
|
of Period
|
|
|
Expenses
|
|
|
Recoveries
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
December 31, 2008
|
|
$
|
988
|
|
|
$
|
845
|
|
|
$
|
(762
|
)
|
|
$
|
1,071
|
|
December 31, 2007
|
|
|
774
|
|
|
|
804
|
|
|
|
(590
|
)
|
|
|
988
|
|
December 31, 2006
|
|
|
1,071
|
|
|
|
404
|
|
|
|
(701
|
)
|
|
|
774
|
|
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 are received or 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 evaluate the recoverability of our property and
equipment, deferred costs and investments, in accordance with
SFAS No. 144, Accounting for the Impairment
of Long-Lived Assets.
56
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
Land and land improvements
|
|
|
|
|
|
$
|
11,173
|
|
|
$
|
11,170
|
|
Buildings
|
|
|
31.5 years
|
|
|
|
31,622
|
|
|
|
31,300
|
|
Towers and antennae
|
|
|
7-15 years
|
|
|
|
26,071
|
|
|
|
27,184
|
|
Equipment
|
|
|
3-15 years
|
|
|
|
77,740
|
|
|
|
72,904
|
|
Furniture, fixtures and leasehold improvements
|
|
|
7-20 years
|
|
|
|
7,386
|
|
|
|
7,125
|
|
Vehicles
|
|
|
5 years
|
|
|
|
3,837
|
|
|
|
3,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,829
|
|
|
|
153,504
|
|
Accumulated depreciation
|
|
|
|
|
|
|
(84,446
|
)
|
|
|
(77,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
|
|
|
$
|
73,383
|
|
|
$
|
76,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2008,
2007 and 2006 was $8,834,000, $7,968,000 and $7,787,000,
respectively.
In 2006, the FCC granted to Sprint Nextel Corporation
(Nextel) the right to reclaim from broadcasters in
each market across the country the 1.9 GHz spectrum to use
for an emergency communications system. In order to reclaim this
signal, Nextel must replace all analog equipment currently using
this spectrum with digital equipment. All broadcasters have
agreed to use the digital substitute that Nextel will provide.
The exchange of equipment will be completed on a market by
market basis. As the equipment is exchanged and put into service
in each of our markets we have and expect to continue to record
gains to the extent that the fair market value of the equipment
we receive exceeds the book value of the analog equipment we
exchange. See Note 3 Gain on Asset Exchange.
Intangible
Assets
Under SFAS No. 142, Accounting for Goodwill
and Other Intangible Assets,
(SFAS 142) goodwill and intangible assets
deemed to have indefinite lives are not amortized and are
subject to impairment tests which are conducted annually, or
more frequently if impairment indicators arise.
We consider FCC broadcast licenses to have indefinite lives.
Factors that we considered in evaluating that the radio and
television FCC licenses are indefinite-lived intangible assets
under SFAS 142 include the following:
|
|
|
|
|
The radio and television broadcasting licenses may be renewed
indefinitely at little cost.
|
|
|
|
The radio and television broadcasting licenses are essential to
our business, and we intend to renew our licenses indefinitely.
|
|
|
|
We have never been denied the renewal of a FCC broadcast license.
|
|
|
|
We do not believe that there will be any compelling challenge to
the renewal of our broadcast licenses.
|
|
|
|
We do not believe that the technology used in broadcasting will
be replaced by another technology in the foreseeable future.
|
Based on the above, we believe cash flows from our radio and
television licenses are expected to continue indefinitely.
57
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Separate intangible assets that have finite lives are amortized
over their useful lives using the straight-line method.
Favorable lease agreements are amortized over the lives of the
leases ranging from 4 to 26 years. Other intangibles are
amortized over one to eleven years.
In accordance with SFAS 142 we perform our impairment test
of goodwill and broadcast licenses as of October 1 of each year
by comparing their estimated fair value to the related carrying
value as of that date (see Note 2).
Deferred
Costs
The costs related to the issuance of debt are capitalized and
accounted for as interest expense over the life of the debt.
During the years ended December 31, 2008, 2007 and 2006, we
recognized interest expense related to the amortization of debt
issuance costs of $265,000, $265,000 and $288,000, respectively.
At December 31, 2008 and 2007, the net book value of
deferred costs were $950,000 and $1,215,000, respectively, and
were presented in other intangibles, deferred costs and
investments.
Broadcast
Program Rights
We record the capitalized costs of broadcast program rights when
the license period begins and the programs are available for
use. Amortization of the program rights is recorded using the
straight-line method over the license period or based on the
number of showings. Amortization of broadcast program rights is
included in station operating expense. Unamortized broadcast
program rights are classified as current or non-current based on
estimated usage in future years.
Treasury
Stock
In January 2008, our board of directors authorized an increase
to our Stock Buy-Back Program (the Buy-Back Program)
to allow us to purchase up to $30 million of our
Class A Common Stock, which increased the total amount
authorized for repurchase of our Class A Common Stock to
$60,000,000. From its inception in 1998 through
December 31, 2008, we have repurchased
1,376,403 shares of our Class A Common Stock for
approximately $45,462,000. Repurchases of shares of our Common
Stock are recorded as Treasury Stock and result in a reduction
of Stockholders Equity. During 2008, 2007 and 2006, we
acquired 899,601 shares at an average price of $21.35 per
share, 3,206 shares at an average price of $39.44 per share
and 105,175 shares at an average price of $33.15 per share,
respectively. During 2008, 2007 and 2006, respectively, we
issued 7,455, 4,819 and 5,724 shares of Treasury Stock in
connection with our employee stock purchase plan.
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 Commissions
(SEC) Staff Accounting Bulletin (SAB)
No. 104, Topic 13, Revenue Recognition Revised and
Updated.
Time
Brokerage Agreements/Local Marketing Agreements
We have entered into Time Brokerage Agreements
(TBAs) or Local Marketing Agreements
(LMAs) in certain markets. In a typical
TBA/LMA, the Federal Communications Commission (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. We account for TBAs/LMAs under
SFAS 13, Accounting for Leases, and related
58
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
interpretations. Revenue and expenses related to
TBAs/LMAs are included in the accompanying
Consolidated Statements of Operations.
Advertising
and Promotion Costs
Advertising and promotion costs are expensed as incurred. Such
costs amounted to approximately $5,726,000, $6,405,000 and
$6,495,000 for the years ended December 31, 2008, 2007 and
2006, respectively.
Income
Taxes
We account for income taxes under SFAS No. 109,
Accounting for Income Taxes. 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 June 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes and Related
Implementation Issues, (FIN 48) that
provides guidance on the financial statement recognition,
measurement, presentation and disclosure of certain tax
positions that a company has taken or expects to take on a tax
return. Under FIN 48, financial statements should reflect
expected future tax consequences of such positions presuming the
taxing authorities have full knowledge of the position and all
relevant facts. The Company adopted the provisions of
FIN 48 effective January 1, 2007, which did not have a
material impact on our financial position, results of operations
or cash flows.
Stock-Based
Compensation
The Company accounts for stock-based compensation in accordance
with SFAS No. 123R, Share-Based Payment
(SFAS 123R). Stock-based compensation
expense is recognized net of estimated forfeitures over the
vesting period. The fair value of 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. The fair value of restricted stock awards
is determined based on the closing market price of the
Companys 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 7
Stock-Based Compensation for further details regarding the
expense calculated under the fair value based method.
59
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Earnings
Per Share
The effect of stock options and restricted stock in the
calculation of net income (loss) per share, using the treasury
stock method, was anti-dilutive for the year ended
December 31, 2008. The following table sets forth the
computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(66,492
|
)
|
|
$
|
11,004
|
|
|
$
|
12,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share-weighted average shares
|
|
|
4,734
|
|
|
|
5,023
|
|
|
|
5,111
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
6
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share adjusted
weighted-average shares and assumed conversions
|
|
|
4,734
|
|
|
|
5,029
|
|
|
|
5,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(14.05
|
)
|
|
$
|
2.19
|
|
|
$
|
2.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(14.05
|
)
|
|
$
|
2.19
|
|
|
$
|
2.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 3,000 incremental shares were not included in the
diluted loss per share calculation for the year ended
December 31, 2008 as the shares were anti-dilutive since
the Company reported a net loss.
The number of options outstanding that currently have an
anti-dilutive effect on our earnings per share calculation is
approximately 450,000. 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.
Recent
Accounting Pronouncements
In April 2008, the FASB issued FSP
FAS 142-3,
Determination of the Useful Life of Intangible
Assets (FSP
FAS 142-3).
The FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. The intent of the FSP is to improve the
consistency between the useful life of a recognized intangible
asset under SFAS No. 142 and the period of expected
cash flows used to measure the fair value of the asset under
other accounting principles generally accepted in the United
States of America. The FSP is effective for financial statements
issued for fiscal years beginning after December 15, 2008
(as of January 1, 2009 for the Company), and interim
periods within those fiscal years. Early adoption is prohibited.
