e10vk
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, 2007
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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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New York Stock Exchange
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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 $9.80 per share (the
closing price of the Class A Common Stock on June 29,
2007 on the New York Stock Exchange): $174,361,463.
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 7, 2008
was 17,801,229 and 2,390,338, respectively.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2008 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.
2007 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 2008 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, 2007 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. We actively seek and
explore opportunities for expansion through the acquisition of
additional broadcast properties. We review acquisition
opportunities on an ongoing basis.
Recent
Developments
Since January 1, 2007, we have entered into the following
transactions regarding acquisitions, Time Brokerage Agreements
(TBAs), and Local Marketing Agreements
(LMAs) for stations serving the markets
indicated. The following are included in our results of
operations for the year ended December 31, 2007:
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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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In addition, the following transactions were pending at
December 31, 2007:
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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 $9,374,000.
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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 29, 2008, 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 29, 2008:
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2007
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2007
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Fall 2007
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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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31
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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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31
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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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31
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37
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Smooth Jazz
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15
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(e)(d)
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Adults 35-54
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WJZK
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Columbus, OH
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31
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37
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Smooth Jazz
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15
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(e)(d)
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Adults 35-54
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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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3
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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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1
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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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17
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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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3
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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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5
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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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1
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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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1
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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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(e)
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Women 35-54
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WMGX
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Portland, ME
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99
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167
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Hot Adult Contemporary
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1
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Women 25-54
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WYNZ
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Portland, ME
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99
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167
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Classic Hits
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3
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(e)
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Adults 45-64
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WPOR
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Portland, ME
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99
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167
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Country
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1
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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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99
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167
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Adult Album Alternative
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6
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Adults 25-54
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WAQY
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Springfield, MA
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112
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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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112
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86
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Rock
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1
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Men 18-34
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WRSI
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Northampton, MA
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112
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86
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Progressive
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9
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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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9
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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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118
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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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118
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190
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Classic Rock
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3
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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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168
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160
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Classic Hits
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N/S
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Adults 35-64
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WTMT
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Asheville, NC
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168
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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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213
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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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208
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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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WQMZ
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Charlottesville, VA
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208
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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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208
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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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(footnotes follow
tables)
5
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2007
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2007
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Fall 2007
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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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KEGI
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Jonesboro, AR
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257
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294
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Classic Rock
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2
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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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257
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294
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Country
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1
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(f)
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Adults 25-54
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KJBX
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Jonesboro, AR
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257
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294
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Adult Contemporary
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2
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(e)(f)
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Women 25-54
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WCVQ
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Clarksville, TN
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257
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210
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Hot Adult Contemporary
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N/S
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Women 25-54
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Hopkinsville, KY
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WVVR
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Clarksville, TN
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257
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210
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Country
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N/S
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Adults 25-54
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Hopkinsville, KY
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WZZP
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Clarksville, TN