The guidance for determining the useful life of a recognized
intangible asset shall be applied prospectively to intangible
assets acquired after the effective date. Certain disclosure
requirements shall be applied prospectively to all intangible
assets recognized as of, and subsequent to, the effective date.
We do not currently expect the adoption of
FSP 142-3
to have a material impact on our consolidated financial
position, results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS 141R), which changes the principles and
requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. SFAS 141R also provides guidance
for recognizing and measuring the goodwill acquired in the
business combination and determines what information to disclose
to enable users of the financial statements to evaluate the
nature and financial effect of the business combination.
SFAS 141R is effective prospectively
60
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
for fiscal years beginning after December 15, 2008 (as of
January 1, 2009 for the Company). This standard will change
the Companys accounting treatment for business
combinations on a prospective business.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 151
(SFAS 160), which establishes new
accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008 (as of
January 1, 2009 for the Company). We do not currently
expect the adoption of SFAS 160 to have a material impact
on our consolidated financial position, results of operations
and cash flows.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157) which defines fair value,
establishes a framework for measuring fair value and expands
disclosures about fair value measurements. Companies were
required to apply the recognition and disclosure provision of
SFAS 157 for financial assets and financial liabilities
effective January 1, 2008. In February 2008, the FASB
issued FSP
FAS 157-2
that delayed by one year, the effective date of SFAS 157
for the majority of nonfinancial assets and nonfinancial
liabilities. We adopted the provisions of SFAS 157
effective January 1, 2008 for certain assets which were not
included in FSP
FAS 157-2,
which did not have a material impact or effect on our
consolidated financial position, results of operations and cash
flows. We do not expect the adoption of the deferred portion of
SFAS 157 to have a material impact on our consolidated
financial position, results of operations and cash flows.
|
|
2.
|
Broadcast
Licenses, Goodwill and Other Intangibles Assets
|
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.
In accordance with SFAS 142 the Company performed its
annual impairment test of goodwill and broadcast licenses as of
October 1, 2008. In connection with the preparation of the
Companys financial statements, management determined that
it was necessary to revise its assumptions and perform an
interim impairment test of broadcast licenses and goodwill at
December 31, 2008, due to several factors which included:
(i) the decline in the price of the Companys common
stock and related decline in the Companys market
capitalization value; (ii) the fourth quarter decline in
advertising revenues; (iii) the forecasted reduction in
radio and television advertising revenue for 2009; and
(iv) the recent and ongoing economic conditions including
the deterioration in the capital markets.
As a result of this analysis at December 31, 2008, the
Company determined that the fair values of its broadcasting
licenses and goodwill were less than the amount reflected in the
balance sheet for each of its markets and recorded a non-cash
impairment charge of $116,443,000 in the fourth quarter of 2008.
If actual market conditions are less favorable than those
estimated by the Company or if economic conditions continue to
deteriorate, the fair value of the Companys broadcast
licenses could further decline and the Company may be required
to recognize additional impairment charges in future periods.
Such a charge could have a material effect on the consolidated
financial statements.
Broadcast
licenses
We evaluate our FCC licenses for impairment annually, or more
frequently if events or changes in circumstances indicate that
the asset might be impaired. FCC licenses are evaluated for
impairment at the market level using a direct method. If the
carrying amount of FCC licenses is greater than their estimated
fair value in a given market, the carrying amount of FCC
licenses in that market is reduced to its estimated fair value.
61
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
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 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
forecast growth rate of each radio or television market,
including population, household income, retail sales and other
expenditures that would influence advertising expenditures;
(2) market share and profit margin of an average station
within a market; (3) estimated capital
start-up
costs and losses incurred during the early years;
(4) risk-adjusted discount rate; (5) the likely media
competition within the market area; and (6) terminal values.
We have recorded the changes to broadcast licenses for each of
the years ended December 31, 2008 and 2007 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio
|
|
|
Television
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2007
|
|
$
|
137,925
|
|
|
$
|
12,189
|
|
|
$
|
150,114
|
|
Acquisitions
|
|
|
12,210
|
|
|
|
|
|
|
|
12,210
|
|
Reclass from Goodwill
|
|
|
778
|
|
|
|
|
|
|
|
778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
150,913
|
|
|
$
|
12,189
|
|
|
$
|
163,102
|
|
Acquisitions
|
|
|
5,799
|
|
|
|
|
|
|
|
5,799
|
|
Reclasses, net
|
|
|
240
|
|
|
|
|
|
|
|
240
|
|
Impairment charge
|
|
|
(60,175
|
)
|
|
|
(1,293
|
)
|
|
|
(61,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
96,777
|
|
|
$
|
10,896
|
|
|
$
|
107,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
We also evaluate goodwill in each of our 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 for that reporting unit determined from the
estimated fair value of the reporting units, the carrying amount
of goodwill in that reporting unit is reduced to its estimated
fair value.
During the fourth quarter of 2008, the Company performed an
interim impairment test of its goodwill and determined under the
second step that the fair value of its goodwill was less than
the amount reflected in the balance sheet for both the radio and
television segment (each segment is a reporting unit), and
recorded an impairment loss of $54,975,000. Factors that
contributed to the impairment loss were changes in estimates and
assumptions since the most recent annual test, including but not
limited to: (1) a decrease of up to 50% in advertising
revenue growth projections to the low single digits for the
broadcasting industry; (2) a decrease in operating profit
margins of 21%; and (3) an increase in the cost of capital
by 25% to the low double digits from the high single digits.
We computed the enterprise value by applying an estimated market
multiple of mid single digits (which was a decrease from the
market multiple of low double digits that was used in the last
test) to the operating performance of each reporting unit. We
applied the same market multiple consistently across all
reporting units and determined that both segments tested may be
impaired. Factors contributing to the determination of the
reporting units operating performance were historical
performance
and/or
managements estimate of future performance.
62
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
We have recorded the changes to goodwill for each of the years
ended December 31, 2008 and 2007 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio
|
|
|
Television
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2007
|
|
$
|
49,434
|
|
|
$
|
171
|
|
|
$
|
49,605
|
|
Acquisitions
|
|
|
834
|
|
|
|
|
|
|
|
834
|
|
Reclass to Broadcast license
|
|
|
(778
|
)
|
|
|
|
|
|
|
(778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
49,490
|
|
|
$
|
171
|
|
|
$
|
49,661
|
|
Acquisitions
|
|
|
5,314
|
|
|
|
|
|
|
|
5,314
|
|
Impairment charge
|
|
|
(54,804
|
)
|
|
|
(171
|
)
|
|
|
(54,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Intangible Assets
We have recorded amortizable intangible assets at
December 31, 2008 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Non-competition agreements
|
|
$
|
4,565
|
|
|
$
|
4,565
|
|
|
$
|
|
|
Favorable lease agreements
|
|
|
5,862
|
|
|
|
5,394
|
|
|
|
468
|
|
Other intangibles
|
|
|
1,671
|
|
|
|
1,506
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
$
|
12,098
|
|
|
$
|
11,465
|
|
|
$
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have recorded amortizable intangible assets at
December 31, 2007 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Non-competition agreements
|
|
$
|
4,565
|
|
|
$
|
4,519
|
|
|
$
|
46
|
|
Favorable lease agreements
|
|
|
5,862
|
|
|
|
5,334
|
|
|
|
528
|
|
Other intangibles
|
|
|
1,616
|
|
|
|
1,484
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
$
|
12,043
|
|
|
$
|
11,337
|
|
|
$
|
706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense for these intangible assets for
the years ended December 31, 2008, 2007 and 2006, was
$128,000, $218,000 and $367,000, respectively. Our estimated
annual amortization expense for the years ending
December 31, 2009, 2010, 2011, 2012 and 2013 is
approximately $37,000 each year.
|
|
3.
|
Gain on
Asset Exchange
|
In 2006, the FCC granted to Nextel the right to reclaim from
broadcasters in each market across the country the 1.9 GHz
spectrum to use for an emergency communications system. In order
to reclaim this signal, Nextel must replace all analog equipment
currently using this spectrum with digital equipment. We have
agreed to accept the substitute equipment that Nextel will
provide and in turn we must relinquish our existing equipment to
Nextel. This arrangement is accounted for as an exchange of
assets in accordance with Accounting Principles Board
No. 29, Accounting for Nonmonetary
Transactions, as amended by SFAS No. 153,
Exchanges of Nonmonetary Assets.
63
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The equipment we receive under this arrangement is recorded at
its estimated fair market value and depreciated over estimated
useful lives ranging from 5 to 15 years. Fair market value
is derived from quoted prices obtained from manufacturers and
vendors for the specific equipment acquired. As the equipment is
exchanged and put into service in each of our markets we have
and expect to continue to record gains to the extent that the
fair market value of the equipment we receive exceeds the book
value of the analog equipment we exchange. For the year ended
December 31, 2008, we recognized gains of approximately
$506,000 from the exchange of this equipment. There were no
asset exchanges during the fourth quarter of 2008.
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Credit Agreement:
|
|
|
|
|
|
|
|
|
Reducing revolver facility
|
|
$
|
134,350
|
|
|
$
|
128,850
|
|
Secured debt of affiliate
|
|
|
1,061
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,411
|
|
|
|
129,911
|
|
Amounts payable within one year
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
134,350
|
|
|
$
|
129,911
|
|
|
|
|
|
|
|
|
|
|
Future maturities of long-term debt are as follows:
|
|
|
|
|
Year Ending December 31,
|
|
(In thousands)
|
|
|
2009
|
|
$
|
1,061
|
|
2010
|
|
|
34,350
|
|
2011
|
|
|
50,000
|
|
2012
|
|
|
50,000
|
|
2013
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
135,411
|
|
|
|
|
|
|
Our credit agreement at December 31, 2008 was a
$175,000,000 reducing revolving line of credit maturing on
July 29, 2012 (the Credit Agreement). Our
indebtedness under the Credit Agreement is secured by a first
priority lien on substantially all of our assets and of our
subsidiaries, by a pledge of our subsidiaries stock and by
a guarantee of our subsidiaries. We had approximately
$40,650,000 of unused borrowing capacity under the Credit
Agreement at December 31, 2008.
Interest rates under the Credit Agreement are payable, at our
option, at alternatives equal to LIBOR at the reset date (0.50%
to 2.5625% at December 31, 2008) plus 0.75% to 1.25%
(4.50% to 4.9375% at December 31, 2007 plus 0.75% to 1.25%)
or the Agent banks base rate plus 0%.
On March 9, 2009, we amended our Credit Agreement to
(i) exclude certain items from the definition of Fixed
Charges effective December 31, 2008, (ii) increase the
minimum Fixed Charge Coverage ratio effective December 31,
2008, (iii) increase the maximum Leverage Ratio effective
December 31, 2008, (iv) reduce the Revolving
Commitments to $150,000,000, (v) revise the interest rates
and commitment fees and (vi) impose certain other
limitations on the Company with respect to restricted payments,
acquisitions and stock purchases. In addition, we agreed to pay
each lender a fee. The lender fee plus amendment costs were
approximately $1 million.
64
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
On September 30, 2009, the Revolving Commitments (as
defined in the Credit Agreement) will be permanently reduced by
$1,250,000 and will continue to be permanently reduced at the
end of each calendar quarter thereafter in amounts ranging from
4.375% to 12.5% of the total Revolving Commitments that was in
effect on March 31, 2008. In addition, the Revolving
Commitments shall be further reduced by specified percentages of
Excess Cash Flow (as defined in the Credit Agreement) based on
leverage ratios. Any outstanding balance under the Credit
Agreement will be due on the maturity date of July 29, 2012.
Beginning March 9, 2009, as part of the amendment to the
Credit Agreement, interest on borrowings are payable, at our
option, at an annual rate equal to LIBOR at the reset date plus
2.75% to 4.75% or the Agent banks base rate plus 1.75% to
3.75%. The spread over LIBOR and the base rate vary from time to
time, depending upon our financial leverage. We are also
required to pay quarterly commitment fees of 0.375% to 0.750%
per annum on the unused portion of the Credit Agreement.
The Credit Agreement contains a number of financial covenants
(all of which we were in compliance with at December 31,
2008) that, among other things, requires us to maintain
specified financial ratios and impose certain limitations on us
with respect to (i) the incurrence of additional
indebtedness; (ii) acquisitions, except under specified
conditions; (iii) the incurrence of additional liens,
except those relating to capital leases and purchase money
indebtedness; (iv) the disposition of assets; (v) the
payment of cash dividends; (vi) repurchases of our
Class A Common Stock; and (vii) mergers, changes in
business and management, investments and transactions with
affiliates. The financial covenants become more restrictive over
the life of the Credit Agreement.
|
|
5.
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
7,095
|
|
|
$
|
9,235
|
|
|
$
|
8,424
|
|
Income taxes
|
|
|
3,219
|
|
|
|
2,245
|
|
|
|
2,816
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Barter revenue
|
|
$
|
4,405
|
|
|
$
|
4,331
|
|
|
$
|
4,226
|
|
Barter expense
|
|
|
4,429
|
|
|
|
4,217
|
|
|
|
4,021
|
|
Acquisition of property and equipment
|
|
|
591
|
|
|
|
67
|
|
|
|
60
|
|
Acquisition of broadcast license
|
|
|
1,577
|
|
|
|
|
|
|
|
|
|
In conjunction with the acquisition of the net assets of
broadcasting companies, debt and liabilities were assumed as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Fair value of assets acquired
|
|
$
|
11,169
|
|
|
$
|
14,151
|
|
|
$
|
3,771
|
|
Cash paid
|
|
|
(11,099
|
)
|
|
|
(10,298
|
)
|
|
|
(2,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and liabilities assumed
|
|
$
|
70
|
|
|
$
|
3,853
|
|
|
$
|
902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
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
Companys deferred tax liabilities and assets are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
8,899
|
|
|
$
|
8,112
|
|
Intangible assets
|
|
|
|
|
|
|
30,431
|
|
Prepaid expenses
|
|
|
393
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
9,292
|
|
|
|
39,105
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
3,999
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
430
|
|
|
|
399
|
|
Compensation
|
|
|
2,513
|
|
|
|
2,574
|
|
Other accrued liabilities
|
|
|
170
|
|
|
|
116
|
|
Loss carry forwards
|
|
|
273
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,385
|
|
|
|
3,266
|
|
Less: valuation allowance
|
|
|
273
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
|
7,112
|
|
|
|
3,089
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
2,180
|
|
|
$
|
36,016
|
|
|
|
|
|
|
|
|
|
|
Current portion of deferred tax assets
|
|
$
|
1,114
|
|
|
$
|
813
|
|
Non-current portion of deferred tax liabilities
|
|
|
(3,294
|
)
|
|
|
(36,829
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(2,180
|
)
|
|
$
|
(36,016
|
)
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, we have state and local tax loss
carry forwards of approximately $10,705,000, which will expire
from 2010 to 2024. During 2008, we generated approximately
$4,279,000 in state and local tax loss carry forwards and we
utilized approximately $193,000 in state and local tax loss
carry forwards and accordingly, the valuation allowances
increased by $96,000. At December 31, 2008, the valuation
allowance for net deferred tax assets relates to state and local
loss carry forwards. SFAS No. 109 requires that
deferred tax assets 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, 2008 and 2007, net deferred tax liabilities
include a deferred tax asset of $913,000 and $686,000,
respectively, relating to stock-based compensation expense under
SFAS 123R. Full realization of this deferred tax asset
requires stock options to be exercised at a price equaling or
exceeding the sum of the grant price plus the fair value of the
option at the grant date and restricted stock to vest at a price
equaling or exceeding the fair market value at the grant date.
The provisions of SFAS 123R, however, do not allow a
valuation allowance to be recorded unless the companys
future taxable income is expected to be insufficient to recover
the asset. Accordingly, there can be no assurance that the price
of the Companys common stock will increase to levels
sufficient to realize the entire tax benefit currently reflected
in the balance sheet at December 31, 2008 and 2007. See
Note 7 Stock-Based Compensation for further
discussion of SFAS 123R.
66
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
970
|
|
|
$
|
2,075
|
|
|
$
|
3,100
|
|
State
|
|
|
387
|
|
|
|
471
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
1,357
|
|
|
|
2,546
|
|
|
|
3,482
|
|
Total deferred
|
|
|
(33,879
|
)
|
|
|
5,144
|
|
|
|
5,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(32,522
|
)
|
|
$
|
7,690
|
|
|
$
|
8,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, we realized tax expense as a result of stock option
exercises for the difference between compensation expense for
financial statement and income tax purposes. These tax expenses
were recorded to additional paid-in capital in the amounts of
approximately $42,000, $14,000 and $4,000 for the years ended
December 31, 2008, 2007 and 2006, respectively.
The reconciliation of income tax at the U.S. federal
statutory tax rates to income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Tax at U.S. statutory rates
|
|
$
|
(34,482
|
)
|
|
$
|
6,496
|
|
|
$
|
7,433
|
|
State taxes, net of federal benefit
|
|
|
(4,501
|
)
|
|
|
1,038
|
|
|
|
1,220
|
|
Impairment of Goodwill not deductible for tax
|
|
|
5,854
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
511
|
|
|
|
48
|
|
|
|
25
|
|
Change in valuation allowance on loss carry forwards
|
|
|
96
|
|
|
|
108
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(32,522
|
)
|
|
$
|
7,690
|
|
|
$
|
8,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously discussed, the Company adopted FIN 48, on
January 1, 2007, which provides guidance on the financial
statement recognition, measurement, presentation and disclosure
of certain tax positions that a company has taken or expects to
take on a tax return. Prior to adopting FIN 48, the
Companys policy was to establish reserves that reflected
the probable outcome of known tax contingencies. Favorable
resolution was recognized as a reduction to the effective income
tax rate in the period of resolution. As compared to the
contingency approach, FIN 48 is based on a benefit of
recognition model. Provided that the tax position is deemed more
likely than not of being sustained, FIN 48 permits a
company to recognize the largest amount of tax benefit that is
greater than 50 percent likely of being ultimately realized
upon settlement. The tax position must be derecognized when it
is no longer more likely than not of being sustained. The
initial application of FIN 48 did not have a material
effect on the Companys financial position, statement of
operations or cash flows.