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257
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210
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Rock
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N/S
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Men 18-34
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Hopkinsville, KY
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WEGI
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Clarksville, TN
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257
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210
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Classic Hits
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N/S
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Adults 35-54
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Hopkinsville, KY
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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
|
|
Brattleboro, VT
|
|
N/A
|
|
|
N/A
|
|
|
Classic Hits
|
|
|
N/R
|
|
|
Men 35-54
|
WKNE
|
|
Keene, NH
|
|
N/A
|
|
|
N/A
|
|
|
Hot Adult Contemporary
|
|
|
N/R
|
|
|
Women 25-54
|
WSNI
|
|
Keene, NH
|
|
N/A
|
|
|
N/A
|
|
|
Adult Contemporary
|
|
|
N/R
|
|
|
Women 35-54
|
WINQ
|
|
Keene, NH
|
|
N/A
|
|
|
N/A
|
|
|
Country
|
|
|
N/R
|
|
|
Adults 35+
|
WQEL
|
|
Bucyrus, OH
|
|
N/A
|
|
|
N/A
|
|
|
Classic Hits
|
|
|
N/R
|
|
|
Men 25-54
|
WIII
|
|
Ithaca, NY
|
|
284
|
|
|
285
|
|
|
Rock
|
|
|
2
|
(f)
|
|
Men 25-54
|
WQNY
|
|
Ithaca, NY
|
|
284
|
|
|
285
|
|
|
Country
|
|
|
1
|
(f)
|
|
Adults 25-54+
|
WYXL
|
|
Ithaca, NY
|
|
284
|
|
|
285
|
|
|
Adult Contemporary
|
|
|
1
|
(e)(f)
|
|
Women 25-54
|
AM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WJYI
|
|
Milwaukee, WI
|
|
35
|
|
|
36
|
|
|
Contemporary Christian
|
|
|
N/R
|
|
|
Adults 18+
|
WJOI
|
|
Norfolk, VA
|
|
40
|
|
|
41
|
|
|
Nostalgia
|
|
|
11
|
(e)
|
|
Adults 45+
|
KRNT
|
|
Des Moines, IA
|
|
71
|
|
|
91
|
|
|
Nostalgia/Sports
|
|
|
5
|
|
|
Adults 45+
|
KPSZ
|
|
Des Moines, IA
|
|
71
|
|
|
91
|
|
|
Contemporary Christian
|
|
|
N/R
|
|
|
Adults 18+
|
WGAN
|
|
Portland, ME
|
|
99
|
|
|
167
|
|
|
News/Talk
|
|
|
1
|
|
|
Adults 35+
|
WZAN
|
|
Portland, ME
|
|
99
|
|
|
167
|
|
|
News/Talk/Sports
|
|
|
14
|
(e)
|
|
Men 25-54
|
WBAE
|
|
Portland, ME
|
|
99
|
|
|
167
|
|
|
Nostalgia
|
|
|
7
|
(e)(d)
|
|
Adults 45+
|
WVAE
|
|
Portland, ME
|
|
99
|
|
|
167
|
|
|
Nostalgia/Sports
|
|
|
7
|
(e)(d)
|
|
Adults 45+
|
WHMP
|
|
Northampton, MA
|
|
112
|
|
|
86
|
|
|
News/Talk
|
|
|
5
|
(d)
|
|
Adults 35+
|
WHNP
|
|
Springfield, MA
|
|
112
|
|
|
86
|
|
|
News/Talk
|
|
|
5
|
(d)
|
|
Adults 35+
|
WHMQ
|
|
Greenfield, MA
|
|
N/A
|
|
|
N/A
|
|
|
News/Talk
|
|
|
5
|
(d)
|
|
Adults 35+
|
WFEA
|
|
Manchester, NH
|
|
118
|
|
|
190
|
|
|
Adult Standards/Sports
|
|
|
2
|
(e)
|
|
Adults 45+
|
WTAX
|
|
Springfield, IL
|
|
N/A
|
|
|
N/A
|
|
|
News/Talk
|
|
|
N/R
|
|
|
Adults 35+
|
WISE
|
|
Asheville, NC
|
|
168
|
|
|
160
|
|
|
Sports/Talk
|
|
|
N/S
|
|
|
Men 18+
|
WYSE
|
|
Asheville, NC
|
|
168
|
|
|
160
|
|
|
Sports/Talk
|
|
|
N/S
|
|
|
Men 18+
|
WNAX
|
|
Yankton, SD
|
|
213
|
|
|
277
|
|
|
News/Talk
|
|
|
N/S
|
|
|
Adults 35+
|
WINA
|
|
Charlottesville, VA
|
|
208
|
|
|
233
|
|
|
News/Talk
|
|
|
N/S
|
|
|
Adults 35+
|
WVAX
|
|
Charlottesville, VA
|
|
208
|
|
|
233
|
|
|
News/Talk
|
|
|
N/A
|
|
|
Adults 35+
|
WJQI
|
|
Clarksville, TN
|
|
257
|
|
|
210
|
|
|
Southern Gospel
|
|
|
N/S
|
|
|
Adults 18+
|
|
|
Hopkinsville, KY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WKFN
|
|
Clarksville, TN
|
|
257
|
|
|
210
|
|
|
Sports/Talk
|
|
|
N/S
|
|
|
Men 18+
|
|
|
Hopkinsville, KY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KGMI
|
|
Bellingham, WA
|
|
N/A
|
|
|
N/A
|
|
|
News/Talk
|
|
|
N/A
|
|
|
Adults 35+
|
(footnotes follow
tables)
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
|
|
|
Fall 2007
|
|
|
|
|
|
|
|
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
|
|
KPUG
|
|
Bellingham, WA
|
|
N/A
|
|
|
N/A
|
|
|
Sports/Talk
|
|
|
N/A
|
|
|
Men 18+
|
KBAI
|
|
Bellingham, WA
|
|
N/A
|
|
|
N/A
|
|
|
Progressive Talk
|
|
|
N/A
|
|
|
Adults 35+
|
KICD
|
|
Spencer, IA
|
|
N/A
|
|
|
N/A
|
|
|
News/Talk
|
|
|
N/A
|
|
|
Adults 35+
|
WKVT
|
|
Brattleboro, VT
|
|
N/A
|
|
|
N/A
|
|
|
News/Talk
|
|
|
N/A
|
|
|
Adults 35+
|
WKBK
|
|
Keene, NH
|
|
N/A
|
|
|
N/A
|
|
|
News/Talk
|
|
|
N/A
|
|
|
Adults 35+
|
WZBK
|
|
Keene, NH
|
|
N/A
|
|
|
N/A
|
|
|
Nostalgia
|
|
|
N/A
|
|
|
Adults 45+
|
WBCO
|
|
Bucyrus, OH
|
|
N/A
|
|
|
N/A
|
|
|
Adult Standards
|
|
|
N/A
|
|
|
Adults 45+
|
WNYY
|
|
Ithaca, NY
|
|
284
|
|
|
285
|
|
|
Progressive Talk
|
|
|
4
|
(e)(f)
|
|
Adults 35-54
|
WHCU
|
|
Ithaca, NY
|
|
284
|
|
|
285
|
|
|
News/Talk
|
|
|
3
|
(f)
|
|
Adults 35+
|
|
|
|
(a) |
|
Actual city of license may differ from metropolitan market
actually served. |
|
(b) |
|
Derived from Investing in Radio 2007 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 2007 are a combination of Spring 2007 and Fall
2007 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 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Market
|
|
|
|
|
|
|
|
|
|
|
Ranking by
|
|
|
|
|
Fall 2007
|
|
|
|
|
|
Number of TV
|
|
|
Station
|
|
Station Ranking
|
|
Station
|
|
Market (a)
|
|
Households (b)
|
|
|
Affiliate
|
|
(by # of viewers) (b)
|
|
|
KOAM
|
|
Joplin, MO Pittsburg, KS
|
|
|
145
|
|
|
CBS
|
|
|
1
|
|
KFJX(d)
|
|
Joplin, MO Pittsburg, KS
|
|
|
145
|
|
|
FOX
|
|
|
4
|
|
WXVT
|
|
Greenwood Greenville, MS
|
|
|
184
|
|
|
CBS
|
|
|
2
|
|
KAVU
|
|
Victoria, TX
|
|
|
204
|
|
|
ABC
|
|
|
1
|
|
KVCT(c)
|
|
Victoria, TX
|
|
|
204
|
|
|
FOX
|
|
|
3
|
|
KMOL-LP
|
|
Victoria, TX
|
|
|
204
|
|
|
NBC
|
|
|
4
|
|
KXTS-LP
|
|
Victoria, TX
|
|
|
204
|
|
|
MYTV
|
|
|
5
|
|
KUNU-LP
|
|
Victoria, TX
|
|
|
204
|
|
|
Univision
|
|
|
2
|
|
KVTX-LP
|
|
Victoria, TX
|
|
|
204
|
|
|
Telemundo
|
|
|
6
|
|
|
|
|
(a) |
|
Actual city of license may differ from metropolitan market
actually served. |
|
(b) |
|
Derived from Investing in Television Market Report 2007, based
on 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. |
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.
7
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, 12 of our
30 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.
We actively seek and explore opportunities for expansion through
the acquisition of additional broadcast properties. 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.
We review acquisition opportunities on an ongoing basis.
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
8
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 $134,692,000 or 85% of our gross revenue for the
year ended December 31, 2007 (approximately $134,567,000 or
85% in fiscal 2006 and approximately $131,401,000 or 84% in
fiscal 2005) 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 2007
was approximately $24,588,000 or 15% of our gross revenue
(approximately $23,845,000 or 15% in fiscal 2006 and
approximately $25,162,000 or 16% in fiscal 2005).
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 new technologies may
have on us or the broadcasting industry.
Seasonality
Our revenue varies throughout the year. Advertising
expenditures, our primary source of revenue, is generally lowest
in the first quarter.
9
Employees
As of December 31, 2007, we had approximately
909 full-time employees and 410 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; Risk Factors below.
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, 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.
10
The following table sets forth the market and broadcast power of
each of our broadcast stations (or pending acquisitions) 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
|
WJZK
|
|
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
|
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
|
(footnotes follow
tables)
11
|
|
|
|
|
|
|
|
|
|
|
Power
|
|
Expiration Date of
|
Station
|
|
Market (1)
|
|
(Watts) (2)
|
|
FCC Authorization
|
|
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, 2004(6)
|
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, 2006(6)
|
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
|
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
|
(footnotes follow
tables)
12
|
|
|
|
|
|
|
|
|
|
|
Power
|
|
Expiration Date of
|
Station
|
|
Market (1)
|
|
(Watts) (2)
|
|
FCC Authorization
|
|
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 (NTSC Ch 7 DTV Ch 13)
|
|
Joplin, MO/Pittsburg, KS
|
|
NTSC
316,000 (vis),
61,600 (aur)
DTV 6,000
|
|
June 1, 2006(6)
|
KAVU (NTSC Ch 25 DTV Ch 15)
|
|
Victoria, TX
|
|
NTSC
1,298,000(vis),
129,800(aur)
DTV 900,000
|
|
August 1, 2006(6)
|
KVCT(3) (NTSC Ch 19 DTV Ch 11)
|
|
Victoria, TX
|
|
NTSC
155,000(vis),
15,500(aur)
DTV 18,000
|
|
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 (NTSC Ch 15 DTV Ch 17)
|
|
Greenville, MS
|
|
NTSC
2,750,000(vis),
549,000(aur)
DTV 5,000
|
|
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) and aural (aur)
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, directly or
indirectly, by another corporation in which more than 25% of the
issued and outstanding capital
13
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 2008 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. 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 amounts 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. Our television stations are required to cease
broadcasting on the NTSC channels by February 17, 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 in the
future. The companys television stations have timely filed
with the FCC forms electing their preferred DTV 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, as the date on which analog spectrum
must be returned to the government to be auctioned. Under the
Act, the FCC is authorized to extend the February 17, 2009,
deadline if (1) one or more television stations affiliated
with ABC, CBS, NBC, or Fox in a market are not broadcasting in
DTV and the FCC determines that such stations have
exercised due diligence in attempting to convert to
DTV; or (2) less than 85% of the television households in
the stations market subscribe to a multichannel video
service that carries at least one DTV channel from each of the
local stations in that market and less than 85% of the
television households in the market can receive DTV signals off
the air using either set-top converters for NTSC broadcasts or a
new DTV set. (The Deficit Reduction Act of 2005 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 NTSC service on Channel 7 and DTV service on Channel
13. KAVU-TV
is providing NTSC service on Channel 25 and DTV service on
Channel 15. WXVT is providing NTSC operations on Channel 15 and
DTV service on Channel 17. Brokered Station KVCT is providing
NTSC service on Channel 19 and 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. The
Companys and Surtseys requests to implement this
election are pending before the FCC.
KAVU-TV
elected to use Channel 15. WXVT elected to use Channel 15. KVCT
elected to use Channel 11. We will timely file applications with
the FCC for construction permits to authorize
KOAM-TV to
operate on Channel 7 for DTV and WXVT to operate on Channel 15
for DTV. 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.
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 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
19
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.
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 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
20
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.
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
and have filed an application with the FCC seeking its consent
to the merger of the two DARS service providers. We cannot
predict whether the proposed merger will be approved, or the
extent to which, DARS will have an adverse impact on our
business. In February 2005, Motorola, introduced a new
iRadio receiver that will permit the reception of
audio programming streamed over the internet (e.g., in
automobiles) 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 will 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 provides near
CD-quality sound on FM channels and FM quality on AM channels.