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 2005.
During the second quarter of 2007, the IRS commenced an
examination of the Companys 2004 and 2005
U.S. federal income tax returns, which was completed during
the first quarter of 2008. The IRS proposed certain adjustments;
however none of them had a significant impact to the
Companys income tax positions. The Company is subject to
examination for income and non-income tax filings in various
states.
67
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Included in the balance sheets at December 31, 2008 and
2007 are tax accruals of approximately $88,000 and $135,000,
respectively, for uncertain tax positions. The decrease in these
accruals during the year ended December 31, 2008 was
primarily related to the settlement of tax uncertainties and
lapses in statutes of limitations. Recognition of any of the
related unrecognized tax benefits would affect the
Companys effective tax rate.
We classify income tax-related interest and penalties as
interest expense and corporate general and administrative
expense, respectively. For the years ended December 31,
2008 and 2007, we recognized $0 and $31,000, respectively of
tax-related interest and penalties and had approximately $5,000
and $31,000 accrued at December 31, 2008 and 2007,
respectively.
|
|
7.
|
Stock-Based
Compensation
|
Employee
Stock Purchase Plan
We have an employee stock purchase plan (ESPP) for all eligible
employees. Our ESPP is deemed compensatory under the provisions
of SFAS 123R. See Note 8 Employee Benefit
Plans for further discussion.
2005
Incentive Compensation Plan
On May 9, 2005, our stockholders approved the 2005
Incentive Compensation Plan (the 2005 Plan) which
replaces our 2003 Stock Option Plan (the 2003 Plan)
as to future grants. The 2005 Plan extends through March 2015
and allows for the granting of restricted stock, restricted
stock units, incentive stock options, nonqualified stock
options, and performance awards to officers and a selected
number of employees. The number of shares of Common Stock that
may be issued under the 2005 Plan may not exceed
500,000 shares of Class B Common Stock,
1,500,000 shares of Class A Common Stock of which up
to 500,000 shares of Class A Common Stock may be
issued pursuant to incentive stock options and 500,000
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 under the 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 Corporation. Stock options granted under the 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.
1997
Non-Employee Director Stock Option Plan
In 1997, we adopted the 1997 Non-Employee Director Stock Option
Plan (the Directors Plan) pursuant to which our
directors who are not our employees are eligible to receive
options. Under the terms of the Directors Plan, on the last
business day of January of each year during the term of the
Directors Plan, in lieu of their directors retainer for
the previous year, each eligible director shall automatically be
granted an option to purchase that number of our shares of
Class A Common Stock equal to the amount of the retainer
divided by the fair market value of our Common Stock on the last
trading day of the December immediately preceding the date of
grant less $.04 per share. The option exercise price is $.04 per
share. Options granted under the Directors Plan are
non-qualified stock options, shall be immediately vested and
become exercisable at the written election of the director. The
options expire on the earlier of (i) 10 years from the
date of grant or (ii) the March 16th following
the calendar year in which they first become exercisable. This
plan expired on May 12, 2007.
Effective January 1, 2007, each director who is not an
employee receives cash for his or her services as a director.
68
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Stock-Based
Compensation
The Company accounts for its stock-based compensation under the
provisions of SFAS 123R, which requires companies to
measure and recognize compensation expense for all stock-based
payment awards to employees based on 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.
As SFAS 123R requires that stock-based compensation expense
be based on awards that are ultimately expected to vest,
stock-based compensation for the years ended December 31,
2008, 2007 and 2006 have been reduced for estimated forfeitures.
When estimating forfeitures, we consider voluntary termination
behaviors as well as trends of actual option forfeitures. The
compensation expense recognized in corporate general and
administrative expense of our results of operations for the
years ended December 31, 2008, 2007 and 2006 was
approximately $925,000, $943,000 and $760,000, respectively. The
associated future income tax benefit recognized for the years
ended December 31, 2008, 2007 and 2006 was approximately
$390,000, $387,000 and $312,000, respectively.
We calculated the fair value of the each option award on the
date of grant using the Black-Scholes option pricing model. The
following assumptions were used for each respective period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Grants
|
|
|
Grants
|
|
|
Grants
|
|
|
Weighted average grant date fair value per share
|
|
$
|
19.30
|
|
|
$
|
17.95
|
|
|
$
|
27.64
|
|
Expected volatility
|
|
|
36.50
|
%
|
|
|
37.19
|
%
|
|
|
37.14
|
%
|
Expected term of options (years)
|
|
|
7.9
|
|
|
|
7.8
|
|
|
|
7.6
|
|
Risk-free interest rate
|
|
|
4.76
|
%
|
|
|
4.27
|
%
|
|
|
3.96
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
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 is based on the U.S. Treasury yield
curve in effect at the time of grant.
69
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The following summarizes the stock option transactions for the
2005, 2003 and 1992 Plans for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Value (Years)
|
|
|
Outstanding at January 1, 2006
|
|
|
517,326
|
|
|
$
|
55.88
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
126,535
|
|
|
|
36.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,441
|
)
|
|
|
23.32
|
|
|
|
|
|
|
|
|
|
Forfeited/canceled/expired
|
|
|
(8,517
|
)
|
|
|
61.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
632,903
|
|
|
$
|
51.96
|
|
|
|
5.0
|
|
|
$
|
353,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
46,095
|
|
|
|
37.96
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,213
|
)
|
|
|
30.56
|
|
|
|
|
|
|
|
|
|
Forfeited/canceled/expired
|
|
|
(2,008
|
)
|
|
|
42.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
670,777
|
|
|
$
|
51.24
|
|
|
|
4.4
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/canceled/expired
|
|
|
(220,718
|
)
|
|
|
45.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
450,059
|
|
|
$
|
54.11
|
|
|
|
4.7
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Exercisable at December 31, 2008
|
|
|
323,734
|
|
|
$
|
59.43
|
|
|
|
3.7
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value of stock options granted during
the years ended December 31, 2007 and 2006 was $19.30 and
$17.95, respectively.
70
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The following summarizes the non-vested stock option
transactions for the 2005, 2003 and 1992 Plans for the year
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Options
|
|
|
Fair Value
|
|
|
Non-vested at January 1, 2006
|
|
|
67,237
|
|
|
$
|
27.64
|
|
Granted
|
|
|
126,536
|
|
|
|
17.96
|
|
Vested
|
|
|
(13,436
|
)
|
|
|
27.64
|
|
Forfeited/canceled/expired
|
|
|
(1,987
|
)
|
|
|
23.16
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2006
|
|
|
178,350
|
|
|
$
|
20.80
|
|
Granted
|
|
|
46,095
|
|
|
|
19.28
|
|
Vested
|
|
|
(37,955
|
)
|
|
|
21.28
|
|
Forfeited/canceled/expired
|
|
|
(1,883
|
)
|
|
|
20.28
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2007
|
|
|
184,607
|
|
|
$
|
20.34
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(47,080
|
)
|
|
|
20.90
|
|
Forfeited/canceled/expired
|
|
|
(11,202
|
)
|
|
|
20.44
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2008
|
|
|
126,325
|
|
|
$
|
20.13
|
|
|
|
|
|
|
|
|
|
|
The following summarizes the stock option transactions for the
Directors Plans for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Price
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
per Share
|
|
|
Value
|
|
|
Outstanding at January 1, 2006
|
|
|
3,054
|
|
|
$
|
0.032
|
|
|
$
|
132,437
|
|
Granted
|
|
|
3,311
|
|
|
|
0.040
|
|
|
|
|
|
Exercised
|
|
|
(1,575
|
)
|
|
|
0.040
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
4,790
|
|
|
$
|
0.036
|
|
|
$
|
183,726
|
|
Granted
|
|
|
5,607
|
|
|
|
0.040
|
|
|
|
|
|
Exercised
|
|
|
(4,621
|
)
|
|
|
0.040
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
5,776
|
|
|
$
|
0.037
|
|
|
$
|
135,726
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,740
|
)
|
|
|
0.038
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2008
|
|
|
1,036
|
|
|
$
|
0.035
|
|
|
$
|
6,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2008, 2007 and 2006 we had
approximately $1,433,000, $1,366,500 and $1,309,600,
respectively, of total compensation expense related to
stock-based arrangements. The associated tax benefit recognized
for the years ended December 31, 2008, 2007 and 2006 was
approximately $604,700, $560,300 and $536,900, respectively.
71
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The total intrinsic value of stock options exercised during the
years ended December 31, 2008, 2007 and 2006 was $108,000,
$225,000 and $90,000, respectively. Cash received from stock
options exercised during the years ended December 31, 2008,
2007 and 2006 was $200, $176,000 and $53,000, respectively.
The following summarizes the restricted stock transactions for
the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Outstanding at January 1, 2006
|
|
|
14,951
|
|
|
$
|
57.00
|
|
Granted
|
|
|
28,118
|
|
|
|
36.00
|
|
Vested
|
|
|
(2,984
|
)
|
|
|
57.00
|
|
Forfeited/canceled/expired
|
|
|
(441
|
)
|
|
|
47.36
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
39,644
|
|
|
$
|
42.20
|
|
Granted
|
|
|
10,243
|
|
|
|
37.96
|
|
Vested
|
|
|
(8,431
|
)
|
|
|
43.24
|
|
Forfeited/canceled/expired
|
|
|
(419
|
)
|
|
|
41.12
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
41,037
|
|
|
$
|
40.95
|
|
Granted
|
|
|
26,325
|
|
|
|
23.96
|
|
Vested
|
|
|
(10,472
|
)
|
|
|
42.21
|
|
Forfeited/canceled/expired
|
|
|
(3,241
|
)
|
|
|
37.18
|
|
|
|
|
|
|
|
|
|
|
Non-vested and outstanding at December 31, 2008
|
|
|
53,649
|
|
|
$
|
32.60
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life (in years)
|
|
|
3.4
|
|
|
|
|
|
The weighted average grant date fair value of restricted stock
that vested during 2008, 2007 and 2006 was approximately
$442,000, $364,000 and $170,000, respectively. The net value of
unrecognized compensation cost related to unvested restricted
stock awards aggregated $1,317,000, $1,315,000 and $1,367,000 at
December 31, 2008, 2007 and 2006, respectively.
|
|
8.
|
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 expense under the 401(k)
Plan was approximately $220,000, $352,000 and $339,000 in 2008,
2007 and 2006, respectively, of which approximately $190,000,
$303,000 and $285,000 represents our discretionary contributions
in 2008, 2007 and 2006, respectively.
Employee
Stock Purchase Plan
In 1999 our stockholders approved the Employee Stock Purchase
Plan (ESPP) under which a total of
390,625 shares of our Class A Common Stock was
eligible for sale to our employees. Each quarter, an eligible
employee was able to elect to withhold up to 10 percent of
his or her compensation up to a maximum of $5,000 to purchase
shares of our stock at a price equal to 85 percent of the
fair value of the stock as of the last day of such quarter.
There were 7,455, 4,819 and 5,724 shares issued under the
ESPP in 2008, 2007 and 2006, respectively. Compensation expense
recognized related to the ESPP for the years ended
December 31, 2008, 2007 and 2006 was approximately $18,000,
$24,000 and $31,000, respectively. The ESPP is deemed
compensatory under the provisions of FAS 123R. The ESPP was
terminated on December 31, 2008.
72
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, 2008, 2007 and 2006 was
approximately $341,000, $330,000 and $253,000, 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.
|
|
9.
|
Acquisitions
and Dispositions
|
The consolidated statements of operations 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 costs were 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, which is deductible for
tax purposes.
2008
Acquisitions
On September 5, 2008, in connection with a city of license
change for WJZK(FM), we exchanged $242,000 in cash and a tower,
antenna, and transmitter with a fair market value (which
approximates cost) of approximately $1,591,000, with another
radio station for a broadcast license.
On January 21, 2004, we entered into agreements to acquire
an FM radio station
(WOXL-FM)
serving the Asheville, North Carolina market. On
November 1, 2002 we began providing programming under a
Sub-Time Brokerage Agreement to
WOXL-FM, and
on January 31, 2008 we closed on the acquisition for
approximately $9,463,000 of which approximately $9,354,000 was
paid in 2008 and $109,000 was paid in prior years.
2007
Acquisitions
On November 1, 2007, we acquired an FM radio station
(WCLZ-FM)
serving the Portland, Maine market for approximately $3,555,000.
On August 31, 2007, we acquired two radio stations
(WKRT-AM and
WIII-FM
licensed to Cortland, New York, and an FM translator station
that rebroadcasts WIII) serving the Ithaca, New York market for
approximately $3,843,000. Due to FCC ownership rules we were not
permitted to own
WKRT-AM and
as part of the transaction we donated
WKRT-AM to a
non-profit organization.
On January 2, 2007, we acquired one FM radio station
(WCNR-FM)
serving the Charlottesville, Virginia market for $3,330,000. On
September 1, 2006 we began providing programming under an
LMA to
WCNR-FM. We
funded this acquisition on December 31, 2006.
On January 16, 2007, we agreed to pay $50,000 to cancel a
clause in our 2003 purchase agreement of
WSNI-FM in
the Winchendon, Massachusetts market that would require us to
pay the seller an additional $500,000 if within five years of
closing we obtained approval from the FCC for a city of license
change.
73
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
On January 2, 2007, in connection with the 2003 acquisition
of one FM radio station
(WJZA-FM)
serving the Columbus, Ohio market, we paid an additional
$850,000 to the seller upon obtaining approval from the FCC for
a city of license change.
2006
Acquisitions
On August 7, 2006, we acquired one FM radio station
(WTMT-FM)
serving the Tazewell, Tennessee market for approximately
$4,186,000 of which approximately $789,000 was paid in 2006,
$2,047,000 was paid in 2007, and $1,350,000 was paid in 2008. We
relocated the tower to Weaverville, North Carolina (serving the
Asheville, North Carolina market) and started broadcasting in
Asheville on June 8, 2007.
In October 2006, we acquired a tower, antenna and transmitter
and entered into agreements with another radio station in
connection with the city of license change for
WJZA-FM
mentioned above for approximately $2,069,000.
Condensed
Consolidated Balance Sheet of 2008 and 2007
Acquisitions
The following condensed balance sheets represent the estimated
fair value assigned to the related assets and liabilities of the
2008 and 2007 acquisitions at their respective acquisition dates.
Saga
Communications, Inc.
Condensed
Consolidated Balance Sheets
of 2008
and 2007 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
Acquisitions in
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Assets Acquired:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
|
|
|
$
|
130
|
|
Property and equipment
|
|
|
56
|
|
|
|
931
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Broadcast licenses Radio segment
|
|
|
5,799
|
|
|
|
12,210
|
|
Goodwill Radio segment
|
|
|
5,314
|
|
|
|
834
|
|
Other intangibles, deferred costs and investments
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
11,113
|
|
|
|
13,090
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
11,169
|
|
|
|
14,151
|
|
|
|
|
|
|
|
|
|
|
Liabilities Assumed:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
70
|
|
|
|
3,853
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
70
|
|
|
|
3,853
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
11,099
|
|
|
$
|
10,298
|
|
|
|
|
|
|
|
|
|
|
74
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Pro Forma
Results of Operations for Acquisitions and Dispositions
(Unaudited)
The following unaudited pro forma results of our operations for
the years ended December 31, 2008 and 2007 assume the
acquisitions and dispositions in 2008 and 2007 occurred as of
January 1, 2007. 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Results of Operations:
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
139,956
|
|
|
$
|
144,982
|
|
Station operating expense
|
|
|
105,805
|
|
|
|
107,159
|
|
Corporate general and administrative
|
|
|
9,979
|
|
|
|
9,800
|
|
Gain on asset exchange
|
|
|
(506
|
)
|
|
|
|
|
Impairment of intangible assets
|
|
|
116,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(91,765
|
)
|
|
|
28,023
|
|
Interest expense
|
|
|
7,173
|
|
|
|
8,954
|
|
Other expense, net
|
|
|
76
|
|
|
|
273
|
|
Income tax expense (benefit)
|
|
|
(32,522
|
)
|
|
|
7,732
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(66,492
|
)
|
|
$
|
11,064
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(14.05
|
)
|
|
$
|
2.20
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(14.05
|
)
|
|
$
|
2.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Radio Broadcasting Segment
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
121,072
|
|
|
$
|
127,555
|
|
Station operating expense
|
|
|
90,540
|
|
|
|
93,019
|
|
Impairment of intangible assets
|
|
|
114,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(84,447
|
)
|
|
$
|
34,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Television Broadcasting Segment
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
18,884
|
|
|
$
|
17,427
|
|
Station operating expense
|
|
|
15,265
|
|
|
|
14,140
|
|
Gain on asset exchange
|
|
|
(506
|
)
|
|
|
|
|
Impairment of intangible assets
|
|
|
1,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
2,661
|
|
|
$
|
3,287
|
|
|
|
|
|
|
|
|
|
|
75
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Reconciliation
of Pro Forma Segment Operating Income to Pro Forma Consolidated
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Radio
|
|
|
Television
|
|
|
and Other
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Twelve Months Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
121,072
|
|
|
$
|
18,884
|
|
|
$
|
|
|
|
$
|
139,956
|
|
Station operating expense
|
|
|
90,540
|
|
|
|
15,265
|
|
|
|
|
|
|
|
105,805
|
|
Corporate general and administrative
|
|
|
|
|
|
|
|
|
|
|
9,979
|
|
|
|
9,979
|
|
Gain on asset exchange
|
|
|
|
|
|
|
(506
|
)
|
|
|
|
|
|
|
(506
|
)
|
Impairment of intangible assets
|
|
|
114,979
|
|
|
|
1,464
|
|
|
|
|
|
|
|
116,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(84,447
|
)
|
|
$
|
2,661
|
|
|
$
|
(9,979
|
)
|
|
$
|
(91,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Radio
|
|
|
Television
|
|
|
and Other
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Twelve Months Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
127,555
|
|
|
$
|
17,427
|
|
|
$
|
|
|
|
$
|
144,982
|
|
Station operating expense
|
|
|
93,019
|
|
|
|
14,140
|
|
|
|
|
|
|
|
107,159
|
|
Corporate general and administrative
|
|
|
|
|
|
|
|
|
|
|
9,800
|
|
|
|
9,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
34,536
|
|
|
$
|
3,287
|
|
|
$
|
(9,800
|
)
|
|
$
|
28,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Related
Party Transactions
|
Acquisition
of Stations from Affiliates of Directors
On January 16, 2007, we agreed to pay $50,000 to cancel a
clause in our 2003 purchase agreement of
WSNI-FM in
the Winchendon, Massachusetts market that would require us to
pay the seller an additional $500,000 if within five years of
closing we obtained approval from the FCC for a city of license
change. The radio station was owned by a company in which Robert
Maccini, a member of our Board of Directors, is an officer and
director of, and has a 33% voting ownership interest, and 26%
non-voting ownership interest. The ownership interest of
Mr. Maccini was disclosed to our Board prior to its
approval of the transaction. Mr. Maccini did not
participate in voting on this transaction when it came before
the Board. The purchase price was determined on an arms
length basis. We began operating this station under the terms of
a TBA on February 1, 2003.