Hybrid IBOC operations will have minimal impact on the present
broadcast service. At the present time, we are broadcasting in
HD radio on 31 stations and we continue to convert stations to
HD radio on an ongoing basis.
21
Use of FM Translators by AM
Stations. 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 for special
temporary authority to rebroadcast AM stations on FM
translators. The Company has filed such requests, but none have,
so far, been granted. If the rules are modified to permit
regular use of FM translators by AM stations, the Company
intends to use some of its existing FM translators in connection
with some of its AM 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.
22
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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63
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President, Chief Executive Officer and Chairman; Director
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Steven J. Goldstein
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51
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Executive Vice President and Group Program Director
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Warren S. Lada
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53
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Senior Vice President, Operations
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Samuel D. Bush
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50
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Senior Vice President, Chief Financial Officer and Treasurer
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Marcia K. Lobaito
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59
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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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48
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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.
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.
We
Have Substantial Indebtedness and Debt Service
Requirements
At December 31, 2007 our long-term debt (including the
current portion thereof and our guarantee of debt of Surtsey
Productions) was approximately $129,911,000. 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 31, 2008, the Revolving Commitments
(as defined in the Credit Agreement) will be permanently reduced
quarterly in amounts ranging from 3.125% to 12.5% of the total
Revolving Commitments in effect on March 31, 2008. Any
outstanding balance under the Credit Agreement will be due on
the maturity date of July 29, 2012. 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. We believe that cash flow
from operations will be sufficient to meet our debt service
requirements for interest and
23
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,
distributions, guarantees, liens and encumbrances. Our ability
to meet these financial ratios can be affected by operating
performance or other events beyond our control, and we cannot
assure you that we will meet those ratios. Certain events of
default under our Credit 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.
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 47%,
48% and 49% of our net operating revenue for the years ended
December 31, 2007, 2006 and 2005, respectively.
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. As a result, our revenue 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
24
any change in a particular market could have a material adverse
effect on the revenue of our stations located in that market.
While we already compete in some of our markets with other
stations with similar programming formats, if another radio
station in a market were to convert its programming format to a
format similar to one of our stations, if a new station were to
adopt a comparable format or if an existing competitor were to
strengthen its operations, our stations could experience a
reduction in ratings
and/or
advertising revenue and could incur increased promotional and
other expenses. Other radio 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 intend to continue
to pursue acquisitions of additional radio and television
stations. 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 detail 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. We also face
risks in implementing the conversion of our television stations
to digital television as required by the FCC. We have and will
continue to incur considerable
25
expense in the conversion to digital television and are unable
to predict the extent or timing of consumer demand for any such
digital television services. 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 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 February 29, 2008, Edward K. Christian, our
President, Chief Executive Officer and Chairman, holds
approximately 57% 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, 2007 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 6 years. We own or
lease our transmitter and antenna sites, with lease terms that
expire in 2 months to 82 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
|
Our Class A Common Stock trades on the New York Stock
Exchange. There is no public trading market for our 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:
|
|
|
|
|
|
|
|
|
Year
|
|
High
|
|
|
Low
|
|
|
2006:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.18
|
|
|
$
|
8.88
|
|
Second Quarter
|
|
$
|
10.40
|
|
|
$
|
8.40
|
|
Third Quarter
|
|
$
|
9.21
|
|
|
$
|
7.15
|
|
Fourth Quarter
|
|
$
|
10.13
|
|
|
$
|
7.55
|
|
2007:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
10.22
|
|
|
$
|
9.22
|
|
Second Quarter
|
|
$
|
10.29
|
|
|
$
|
8.95
|
|
Third Quarter
|
|
$
|
10.09
|
|
|
$
|
6.51
|
|
Fourth Quarter
|
|
$
|
8.50
|
|
|
$
|
4.21
|
|
The closing price for the Companys Class A Common
Stock on February 29, 2008 as reported by the New York
Stock Exchange was $5.82. As of February 29, 2008, there
were approximately 145 holders of record of our Class A
Common Stock, and one holder of our Class B Common Stock.
We have not paid any cash dividends on our Common Stock during
the two most recent fiscal years. We are prohibited by the terms
of our bank loan agreement from paying dividends on our 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, 2007, the
number of securities outstanding under our equity compensation
plans, the weighted average exercise price of such securities
and the number of securities available for grant under these
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
|
|
|
|
|
|
$
|
|
|
|
|
1,395,717
|
|
1992 Stock Option Plan
|
|
|
1,536,072
|
|
|
$
|
13.312
|
|
|
|
|
|
2003 Stock Option Plan
|
|
|
207,900
|
|
|
$
|
19.260
|
|
|
|
|
|
2005 Incentive Compensation Plan
|
|
|
1,102,852
|
(1)
|
|
$
|
10.558
|
(2)
|
|
|
1,348,116
|
|
1997 Non-Employee Director Stock Option Plan
|
|
|
23,080
|
|
|
$
|
.009
|
|
|
|
|
|
Equity Compensation Plans Not Approved by Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,869,904
|
|
|
|
|
|
|
|
2,743,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 164,072 shares of restricted stock; |
|
(2) |
|
Weighted-Average Exercise Price of Outstanding Options. |
Recent
Sales of Unregistered Securities
On June 1, 2005, we issued a total of 188,123 shares
of our Class A Common Stock to Manley H. Thaler, Trustee.
In connection with our acquisition of two FM and two AM radio
stations
(WQNY-FM,
WYXL-FM,
WNYY-AM and
WHCU-AM)
serving the Ithaca, New York market for a total aggregate cash
and stock consideration of approximately $13,610,000.
Effective January 1, 2005, we issued 116,686 shares of
our Class A Common Stock to Eure Communications, Inc. in
connection with our acquisition of an AM
(WINA-AM)
and two FM
(WWWV-FM and
WQMZ-FM)
radio stations serving the Charlottesville, Virginia market for
total aggregate cash and stock consideration of approximately
$22,490,000.
We relied upon Section 4(2) of the Securities Act of 1933
in connection with the issuance of these securities.
Issuer
Purchases of Equity Securities
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,
2007, we have repurchased 1,907,210 shares of our
Class A Common Stock for approximately $26,252,000. During
the year ended December 31, 2007 we repurchased an
aggregate of 12,821 shares for approximately $126,000.
There we no repurchases of our equity securities during the
quarter ended December 31, 2007.