This same company owned by Mr. Maccini has a 65% ownership
interest in another company which entered into a licensing
agreement with us, which renews annually unless terminated, to
provide us with certain Internet radio services. We paid $91,000
and $22,000 in software licensing fees and $1,000 and $52,000
for computer hardware during the years ended December 31,
2008 and 2007, respectively. The relationship of the companies
to Mr. Maccini was disclosed to our Board prior to its
approval of the license agreement and its determination that it
was on an arms length basis. Mr. Maccini did not
participate in such vote.
Principal
Stockholder Employment Agreement
In March 2002, we entered into an employment agreement with
Edward K. Christian our principal stockholder, President and
CEO. This agreement was effective April 1, 2002 and expires
March 31, 2009. The agreement provides for certain
compensation, death, disability and termination benefits, as
well as the use of an automobile. The annual base salary under
the agreement was $500,000 per year effective January 1,
2003
76
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
and subject to annual cost of living increases effective
January 1, 2004 ($549,000 effective January 1, 2006,
$567,000 effective January 1, 2007 and $582,000 effective
January 1, 2008). The agreement also provides that he is
eligible for stock options to be awarded at the discretion of
our Board of Directors, and annual bonuses in such amounts as
shall be determined pursuant to the terms of the Chief Executive
Officer Annual Incentive Plan. In addition, the agreement
provides that, upon the consummation of our sale or transfer of
control, his employment will be terminated and we will pay him
an amount equal to five times the average of his total annual
compensation for the preceding three years, plus an additional
amount as is necessary for applicable income taxes related to
the payment. For the three years ended December 31, 2008
his average annual compensation, as defined by the employment
agreement, was approximately $940,000.
In December 2007, we entered into a new employment agreement
with Edward K. Christian, Chairman, President and CEO, which
becomes effective as of April 1, 2009, following the
expiration of his current employment agreement. The new
employment agreement expires March 31, 2014. The agreement
will provide for an annual base salary of $750,000 (subject to
annual increases on each anniversary date not less than 3% or a
defined cost of living increase). Under the agreement,
Mr. Christian will be eligible for bonuses and stock
options in amounts determined by the Compensation Committee and
will continue to participate in the Companys benefit
plans. The Company will maintain insurance policies currently in
force, continue to furnish an automobile and will pay for an
executive medical plan. In connection with the execution of the
agreement, Mr. Christian was paid an extension payment of
$100,000. The agreement provides generally that, upon the
consummation of sale or transfer of control of the Company,
Mr. Christians employment will be terminated and the
Company will pay him an amount equal to 2.99 times the average
of his total annual compensation for each of the three
immediately preceding periods of twelve consecutive months, plus
an additional amount for applicable income taxes, including
excise taxes, related to the payment. If
Mr. Christians 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. The
new employment agreement was amended on March 31, 2009 to
allow Mr. Christian to defer any or all of his annual salary. On
March 31, 2009, Mr. Christian agreed to defer approximately
$102,000 to be paid 50% on January 1, 2010 and 50% on
April 1, 2010.
Like the current employment agreement, 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.
Change in
Control Agreements
In December 2007, Samuel D. Bush, Senior Vice President and
Chief Financial Officer, Steven J. Goldstein, Executive Vice
President and Group Program Director, Warren S. Lada, Senior
Vice President of Operations and Marcia K. Lobaito, Senior Vice
President, Corporate Secretary and Director of Business Affairs,
entered into Change in Control Agreements. 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 Companys
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 executives last three full calendar years of such
executives base salary and any annual cash bonus paid. In
the event that such payment constitutes a parachute
payment within the meaning
77
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
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 executives 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.
Transactions
with Affiliate and Other Related Party Transactions
In May 1999 we entered into a TBA with Surtsey Productions
(Surtsey), a multimedia company owned by Edward K.
Christians daughter. Surtsey owns a television station,
KVCT, in Victoria, Texas. We operate KVCT under the terms of a
TBA with Surtsey. Under the FCCs ownership rules we are
prohibited from owning or having an attributable or cognizable
interest in this station. Under the 16 year TBA, we pay
fees of $3,100 per month plus accounting fees and reimbursement
of expenses actually incurred in operating the station.
In 2003 we entered into an agreement of understanding with
Surtsey, whereby we have guaranteed up to $1,250,000 of debt
incurred by Surtsey to acquire the broadcast license for
KFJX-TV
station in Pittsburg, Kansas, a full power FOX affiliate. At
December 31, 2008 there was $1,061,000 outstanding under
this agreement. Under the FCCs ownership rules, we are
prohibited from owning this station. We do not have any recourse
provision in connection with our guarantee that would enable us
to recover any amounts paid under the guarantee. As a result, at
December 31, 2008 we have recorded $1,061,000 in debt and
$1,061,000 in intangible assets, primarily broadcast licenses.
In consideration for our guarantee, Surtsey has entered into
various agreements with us relating to the station, including a
Shared Services Agreement, Technical Services Agreement,
Agreement for the Sale of Commercial Time, Option Agreement and
Broker Agreement. We paid fees under the agreements of
approximately $4,100 per month during 2008, 2007, and 2006, plus
accounting fees and reimbursement of expenses actually incurred
in operating the station. In 2008 we also prepaid Surtsey
$49,000 for 2009 expenses.
Surtsey leases office space in a building owned by us, and paid
us rent of approximately $18,000, $6,000, and $18,000 during the
years ended December 31, 2008, 2007 and 2006, respectively.
During the year ended December 31, 2007, Surtsey provided
graphic design services of approximately $24,000 for our
Milwaukee, WI market.
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).
78
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
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, 2008. 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.
|
|
12.
|
Commitments
and Contingencies
|
Leases
We lease certain land, buildings and equipment under
noncancellable operating leases. Rent expense for the year ended
December 31, 2008 was $1,797,000 ($1,803,000 and $1,694,000
for the years ended December 31, 2007 and 2006,
respectively). Minimum annual rental commitments under
noncancellable operating leases consisted of the following at
December 31, 2008 (in thousands):
|
|
|
|
|
2009
|
|
$
|
1,587
|
|
2010
|
|
|
1,204
|
|
2011
|
|
|
1,014
|
|
2012
|
|
|
762
|
|
2013
|
|
|
514
|
|
Thereafter
|
|
|
1,913
|
|
|
|
|
|
|
|
|
$
|
6,994
|
|
|
|
|
|
|
79
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Broadcast
Program Rights
We have entered into contracts for broadcast program rights that
expire at various dates during the next five years. The
aggregate minimum payments relating to these commitments
consisted of the following at December 31, 2008 (in
thousands):
|
|
|
|
|
2009
|
|
$
|
704
|
|
2010
|
|
|
635
|
|
2011
|
|
|
480
|
|
2012
|
|
|
227
|
|
2013
|
|
|
24
|
|
Thereafter
|
|
|
1
|
|
|
|
|
|
|
|
|
$
|
2,071
|
|
Amounts due within one year (included in accounts payable)
|
|
|
704
|
|
|
|
|
|
|
|
|
$
|
1,367
|
|
|
|
|
|
|
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.