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, 2002,
2003, 2004, 2005, 2006 and 2007 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., Walt
Disney Co., Emmis Communications Corp., Entercom Communications
Corp., Entravision Communications Corp., Fisher Communications
Inc., Interep National Radio Sales Inc., Journal Communications
Inc., Radio One Inc., Regent Communications Inc., Saga
Communications Inc., Salem Communications Corp., Sirius
Satellite Radio Inc., Spanish Broadcasting System Inc, Westwood
One Inc. and XM Satellite Radio Holdings Inc. The graph and
table assume that $100 was invested on December 31, 2002,
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 Returns
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,
|
|
|
|
2007(1)(2)
|
|
|
2006(1)(3)
|
|
|
2005(1)(4)
|
|
|
2004(1)(5)
|
|
|
2003(1)(6)
|
|
|
|
(In thousands except per share amounts)
|
|
|
OPERATING DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Revenue
|
|
$
|
144,023
|
|
|
$
|
142,946
|
|
|
$
|
140,790
|
|
|
$
|
134,644
|
|
|
$
|
121,297
|
|
Station Operating Expense
|
|
|
106,302
|
|
|
|
104,396
|
|
|
|
104,411
|
|
|
|
94,914
|
|
|
|
86,083
|
|
Corporate General and Administrative
|
|
|
9,800
|
|
|
|
8,870
|
|
|
|
8,174
|
|
|
|
8,343
|
|
|
|
6,649
|
|
Other Operating Income
|
|
|
|
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
27,921
|
|
|
|
29,992
|
|
|
|
27,037
|
|
|
|
31,387
|
|
|
|
28,565
|
|
Interest Expense
|
|
|
8,954
|
|
|
|
9,379
|
|
|
|
7,586
|
|
|
|
4,522
|
|
|
|
4,779
|
|
Net Income
|
|
$
|
11,004
|
|
|
$
|
12,448
|
|
|
$
|
10,566
|
|
|
$
|
15,842
|
|
|
$
|
13,884
|
|
Basic Earnings Per Share
|
|
$
|
.55
|
|
|
$
|
.61
|
|
|
$
|
.52
|
|
|
$
|
.76
|
|
|
$
|
.67
|
|
Cash Dividends Declared Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares
|
|
|
20,091
|
|
|
|
20,442
|
|
|
|
20,482
|
|
|
|
20,752
|
|
|
|
20,817
|
|
Diluted Earnings Per Share
|
|
$
|
.55
|
|
|
$
|
.61
|
|
|
$
|
.51
|
|
|
$
|
.75
|
|
|
$
|
.65
|
|
Weighted Average Common Shares and Common Equivalents
|
|
|
20,115
|
|
|
|
20,458
|
|
|
|
20,675
|
|
|
|
21,167
|
|
|
|
21,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007(1)(2)
|
|
|
2006(1)(3)
|
|
|
2005(1)(4)
|
|
|
2004(1)(5)
|
|
|
2003(1)(6)
|
|
|
|
(In thousands)
|
|
|
BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital
|
|
$
|
24,075
|
|
|
$
|
21,617
|
|
|
$
|
22,618
|
|
|
$
|
21,778
|
|
|
$
|
25,353
|
|
Net Property and Equipment
|
|
|
76,217
|
|
|
|
73,658
|
|
|
|
69,669
|
|
|
|
66,364
|
|
|
|
62,369
|
|
Net Intangible and Other Assets
|
|
|
220,045
|
|
|
|
210,044
|
|
|
|
205,434
|
|
|
|
176,166
|
|
|
|
161,112
|
|
Total Assets
|
|
|
337,644
|
|
|
|
322,641
|
|
|
|
318,865
|
|
|
|
280,154
|
|
|
|
262,343
|
|
Long-term Debt Including Current Portion
|
|
|
129,911
|
|
|
|
133,911
|
|
|
|
148,911
|
|
|
|
121,161
|
|
|
|
121,205
|
|
Stockholders Equity
|
|
|
149,076
|
|
|
|
136,236
|
|
|
|
125,824
|
|
|
|
117,225
|
|
|
|
107,244
|
|
|
|
|
(1) |
|
All periods presented include the weighted average shares and
common equivalents related to certain stock options. |
|
(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. |
|
(6) |
|
Reflects the results of
WOXL-AM,
acquired in March 2003; WODB, acquired in March 2003 and the
results of a time brokerage agreement (TBA) for WODB
which began in January 2003; the disposition of WVKO in May 2003
and the results of the buyer brokering time on WVKO under a TBA
which began in January 2003; WSNI acquired in April 2003, and
the results of a TBA for WSNI, which began in February 2003; the
disposition of WLLM in April 2003; WJZA and WJZK acquired in
October 2003; the results of a Shared Services Agreement,
Technical Services Agreement, Agreement for the Sale of
Commercial Time, Option Agreement and Broker Agreement for KFJX,
which began in October 2003; WVAE acquired in November 2003 and
the results of a TBA for WVAE which began in August 2003; and
WQEL and WBCO acquired in December 2003 and the results of a TBA
for WQEL and WBCO which began in October 2003. |
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 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 acquiring,
developing and operating radio and television stations. We
actively seek and explore opportunities for expansion through
the acquisition of additional broadcast properties. We review
acquisition opportunities on an ongoing basis.
For additional information with respect to acquisitions, see
Liquidity and Capital Resources below.
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. Most of our revenue is
generated from local advertising, which is sold primarily by
each radio markets sales staff. For each of the years
ended December 31, 2007, 2006 and 2005, approximately 85%
of our gross radio segment revenue was from local advertising.
To generate national advertising sales, we engage independent
national advertising sales representative firms that specializes
in national sales for each of our broadcast markets.
Our revenue varies throughout the year. Advertising
expenditures, our primary source of revenue, generally have been
lowest during the winter months, which include the first quarter
of each year.
Our net operating revenue, station operating expense and
operating income varies from market to market based upon the
related 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
31
and advertising and promotion expenses to increase our share of
our target demographic audience. Our strategy sometimes requires
levels of spending commensurate with the revenue levels we plan
on achieving in two to five years. During periods of economic
downturns, or when the level of advertising spending is flat or
down across the industry, this strategy may result in the
appearance that our cost of operations are increasing at a
faster rate than our growth in revenues, until such time as we
achieve our targeted levels of revenue for the acquired station
or group of stations.
The number of advertisements that can be broadcast without
jeopardizing listening levels (and the resulting ratings) is
limited in part by the format of a particular radio station. Our
stations strive to maximize revenue by constantly managing the
number of commercials available for sale and 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
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.
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.
The primary operating expenses involved in owning and operating
radio stations are employee salaries (including sales
commissions), depreciation, programming expenses, advertising
expenses, and promotion expenses.
During the years ended December 31, 2007, 2006 and 2005,
our Columbus, Ohio; Manchester, New Hampshire; Milwaukee,
Wisconsin; and Norfolk, Virginia markets, when combined,
represented approximately 60%, 64% and 75%, respectively, of our
consolidated operating income. 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 decrease in the total available radio advertising
dollars in the Columbus, Ohio and Norfolk, Virginia markets has
resulted in a decline in our revenue and related operating
income in our radio stations there. Additionally, we are also
experiencing ratings softness in the Columbus and Norfolk
markets which has also affected revenue. None of our television
markets represented more than 15% or more of our consolidated
operating income. The following tables describe the percentage
of our consolidated operating income represented by each of
these markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Consolidated
|
|
|
|
Operating Income
|
|
|
|
for the Years Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbus, Ohio
|
|
|
7
|
%
|
|
|
10
|
%
|
|
|
13
|
%
|
Manchester, New Hampshire
|
|
|
15
|
%
|
|
|
14
|
%
|
|
|
15
|
%
|
Milwaukee, Wisconsin
|
|
|
31
|
%
|
|
|
30
|
%
|
|
|
33
|
%
|
Norfolk, Virginia
|
|
|
7
|
%
|
|
|
10
|
%
|
|
|
14
|
%
|
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
32
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, 2007, 2006 and 2005,
the radio stations in our four largest markets when combined,
represented approximately 40%, 45% and 48%, respectively, of our
consolidated station operating income. The following tables
describe the percentage of our consolidated station operating
income represented by each of these markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Consolidated Station
|
|
|
|
Operating Income (*)
|
|
|
|
for the Years
|
|
|
|
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbus, Ohio
|
|
|
6
|
%
|
|
|
8
|
%
|
|
|
9
|
%
|
Manchester, New Hampshire
|
|
|
10
|
%
|
|
|
9
|
%
|
|
|
9
|
%
|
Milwaukee, Wisconsin
|
|
|
20
|
%
|
|
|
21
|
%
|
|
|
21
|
%
|
Norfolk, Virginia
|
|
|
4
|
%
|
|
|
7
|
%
|
|
|
9
|
%
|
|
|
|
(*) |
|
Operating income 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.
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,
33
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, 2007, 2006 and 2005,
approximately 80%, 83% and 79%, respectively, of our gross
television revenue was from local advertising. To generate
national 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. Advertising
expenditures, our primary source of revenue, generally have been
lowest during the winter months, which include the first quarter
of each year.
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,
advertising costs and promotion expenses.
34
Results
of Operations
The following tables summarize our results of operations for the
three years ended December 31, 2007, 2006 and 2005.
Consolidated
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. 2006
|
|
|
2006 vs. 2005
|
|
|
|
Years Ended December 31,
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
144,023
|
|
|
$
|
142,946
|
|
|
$
|
140,790
|
|
|
$
|
1,077
|
|
|
|
0.8
|
%
|
|
$
|
2,156
|
|
|
|
1.5
|
%
|
Station operating expense
|
|
|
106,302
|
|
|
|
104,396
|
|
|
|
104,411
|
|
|
|
1,906
|
|
|
|
1.8
|
%
|
|
|
(15
|
)
|
|
|
|
|
Corporate G&A
|
|
|
9,800
|
|
|
|
8,870
|
|
|
|
8,174
|
|
|
|
930
|
|
|
|
10.5
|
%
|
|
|
696
|
|
|
|
8.5
|
%
|
Other operating income
|
|
|
|
|
|
|
(312
|
)
|
|
|
|
|
|
|
(312
|
)
|
|
|
N/M
|
|
|
|
312
|
|
|
|
N/M
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
(1,168
|
)
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
27,921
|
|
|
|
29,992
|
|
|
|
27,037
|
|
|
|
(2,071
|
)
|
|
|
(6.9
|
)%
|
|
|
2,955
|
|
|
|
10.9
|
%
|
Interest expense
|
|
|
8,954
|
|
|
|
9,379
|
|
|
|
7,586
|
|
|
|
(425
|
)
|
|
|
(4.5
|
)%
|
|
|
1,793
|
|
|
|
23.6
|
%
|
Other (income) expense
|
|
|
273
|
|
|
|
(500
|
)
|
|
|
2,668
|
|
|
|
773
|
|
|
|
N/M
|
|
|
|
(3,168
|
)
|
|
|
N/M
|
|
Income taxes
|
|
|
7,690
|
|
|
|
8,665
|
|
|
|
6,217
|
|
|
|
(975
|
)
|
|
|
(11.3
|
)%
|
|
|
2,448
|
|
|
|
39.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,004
|
|
|
$
|
12,448
|
|
|
$
|
10,566
|
|
|
$
|
(1,444
|
)
|
|
|
(11.6
|
)%
|
|
$
|
1,882
|
|
|
|
17.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.55
|
|
|
$
|
.61
|
|
|
$
|
.52
|
|
|
$
|
(.06
|
)
|
|
|
(9.8
|
)%
|
|
$
|
.09
|
|
|
|
17.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
.55
|
|
|
$
|
.61
|
|
|
$
|
.51
|
|
|
$
|
(.06
|
)
|
|
|
(9.8
|
)%
|
|
$
|
.10
|
|
|
|
19.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio
Broadcasting Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. 2006
|
|
|
2006 vs. 2005
|
|
|
|
Years Ended December 31,
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
126,596
|
|
|
$
|
125,274
|
|
|
$
|
125,597
|
|
|
$
|
1,322
|
|
|
|
1.1
|
%
|
|
$
|
(323
|
)
|
|
|
(.3
|
)%
|
Station operating expense
|
|
|
92,162
|
|
|
|
90,627
|
|
|
|
90,967
|
|
|
|
1,535
|
|
|
|
1.7
|
%
|
|
|
(340
|
)
|
|
|
(.4
|
)%
|
Other operating income
|
|
|
|
|
|
|
(312
|
)
|
|
|
|
|
|
|
(312
|
)
|
|
|
N/M
|
|
|
|
312
|
|
|
|
N/M
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
(890
|
)
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
34,434
|
|
|
$
|
34,959
|
|
|
$
|
33,740
|
|
|
$
|
(525
|
)
|
|
|
(1.5
|
)%
|
|
$
|
1,219
|
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
Broadcasting Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. 2006
|
|
|
2006 vs. 2005
|
|
|
|
Years Ended December 31,
|
|
|
% Increase
|
|
|
% Increase
|
|
|
% Increase
|
|
|
% Increase
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
17,427
|
|
|
$
|
17,672
|
|
|
$
|
15,193
|
|
|
$
|
(245
|
)
|
|
|
(1.4
|
)%
|
|
$
|
2,479
|
|
|
|
16.3
|
%
|
Station operating expense
|
|
|
14,140
|
|
|
|
13,769
|
|
|
|
13,444
|
|
|
|
371
|
|
|
|
2.7
|
%
|
|
|
325
|
|
|
|
2.4
|
%
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
(278
|
)
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
3,287
|
|
|
$
|
3,903
|
|
|
$
|
1,471
|
|
|
$
|
(616
|
)
|
|
|
(15.8
|
)%
|
|
$
|
2,432
|
|
|
|
165.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M=Not meaningful
35
Reconciliation
of segment operating income to consolidated operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005:
|
|
Radio
|
|
|
Television
|
|
|
Corporate and Other
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenue
|
|
$
|
125,597
|
|
|
$
|
15,193
|
|
|
$
|
|
|
|
$
|
140,790
|
|
Station operating expense
|
|
|
90,967
|
|
|
|
13,444
|
|
|
|
|
|
|
|
104,411
|
|
Corporate general and administrative
|
|
|
|
|
|
|
|
|
|
|
8,174
|
|
|
|
8,174
|
|
Impairment of intangible assets
|
|
|
890
|
|
|
|
278
|
|
|
|
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
33,740
|
|
|
$
|
1,471
|
|
|
$
|
(8,174
|
)
|
|
$
|
27,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
36
We generated net income in the amount of approximately
$11,004,000 ($0.55 per share on a fully diluted basis) during
the year ended December 31, 2007 compared with $12,448,000
($0.61 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 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%.
37
Year
Ended December 31, 2006 Compared to Year Ended
December 31, 2005
Consolidated
For the year ended December 31, 2006, net operating revenue
was $142,946,000 compared with $140,790,000 for the year ended
December 31, 2005, an increase of $2,156,000 or 2%. The
increase is primarily attributable to an increase in political
revenue of approximately $3,523,000 offset by a decrease in
national revenue of approximately $1,317,000 or 5%. Net
operating revenue generated by stations we owned and operated
for the entire comparable period (same station)
increased by approximately 1% or $1,106,000. The increase in
same station revenue was attributable to an increase of
approximately $2,479,000 or 16% in our television segment offset
by a decrease in same station revenue of approximately
$1,373,000 or 1% in our radio segment.
Station operating expense was $104,396,000 for the year ended
December 31, 2006, compared with $104,411,000 for the year
ended December 31, 2005, a decrease of approximately
$15,000. The slight overall decrease was attributable to a
decrease of $996,000 for those stations that we owned and
operated for the entire comparable period, offset by an increase
of $981,000 for those stations we did not own or operate for the
entire comparable period. The decrease in same station operating
expense was due to cost cutting efforts implemented company wide
in the first quarter of 2006, primarily in advertising and
promotions expense, and to a decrease in amortization expense of
84% attributable to fully amortized intangible assets.
Operating income for the year ended December 31, 2006 was
$29,992,000 compared to $27,037,000 for the year ended
December 31, 2005, an increase of $2,955,000 or 11%. The
increase was the result of the increase in net operating revenue
and decrease in station operating expense discussed above,
$312,000 in other income related to primarily business
interruption proceeds in our Springfield, Illinois market and a
decrease of $1,168,000 in impairment charges, offset by an
increase in corporate general and administrative charges of
approximately $696,000 or 9%. The increase in corporate general
and administrative charges results primarily from an increase in
stock based compensation expense. The impairment charges
recorded in 2005 related to the goodwill and broadcast license
values at our Jonesboro, Arkansas radio market and Greenville,
Mississippi television market.
We generated net income in the amount of approximately
$12,448,000 ($0.61 per share on a fully diluted basis) during
the year ended December 31, 2006 compared with $10,566,000
($0.51 per share on a fully diluted basis) for the year ended
December 31, 2005, an increase of approximately $1,882,000
or 18%. The increase was the result of the increase in operating
income discussed above and a $3,168,000 decrease in other
expense offset by increases in interest expense and income tax
expense of approximately $1,793,000 and $2,448,000,
respectively. The increase in interest expense of approximately
$1,793,000 was the direct result of higher interest rates over
the prior year. The increase in income tax expense was primarily
attributable to our operating performance and an increase in our
effective tax rate over prior year. The effective tax rate in
2005 was 4% lower as a result of a tax benefit recorded in 2005
for the sale of the Columbus land that was offset against a
capital loss carryforward that expired in 2005. The change in
other expense was principally the result of a $500,000 gain
recognized in the current year for a slight alteration to one of
our Keene, New Hampshire FMs signal patterns. Other
expense for the year ended December 31, 2005 consists
primarily of a $1,300,000 loss recognized on the disposition of
a tower made obsolete by our DTV conversion in our Victoria,
Texas market and a loss of approximately $500,000 from the sale
of land in Columbus, Ohio.