We evaluate the operating performance of our markets
individually. For purposes of business segment reporting, we
have aligned operations with similar characteristics into two
business segments: Radio and Television.
The Radio segment includes twenty-three markets, which includes
all ninety-one of our radio stations and five radio information
networks. The Television segment includes three markets and
consists of five television stations and four low power
television (LPTV) stations. The Radio and Television
segments derive their revenue from the sale of commercial
broadcast inventory. The category Corporate general and
administrative represents the income and expense not
allocated to reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Radio
|
|
|
Television
|
|
|
and Other
|
|
|
Consolidated
|
|
|
Year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
121,072
|
|
|
$
|
18,884
|
|
|
$
|
|
|
|
$
|
139,956
|
|
Station operating expense
|
|
|
90,540
|
|
|
|
15,265
|
|
|
|
|
|
|
|
105,805
|
|
Corporate general and administrative
|
|
|
|
|
|
|
|
|
|
|
9,979
|
|
|
|
9,979
|
|
Gain on asset exchange
|
|
|
|
|
|
|
(506
|
)
|
|
|
|
|
|
|
(506
|
)
|
Impairment of intangible assets
|
|
|
114,979
|
|
|
|
1,464
|
|
|
|
|
|
|
|
116,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(84,447
|
)
|
|
$
|
2,661
|
|
|
$
|
(9,979
|
)
|
|
$
|
(91,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
6,446
|
|
|
$
|
2,293
|
|
|
$
|
222
|
|
|
$
|
8,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at December 31, 2008
|
|
$
|
177,677
|
|
|
$
|
30,462
|
|
|
$
|
13,321
|
|
|
$
|
221,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital additions
|
|
$
|
4,568
|
|
|
$
|
2,429
|
|
|
$
|
130
|
|
|
$
|
7,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses, net
|
|
$
|
96,777
|
|
|
$
|
10,896
|
|
|
$
|
|
|
|
$
|
107,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Radio
|
|
|
Television
|
|
|
and Other
|
|
|
Consolidated
|
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
126,596
|
|
|
$
|
17,427
|
|
|
$
|
|
|
|
$
|
144,023
|
|
Station operating expense
|
|
|
92,162
|
|
|
|
14,140
|
|
|
|
|
|
|
|
106,302
|
|
Corporate general and administrative
|
|
|
|
|
|
|
|
|
|
|
9,800
|
|
|
|
9,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
34,434
|
|
|
$
|
3,287
|
|
|
$
|
(9,800
|
)
|
|
$
|
27,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
6,363
|
|
|
$
|
1,619
|
|
|
$
|
204
|
|
|
$
|
8,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at December 31, 2007
|
|
$
|
288,660
|
|
|
$
|
31,986
|
|
|
$
|
16,998
|
|
|
$
|
337,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital additions
|
|
$
|
8,533
|
|
|
$
|
1,076
|
|
|
$
|
243
|
|
|
$
|
9,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
$
|
49,490
|
|
|
$
|
171
|
|
|
$
|
|
|
|
$
|
49,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses, net
|
|
$
|
150,913
|
|
|
$
|
12,189
|
|
|
$
|
|
|
|
$
|
163,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Radio
|
|
|
Television
|
|
|
and Other
|
|
|
Consolidated
|
|
|
Year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
125,274
|
|
|
$
|
17,672
|
|
|
$
|
|
|
|
$
|
142,946
|
|
Station operating expense
|
|
|
90,627
|
|
|
|
13,769
|
|
|
|
|
|
|
|
104,396
|
|
Corporate general and administrative
|
|
|
|
|
|
|
|
|
|
|
8,870
|
|
|
|
8,870
|
|
Other operating income
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
34,959
|
|
|
$
|
3,903
|
|
|
$
|
(8,870
|
)
|
|
$
|
29,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
6,288
|
|
|
$
|
1,673
|
|
|
$
|
194
|
|
|
$
|
8,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at December 31, 2006
|
|
$
|
272,080
|
|
|
$
|
31,712
|
|
|
$
|
18,849
|
|
|
$
|
322,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital additions
|
|
$
|
7,752
|
|
|
$
|
2,592
|
|
|
$
|
160
|
|
|
$
|
10,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
$
|
49,434
|
|
|
$
|
171
|
|
|
$
|
|
|
|
$
|
49,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses, net
|
|
$
|
137,925
|
|
|
$
|
12,189
|
|
|
$
|
|
|
|
$
|
150,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
14.
|
Quarterly
Results of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Net operating revenue
|
|
$
|
31,532
|
|
|
$
|
31,883
|
|
|
$
|
37,342
|
|
|
$
|
38,421
|
|
|
$
|
36,192
|
|
|
$
|
36,218
|
|
|
$
|
34,890
|
|
|
$
|
37,501
|
|
Station operating expenses
|
|
|
25,421
|
|
|
|
25,995
|
|
|
|
27,246
|
|
|
|
27,016
|
|
|
|
26,588
|
|
|
|
25,975
|
|
|
|
26,550
|
|
|
|
27,316
|
|
Corporate general and administrative
|
|
|
2,552
|
|
|
|
2,316
|
|
|
|
2,574
|
|
|
|
2,606
|
|
|
|
2,485
|
|
|
|
2,272
|
|
|
|
2,368
|
|
|
|
2,606
|
|
Gain on asset exchange
|
|
|
|
|
|
|
|
|
|
|
(224
|
)
|
|
|
|
|
|
|
(282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
3,559
|
|
|
|
3,572
|
|
|
|
7,746
|
|
|
|
8,799
|
|
|
|
7,401
|
|
|
|
7,971
|
|
|
|
(110,471
|
)
|
|
|
7,579
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,995
|
|
|
|
2,297
|
|
|
|
1,876
|
|
|
|
2,281
|
|
|
|
1,889
|
|
|
|
2,283
|
|
|
|
1,413
|
|
|
|
2,093
|
|
Other
|
|
|
20
|
|
|
|
35
|
|
|
|
7
|
|
|
|
47
|
|
|
|
|
|
|
|
60
|
|
|
|
49
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
1,544
|
|
|
|
1,240
|
|
|
|
5,863
|
|
|
|
6,471
|
|
|
|
5,512
|
|
|
|
5,628
|
|
|
|
(111,933
|
)
|
|
|
5,355
|
|
Income tax provision (benefit)
|
|
|
634
|
|
|
|
500
|
|
|
|
2,403
|
|
|
|
2,661
|
|
|
|
2,415
|
|
|
|
2,307
|
|
|
|
(37,974
|
)
|
|
|
2,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
910
|
|
|
$
|
740
|
|
|
$
|
3,460
|
|
|
$
|
3,810
|
|
|
$
|
3,097
|
|
|
$
|
3,321
|
|
|
$
|
(73,959
|
)
|
|
$
|
3,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
.18
|
|
|
$
|
.15
|
|
|
$
|
.70
|
|
|
$
|
.76
|
|
|
$
|
.65
|
|
|
$
|
.66
|
|
|
$
|
(17.41
|
)
|
|
$
|
.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
5,020
|
|
|
|
5,055
|
|
|
|
4,950
|
|
|
|
5,021
|
|
|
|
4,735
|
|
|
|
5,028
|
|
|
|
4,249
|
|
|
|
5,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
.18
|
|
|
$
|
.15
|
|
|
$
|
.70
|
|
|
$
|
.76
|
|
|
$
|
.65
|
|
|
$
|
.66
|
|
|
$
|
(17.41
|
)
|
|
$
|
..62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares
|
|
|
5,022
|
|
|
|
5,061
|
|
|
|
4,951
|
|
|
|
5,028
|
|
|
|
4,738
|
|
|
|
5,032
|
|
|
|
4,249
|
|
|
|
5,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the fourth quarter of 2008, the Company recognized a pre-tax
impairment charge of $116,443,000 to reduce the carrying value
of its broadcast licenses and goodwill. The charge is comprised
of $114,979,000 for the Radio segment and $1,464,000 for the
Television segment.
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 31, 2009.