Radio
Segment
For the year ended December 31, 2006, net operating revenue
in the radio segment was $125,274,000 compared with $125,597,000
for the year ended December 31, 2005, a decrease of
$323,000. Net operating revenue generated by radio stations that
we owned and operated for the entire comparable period decreased
by approximately $1,373,000 or 1%, offset by a $1,050,000
increase in revenue generated by radio stations that we did not
own or operate for the comparable period in 2005. The majority
of the decline in same station revenue was attributable to a
decrease in same station national revenue (excluding political)
of approximately 6% and a decrease in same station local revenue
(excluding political) of approximately 2%, offset by gross
political revenue of approximately $2,302,000, or an increase of
$1,837,000. We had declines in net operating
38
revenue of approximately 7%, 6% and 9%, respectively in our
Columbus, Ohio, Des Moines, Iowa and Norfolk, Virginia markets,
where we are experiencing ratings softness with one of our
stations in each of these markets.
Station operating expense in our radio segment decreased by
$340,000 to $90,627,000 for the year ended December 31,
2006, compared with $90,967,000 for the year ended
December 31, 2005. On a same station basis, station
operating expense decreased by approximately $1,321,000 or 1%,
which is primarily the result of a decrease in expenses related
to cost cutting efforts implemented Company wide in first
quarter 2006 and an 85% decrease in amortization expense as
discussed above. The same station decrease is offset by an
increase of approximately $981,000 resulting from the impact of
the operation of stations that we did not own or operate for the
comparable period in 2005.
Operating income in the radio segment for the year ended
December 31, 2006 was $34,959,000 compared to $33,740,000
for the year ended December 31, 2005, an increase of
approximately $1,219,000 or 4%. The increase was the result of
the decrease in net operating revenue discussed above offset by
the decrease in station operating expense, a $312,000 increase
in other income related primarily to business interruption
proceeds recorded in our Springfield, Illinois market and a
decrease of $890,000 in impairment charges related to the
goodwill value in our Jonesboro, Arkansas market which was
recorded during the fourth quarter of 2005.
Television
Segment
For the year ended December 31, 2006, net operating revenue
in the television segment was $17,672,000 compared with
$15,193,000 for the year ended December 31, 2005, an
increase of $2,479,000 or 16%. The increase in net operating
revenue was primarily attributable to an 8% increase in local
revenue (excluding political) and $1,742,000 in gross political
revenue (an increase of $1,688,000) for the year ended
December 31, 2006.
Station operating expense in our television segment increased by
$325,000 or 2% to $13,769,000 for the year ended
December 31, 2006, compared with $13,444,000 for the year
ended December 31, 2005. The increase in station operating
expense was primarily attributable to an increase in selling and
commission expenses as a result of the increase in revenue.
Operating income in the television segment for the year ended
December 31, 2006 was $3,903,000 compared to $1,471,000 for
the year ended December 31, 2005, an increase of
approximately $2,432,000 or 165%. The increase was the result of
the increase in net operating revenue, offset by the small
increase in station operating expense discussed above and a
decrease of $278,000 in impairment charges related to the
goodwill and broadcast license values recorded in our
Greenville, Mississippi television station during the fourth
quarter of 2005.
Liquidity
and Capital Resources
Debt
Arrangements and Debt Service Requirements
As of December 31, 2007, we had $129,911,000 of long-term
debt outstanding and approximately $71,150,000 of unused
borrowing capacity under our Credit Agreement.
Our Credit Agreement is a $200,000,000 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, capital expenditures, permitted
acquisition and related transaction expenses and permitted stock
buybacks. On March 31, 2008, the Revolving Commitments (as
defined in the Credit Agreement) will be permanently reduced
quarterly in amounts ranging from 3.125% to 12.5% of the total
Revolving Commitments in effect on March 31, 2008. Any
outstanding balance under the Credit Agreement will be due on
the maturity date of
39
July 29, 2012. 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.
In May 2006, we amended our current credit agreement (the
Credit Agreement) to reduce the interest rate margin
for LIBOR and the Agent banks base rate; to reduce the
banks commitment fee percentage; to increase the total
Revolving Commitments to $200,000,000; and to extend the
maturity date of the Revolving Commitments to July 29,
2012. Interest rates under the Credit Agreement are payable, at
our option, at alternatives equal to LIBOR at the reset date
(4.50% to 4.9375% at December 31, 2007) plus 0.75% to
1.25% (5.375% to 5.50% at December 31, 2006 plus 0.75% to
1.25%) or the Agent banks base rate plus 0%. The spread
over LIBOR and the base rate vary from time to time, depending
upon our financial leverage. We also pay quarterly commitment
fees of 0.25% to 0.375% 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,
2007) 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, 2007 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, 2007 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, 2007, 2006 and 2005, we
had net cash flows from operating activities of $26,774,000,
$29,648,000 and $26,617,000, 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 2007 were financed through funds
generated from operations:
|
|
|
|
|
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.
|
40
|
|
|
|
|
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.
|
In addition, the following transactions were pending at
December 31, 2007:
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 $9,374,000.
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 is 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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|
|
|
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.
|
The following 2005 acquisitions were financed through funds
generated from operations, $30,750,000 of additional borrowings
under the Credit agreement and the re-issuance of approximately
$4,588,000 of our Class A Common Stock from treasury:
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|
|
|
|
On November 22, 2005 we acquired one AM station
(WVAX-AM)
serving Charlottesville, Virginia market for approximately
$151,000. We financed this acquisition with funds generated from
operations.
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|
|
|
Effective June 1, 2005 we acquired two FM and two AM radio
stations
(WQNY-FM,
WYXL-FM,
WNYY-AM and
WHCU-AM)
serving the Ithaca, New York market for approximately
$13,610,000. We financed this acquisition with funds generated
from operations and additional borrowings of approximately
$11,000,000 under our Credit Agreement and the re-issuance of
approximately $2,602,000 of our Class A common stock.
|
|
|
|
Effective January 1, 2005 we acquired one AM and two FM
radio stations
(WINA-AM,
WWWV-FM and
WQMZ-FM)
serving the Charlottesville, Virginia market for approximately
$22,490,000. We financed this acquisition with funds generated
from operations and additional borrowings of approximately
$19,750,000 under our Credit Agreement and the re-issuance of
approximately $1,986,000 of our Class A common stock.
|
|
|
|
Effective January 1, 2005, we acquired one AM radio station
(WISE-AM)
serving the Asheville, North Carolina market, for approximately
$2,192,000 with funds generated from operations.
|
|
|
|
Effective January 1, 2005 we acquired a low power
television station (KXTS-LP) serving Victoria, Texas market for
approximately $268,000 with funds generated from operations.
|
We continue to actively seek and explore opportunities for
expansion through the acquisition of additional broadcast
properties. See Item 1. Business Strategy.
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,
2007, we have repurchased 1,907,210 shares of our
Class A Common Stock for approximately $26,252,000. During
the year ended December 31, 2007 we repurchased an
aggregate of 12,821 shares for approximately $126,000.
We anticipate that any future acquisitions of radio and
television stations and purchases of Class A Common Stock
under the Stock Buy-Back Program will be financed through funds
generated from operations,
41
borrowings under the Credit Agreement, additional debt or equity
financing, or a combination thereof. However, there can be no
assurances that any such financing will be available on
acceptable terms, if at all.
Our capital expenditures, exclusive of acquisitions, for the
year ended December 31, 2007 were approximately $9,852,000
($10,504,000 in 2006). We anticipate capital expenditures in
2008 to be approximately $8,500,000, 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. The following tables reflect a summary of
our contractual cash obligations and other commercial
commitments as of December 31, 2007:
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|
|
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|
|
|
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Payments Due By Period
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|
|
|
|
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Less Than
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|
|
|
|
|
|
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More Than
|
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Contractual Obligations(1):
|
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Total
|
|
|
1 Year
|
|
|
1 to 3 Years
|
|
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4 to 5 Years
|
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5 Years
|
|
|
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(In thousands)
|
|
|
Long-Term Debt Obligations(2)
|
|
$
|
129,911
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|
|
$
|
|
|
|
$
|
29,911
|
|
|
$
|
100,000
|
|
|
$
|
|
|
Operating Leases
|
|
|
7,167
|
|
|
|
1,619
|
|
|
|
2,121
|
|
|
|
1,349
|
|
|
|
2,078
|
|
Purchase Obligations(3)
|
|
|
48,220
|
|
|
|
25,819
|
|
|
|
14,748
|
|
|
|
5,555
|
|
|
|
2,098
|
|
Other Long-Term Liabilities
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
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Total Contractual Cash Obligations
|
|
$
|
185,298
|
|
|
$
|
27,438
|
|
|
$
|
46,780
|
|
|
$
|
106,904
|
|
|
$
|
4,176
|
|
|
|
|
|
|
|
|
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(1) |
|
The above amounts do not include interest, which is primarily
variable in amount. |
|
(2) |
|
Under our Credit Agreement, the maturity on outstanding debt of
$128,850,000 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). |
|
(3) |
|
Includes $10,725,000 of acquisition commitments, $20,095,000 in
obligations under employment agreements and contracts with
on-air personalities, other employees, and our president, CEO,
and chairman, Edward K. Christian and $17,400,000 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
collectibility of our accounts receivable based on a combination
of factors. In circumstances where we are
42
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 collectibility 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 average
reserves have been approximately 4% of our outstanding
receivables. The effect of an increase in our allowance of 1% of
our outstanding receivables as of December 31, 2007, from
4.05% to 5.05% or from $988,000 to $1,232,000 would result in a
decrease in net income of $144,000, net of taxes for the year
ended December 31, 2007.
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 a
significant amount of broadcast licenses and goodwill recorded
in our balance sheets, which at December 31, 2007
represents 63% of our total assets. We determine the
recoverability of the cost of our intangible assets based on a
review of projected undiscounted cash flows of the related
market or segment.
Under Statement of Financial Accounting Standard
(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 annual, or more frequent if impairment indicators
arise, impairment tests.
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:
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The radio and television broadcasting licenses may be renewed
indefinitely at little cost.
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The radio and television broadcasting licenses are essential to
our business, and we intend to renew our licenses indefinitely.
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We have never been denied the renewal of a FCC broadcast license.
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We do not believe that there will be any compelling challenge to
the renewal of our broadcast licenses.
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We do not believe that the technology used in broadcasting will
be replaced by another technology in the foreseeable future.
|
We test our goodwill and broadcast licenses for impairment as of
October 1 of each year by comparing their fair value to the
related carrying value as of that date. The results of these
tests indicated no impairment as of December 31, 2007 or
2006. In 2005, we recorded an impairment charge of the carrying
value of goodwill and broadcast licenses of approximately
$1,168,000. We used a market approach to determine the fair
value of our broadcast licenses as well as the fair value of our
reporting units. The market approach used for valuing broadcast
licenses and goodwill takes into consideration information
available on recent transactions of radio and television
stations similar to those owned by us, within the broadcast
industry. To determine the fair value of broadcast licenses and
the reporting units goodwill requires the use of estimates
in our assumptions. Changes in these estimates could result in
additional impairment of intangible assets in the future.
43
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: We monitor
ongoing litigation and other loss contingencies on a
case-by-case
basis as they arise. Losses related to litigation and other
contingencies are recognized when the loss is considered
probable and the amount is 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 2007 than they did during
2007, our interest expense would increase, and income before
taxes would decrease by $1,322,000 ($1,408,000 in 2006). 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 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). SFAS 141R will have an impact on
accounting for business combinations once adopted but the effect
is dependent upon acquisitions at that time.
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. 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 February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159),
which allows entities the option to measure eligible financial
instruments at fair value as of specified dates. Such election,
which may be applied on an instrument by instrument basis, is
typically irrevocable once elected. An entity would report
unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting
date. SFAS 159 is effective for fiscal years beginning
after November 15, 2007 and we are currently evaluating its
impact and effect on our financial position, results of
operations and cash flows.
44
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 in accordance
with accounting standards generally accepted in the United
States, and expands disclosures about fair value measurements.
Companies will need to apply the recognition and disclosure
provision of SFAS 157 for financial assets and financial
liabilities and for nonfinancial assets and nonfinancial
liabilities that are remeasured at least annually 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. However, the Company would still be required to
adopt SFAS 157 as of January 1, 2008 for certain
assets which were not included in FSP
FAS 157-2.
We are currently evaluating its impact and effect on our
financial position, results of operations and cash flows.
In September 2006, the Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue
No. 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. EITF
No. 06-4
requires that for endorsement split-dollar life insurance
arrangements that provide a benefit to an employee that extends
to postretirement periods, an employer should recognize a
liability for future benefits in accordance with
SFAS No. 106 (if, in substance, a postretirement
benefit plan exists) or Accounting Principles Board Opinion
No. 12 (if the arrangement is, in substance, an individual
deferred compensation contract) based on the substantive
agreement with the employee. EITF Issue
No. 06-4
is effective for fiscal years beginning after December 15,
2007. We are currently evaluating the impact of EITF Issue
No. 06-4
on our financial position and results of operations.
In June 2006, the 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.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market
Risk.
|
Information appearing under the caption Market Risk and
Risk Management Policies in Item 7 is hereby
incorporated by reference.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The financial statements attached hereto are filed as part of
this annual report.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company
carried out an evaluation, under the supervision and with the
participation of the 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.
45
Changes
in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial
reporting during the quarter ended December 31, 2007 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, 2007. Our internal control over financial
reporting as of December 31, 2007 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, Incs (the
Company) internal control over financial reporting
as of December 31, 2007, 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 effectiveness of 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, 2007, 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, 2007 and 2006, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2007 of Saga Communications, Inc. and our
report dated March 10, 2008 expressed an unqualified
opinion thereon.
Detroit, Michigan
March 10, 2008
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 2008 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 2008 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 2008 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 2008 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 2008 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:
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2007 and 2006
|
|
|
|
Consolidated Statements of Income for the years ended
December 31, 2007, 2006 and 2005
|
|
|
|
Consolidated Statements of Stockholders Equity for the
years ended December 31, 2007, 2006 and 2005
|
|
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005
|
Notes to 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. as of December 31, 2007 and 2006,
and the related consolidated statements of income,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2007. 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, 2007 and 2006, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2007, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial
statements, in 2006 the Company changed its method of accounting
for stock-based compensation in accordance with Financial
Accounting Standards No. 123(R), Share-Based Payment.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Saga Communications, Inc.s internal
control over financial reporting as of December 31, 2007,
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 10, 2008
expressed an unqualified opinion thereon.
Detroit, Michigan
March 10, 2008
50
Saga
Communications, Inc.
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,343
|
|
|
$
|
10,799
|
|
Accounts receivable, less allowance of $988 ($774 in 2006)
|
|
|
23,449
|
|
|
|
23,777
|
|
Prepaid expenses and other current assets
|
|
|
2,197
|
|
|
|
2,238
|
|
Barter transactions
|
|
|
1,580
|
|
|
|
1,525
|
|
Deferred income taxes
|
|
|
813
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
41,382
|
|
|
|
38,939
|
|
Net property and equipment
|
|
|
76,217
|
|
|
|
73,658
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Broadcast licenses, net
|
|
|
163,102
|
|
|
|
150,114
|
|
Goodwill, net
|
|
|
49,661
|
|
|
|
49,605
|
|
Other intangibles, deferred costs and investments, net of
accumulated amortization of $12,571 ($11,697 in 2006)
|
|
|
7,282
|
|
|
|
10,325
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
220,045
|
|
|
|
210,044
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
337,644
|
|
|
$
|
322,641
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,017
|
|
|
$
|
2,090
|
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
Payroll and payroll taxes
|
|
|
7,722
|
|
|
|
7,441
|
|
Other
|
|
|
4,848
|
|
|
|
6,088
|
|
Barter transactions
|
|
|
1,720
|
|
|
|
1,703
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
17,307
|
|
|
|
17,322
|
|
Deferred income taxes
|
|
|
36,829
|
|
|
|
31,367
|
|
Long-term debt
|
|
|
129,911
|
|
|
|
133,911
|
|
Broadcast program rights
|
|
|
1,589
|
|
|
|
1,273
|
|
Other
|
|
|
2,932
|
|
|
|
2,532
|
|
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, 18,977 issued and outstanding
(18,892 in 2006)
|
|
|
189
|
|
|
|
189
|
|
Class B common stock, $.01 par value,
3,500 shares authorized, 2,393 issued and outstanding
(2,396 in 2006)
|
|
|
24
|
|
|
|
24
|
|
Additional paid-in capital
|
|
|
50,600
|
|
|
|
48,971
|
|
Retained earnings
|
|
|
112,137
|
|
|
|
101,133
|
|
Treasury stock (1,085 shares in 2007 and 1,091 in 2006, at
cost)
|
|
|
(13,874
|
)
|
|
|
(14,081
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
149,076
|
|
|
|
136,236
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
337,644
|
|
|
$
|
322,641
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
51
Saga
Communications, Inc.