SAGA COMMUNICATIONS, INC.
|
|
|
|
By:
|
/s/ Edward
K. Christian
|
Edward K. Christian
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
March 31, 2009.
|
|
|
|
|
Signatures
|
|
|
|
|
|
|
/s/ Edward
K. Christian
Edward
K. Christian
|
|
President, Chief Executive Officer and
Chairman of the Board
|
|
|
|
/s/ Samuel
D. Bush
Samuel
D. Bush
|
|
Senior Vice President, Chief Financial
Officer and Treasurer
|
|
|
|
/s/ Catherine
A. Bobinski
Catherine
A. Bobinski
|
|
Vice President, Corporate Controller and
Chief Accounting Officer
|
|
|
|
/s/ Donald
J. Alt
Donald
J. Alt
|
|
Director
|
|
|
|
/s/ Brian
W. Brady
Brian
W. Brady
|
|
Director
|
|
|
|
/s/ Clarke
Brown
Clarke
Brown
|
|
Director
|
|
|
|
/s/ Jonathan
Firestone
Jonathan
Firestone
|
|
Director
|
|
|
|
/s/ Robert
J. Maccini
Robert
J. Maccini
|
|
Director
|
|
|
|
/s/ Gary
Stevens
Gary
Stevens
|
|
Director
|
83
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
|
3(a)
|
|
|
7
|
|
Second Restated Certificate of Incorporation, restated as of
December 12, 2003.
|
|
3(a)(2)
|
|
|
19
|
|
Certificate of Amendment to the Second Restated Certificate of
Incorporation.
|
|
3(b)
|
|
|
15
|
|
Bylaws, as amended May 23, 2007.
|
|
4(a)
|
|
|
1
|
|
Plan of Reorganization.
|
|
4(b)
|
|
|
6
|
|
Credit Agreement dated as of July 29, 2003 between the
Company and Union Bank of California, as Syndication Agent,
Fleet National Bank as Documentation Agent and The Bank of New
York as Administrative Agent.
|
|
4(c)
|
|
|
17
|
|
Amendment No. 1, dated as of May 24, 2005 under the
Credit Agreement, dated as of July 29, 2003, among the
Company, the Lenders party thereto, Union Bank of California,
N.A., as Syndication Agent, Fleet National Bank, as
Documentation Agent, and The Bank of New York, as Administrative
Agent.
|
|
4(d)
|
|
|
17
|
|
Amendment No. 2, dated as of May 16, 2006 under the
Credit Agreement, dated as of July 29, 2003, between the
Company, the Lenders party thereto, Bank of America, N.A., as
Documentation Agent, and The Bank of New York, as Administrative
Agent.
|
|
4(e)
|
|
|
18
|
|
Assignment and Acceptance dated as of September 29, 2008,
under the Credit Agreement dated as of July 29, 2003, among
the Company, the Lenders party thereto, Union Bank of
California, N.A., as Syndication Agent, Bank of America, N.A.,
as Documentation Agent, and The Bank of New York Mellon,
formerly The Bank of New York, as Administrative Agent.
|
|
4(f)
|
|
|
20
|
|
Amendment No. 3 and Consent No. 1, dated as of
March 9, 2009, to and under the Credit Agreement, dated as
of July 29, 2003, between the Company, the Lenders party
thereto, Bank of America, N.A., as Documentation Agent, and The
Bank of New York Mellon (formerly The Bank of New York), as
Administrative Agent.
|
|
10(a)
|
|
|
4
|
|
Employment Agreement of Edward K. Christian dated as of
April 1, 2002.
|
|
10(b)
|
|
|
3
|
|
Saga Communications, Inc. 1992 Stock Option Plan, as amended.
|
|
10(c)
|
|
|
1
|
|
Summary of Executive Insured Medical Reimbursement Plan.
|
|
10(d)
|
|
|
2
|
|
Saga Communications, Inc. 1997 Non-Employee Director Stock
Option Plan.
|
|
10(d)(1)
|
|
|
8
|
|
Form of Stock Option Agreement for Participants in the Saga
Communications, Inc 1997 Non-Employee Director Stock Option Plan.
|
|
10(f)
|
|
|
7
|
|
Saga Communications, Inc. 2003 Employee Stock Option Plan.
|
|
10(g)
|
|
|
10
|
|
Summary of Chief Executive Officer Annual Incentive Plan.
|
|
10(h)
|
|
|
11
|
|
Saga Communications, Inc. 2005 Incentive Compensation Plan.
|
|
10(j)
|
|
|
12
|
|
Form of Stock Option Agreement Restricted Stock for
Participants in the Saga Communications, Inc. 2005 Incentive
Compensation Plan
|
|
10(k)
|
|
|
12
|
|
Form of Stock Option Agreement Non-Qualified for
Participants in the Saga Communications, Inc. 2005 Incentive
Compensation Plan
|
|
10(l)
|
|
|
12
|
|
Form of Stock Option Agreement Incentive Stock
Option for Participants in the Saga Communications, Inc. 2005
Incentive Compensation Plan
|
|
10(m)
|
|
|
9
|
|
Amendments to 1997 Non-Employee Director Stock Option Plan.
|
|
10(n)
|
|
|
13
|
|
Form of Stock Option Cancellation Agreement
|
|
10(o)
|
|
|
14
|
|
Amendments to Saga Communications, Inc. 2005 Incentive
Compensation Plan.
|
|
10(p)
|
|
|
16
|
|
Employment Agreement of Edward K. Christian dated as of
December 28, 2007.
|
|
10(p)(1)
|
|
|
*
|
|
Amendment to Employment Agreement of Edward K. Christian dated
as of December 28, 2007.
|
|
10(q)
|
|
|
16
|
|
Change in Control Agreement of Samuel D. Bush dated as of
December 28, 2007.
|
|
10(r)
|
|
|
16
|
|
Change in Control Agreement of Steven J. Goldstein dated as of
December 28, 2007.
|
|
10(s)
|
|
|
16
|
|
Change in Control Agreement of Warren S. Lada dated as of
December 28, 2007.
|
84
|
|
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
|
10(t)
|
|
|
16
|
|
Change in Control Agreement of Marcia K. Lobaito dated as of
December 28, 2007.
|
|
21
|
|
|
*
|
|
Subsidiaries.
|
|
23
|
.1
|
|
*
|
|
Consent of Ernst & Young LLP.
|
|
31
|
.1
|
|
*
|
|
Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
*
|
|
Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
|
|
*
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 and
Rule 13-14(b)
of the Securities Exchange Act of 1934, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Filed herewith. |
|
1 |
|
Exhibit filed with the Companys Registration Statement on
Form S-1
(File
No. 33-47238)
and incorporated by reference herein. |
|
2 |
|
Exhibit filed with the Companys
Form 10-Q
for the quarter ended June 30, 1997 and incorporated by
reference herein. |
|
3 |
|
Exhibit filed with the Companys
Form 10-K
for the year ended December 31, 1997 and incorporated by
reference herein. |
|
4 |
|
Exhibit filed with the Companys
Form 10-K
for the year ended December 31, 2001 and incorporated by
reference herein. |
|
5 |
|
Exhibit filed with the Companys Registration Statement on
Form S-8
(File
No. 333-107686)
and incorporated by reference herein. |
|
6 |
|
Exhibit filed with the Companys
Form 10-Q
for the quarter ended June 30, 2003 and incorporated by
reference herein. |
|
7 |
|
Exhibit filed with the Companys Registration Statement on
Form 8-A
(File
No. 001-11588)
and incorporated by reference herein. |
|
8 |
|
Exhibit filed with the Companys
Form 8-K
filed on February 4, 2005 and incorporated by reference
herein. |
|
9 |
|
Exhibit filed with the Companys
Form 8-K
filed on December 23, 2005 and incorporated by reference
herein. |
|
10 |
|
Exhibit filed with the Companys
Form 8-K
filed on March 16, 2005 and incorporated by reference
herein. |
|
11 |
|
Exhibit filed with the Companys 2005 Proxy Statement filed
on April 15, 2005 and incorporated by reference herein. |
|
12 |
|
Exhibit filed with the Companys
Form 10-Q
for the quarter ended June 30, 2005 and incorporated by
reference herein. |
|
13 |
|
Exhibit filed with the Companys
Form 10-K
for the year ended December 31, 2005 and incorporated by
reference herein. |
|
14 |
|
Exhibit filed with the Companys
Form 10-K
for the year ended December 31, 2006 and incorporated by
reference herein. |
|
15 |
|
Exhibit filed with the Companys
Form 10-K
for the year ended December 31, 2007 and incorporated by
reference herein. |
|
16 |
|
Exhibit filed with the Companys
Form 8-K
filed on January 4, 2008 and incorporated by reference
herein. |
|
17 |
|
Exhibit filed with the Companys
Form 10-Q
for the quarter ended March 31, 2008 and incorporated by
reference herein. |
|
18 |
|
Exhibit filed with the Companys
Form 10-Q
for the quarter ended September 30, 2008 and incorporated
by reference herein. |
|
19 |
|
Exhibit filed with the Companys
Form 8-K
filed on January 29, 2009 and incorporated by reference
herein. |
|
20 |
|
Exhibit filed with the Companys
Form 8-K
filed on March 13, 2009 and incorporated by reference
herein. |
85