Consolidated
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Net operating revenue
|
|
$
|
144,023
|
|
|
$
|
142,946
|
|
|
$
|
140,790
|
|
Station operating expense
|
|
|
106,302
|
|
|
|
104,396
|
|
|
|
104,411
|
|
Corporate general and administrative
|
|
|
9,800
|
|
|
|
8,870
|
|
|
|
8,174
|
|
Other operating income
|
|
|
|
|
|
|
(312
|
)
|
|
|
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,102
|
|
|
|
112,954
|
|
|
|
113,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
27,921
|
|
|
|
29,992
|
|
|
|
27,037
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
8,954
|
|
|
|
9,379
|
|
|
|
7,586
|
|
Other
|
|
|
273
|
|
|
|
(500
|
)
|
|
|
2,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
|
18,694
|
|
|
|
21,113
|
|
|
|
16,783
|
|
Income tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
2,546
|
|
|
|
3,482
|
|
|
|
2,627
|
|
Deferred
|
|
|
5,144
|
|
|
|
5,183
|
|
|
|
3,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,690
|
|
|
|
8,665
|
|
|
|
6,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,004
|
|
|
$
|
12,448
|
|
|
$
|
10,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
.55
|
|
|
$
|
.61
|
|
|
$
|
.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
20,091
|
|
|
|
20,442
|
|
|
|
20,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
.55
|
|
|
$
|
.61
|
|
|
$
|
.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares
|
|
|
20,115
|
|
|
|
20,458
|
|
|
|
20,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
52
Saga
Communications, Inc.
Consolidated
Statements of Stockholders Equity
Years
ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
Stock-
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Income
|
|
|
Treasury
|
|
|
Unearned
|
|
|
holders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
(loss)
|
|
|
Stock
|
|
|
Compensation
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005
|
|
|
18,699
|
|
|
$
|
187
|
|
|
|
2,360
|
|
|
$
|
24
|
|
|
$
|
48,387
|
|
|
$
|
78,119
|
|
|
$
|
60
|
|
|
$
|
(9,552
|
)
|
|
$
|
|
|
|
$
|
117,225
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,566
|
|
Change in market value of securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Gain realized on sale of securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,506
|
|
Net proceeds from exercised options
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
496
|
|
Issuance of restricted stock
|
|
|
51
|
|
|
|
1
|
|
|
|
9
|
|
|
|
|
|
|
|
851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(852
|
)
|
|
|
|
|
Acquisition of broadcast properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,011
|
)
|
|
|
|
|
|
|
|
|
|
|
5,599
|
|
|
|
|
|
|
|
4,588
|
|
Compensation expense related to restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
|
142
|
|
Purchase of shares held in treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,433
|
)
|
|
|
|
|
|
|
(7,433
|
)
|
Employee stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
384
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
18,792
|
|
|
$
|
188
|
|
|
|
2,369
|
|
|
$
|
24
|
|
|
$
|
48,639
|
|
|
$
|
88,685
|
|
|
$
|
|
|
|
$
|
(11,002
|
)
|
|
$
|
(710
|
)
|
|
$
|
125,824
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,448
|
|
Reclassification of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
710
|
|
|
|
|
|
Net proceeds from exercised options
|
|
|
11
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
|
|
Issuance of restricted stock
|
|
|
89
|
|
|
|
1
|
|
|
|
22
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
18,892
|
|
|
$
|
189
|
|
|
|
2,396
|
|
|
$
|
24
|
|
|
$
|
48,971
|
|
|
$
|
101,133
|
|
|
$
|
|
|
|
$
|
(14,081
|
)
|
|
$
|
|
|
|
$
|
136,236
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,004
|
|
Conversion of shares from Class B to Class A
|
|
|
8
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from exercised options
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434
|
|
Issuance of restricted stock
|
|
|
36
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted stock
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
18,977
|
|
|
$
|
189
|
|
|
|
2,393
|
|
|
$
|
24
|
|
|
$
|
50,600
|
|
|
$
|
112,137
|
|
|
$
|
|
|
|
$
|
(13,874
|
)
|
|
$
|
|
|
|
$
|
149,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
53
Saga
Communications, Inc.
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,004
|
|
|
$
|
12,448
|
|
|
$
|
10,566
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
8,186
|
|
|
|
8,154
|
|
|
|
9,040
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
1,168
|
|
Share based compensation expense
|
|
|
943
|
|
|
|
760
|
|
|
|
|
|
Barter revenue, net of barter expenses
|
|
|
(114
|
)
|
|
|
(205
|
)
|
|
|
(239
|
)
|
Broadcast program rights amortization
|
|
|
619
|
|
|
|
603
|
|
|
|
535
|
|
Deferred income taxes
|
|
|
5,144
|
|
|
|
5,183
|
|
|
|
3,590
|
|
Income tax expense on exercise of options
|
|
|
14
|
|
|
|
4
|
|
|
|
|
|
Loss (gain) on sale of assets
|
|
|
273
|
|
|
|
(501
|
)
|
|
|
2,668
|
|
Deferred and other compensation
|
|
|
205
|
|
|
|
198
|
|
|
|
206
|
|
Compensation expense related to restricted stock awards
|
|
|
423
|
|
|
|
334
|
|
|
|
142
|
|
Amortization of deferred costs
|
|
|
265
|
|
|
|
288
|
|
|
|
316
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in receivables and prepaid expenses
|
|
|
510
|
|
|
|
456
|
|
|
|
683
|
|
Payments for broadcast program rights
|
|
|
(610
|
)
|
|
|
(611
|
)
|
|
|
(530
|
)
|
(Decrease) increase in accounts payable, accrued expenses, and
other liabilities
|
|
|
(88
|
)
|
|
|
2,537
|
|
|
|
(1,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
15,770
|
|
|
|
17,200
|
|
|
|
16,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
26,774
|
|
|
|
29,648
|
|
|
|
26,617
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
|
(9,852
|
)
|
|
|
(10,504
|
)
|
|
|
(10,426
|
)
|
Increase in other intangibles and other assets
|
|
|
(180
|
)
|
|
|
(2,887
|
)
|
|
|
(599
|
)
|
Acquisition of broadcast properties
|
|
|
(10,298
|
)
|
|
|
(2,869
|
)
|
|
|
(31,729
|
)
|
Proceeds from sale and disposal of assets
|
|
|
50
|
|
|
|
1,027
|
|
|
|
1,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(20,280
|
)
|
|
|
(15,233
|
)
|
|
|
(40,919
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
|
|
|
|
34,750
|
|
Payments on long-term debt
|
|
|
(4,000
|
)
|
|
|
(15,000
|
)
|
|
|
(7,000
|
)
|
Payments for debt issuance costs
|
|
|
|
|
|
|
(350
|
)
|
|
|
(200
|
)
|
Purchase of shares held in treasury
|
|
|
(126
|
)
|
|
|
(3,487
|
)
|
|
|
(7,433
|
)
|
Net proceeds from exercise of stock options
|
|
|
176
|
|
|
|
53
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(3,950
|
)
|
|
|
(18,784
|
)
|
|
|
20,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2,544
|
|
|
|
(4,369
|
)
|
|
|
6,055
|
|
Cash and cash equivalents, beginning of year
|
|
|
10,799
|
|
|
|
15,168
|
|
|
|
9,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
13,343
|
|
|
$
|
10,799
|
|
|
$
|
15,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
54
Saga
Communications, Inc.
Notes to
Consolidated Financial Statements
|
|
1.
|
Summary
of Significant Accounting Policies
|
Nature of
Business
Saga Communications, Inc. is a broadcasting company whose
business is devoted to acquiring, developing and operating
broadcast properties. As of December 31, 2007 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.
Principles
of Consolidation
The consolidated financial statements include the accounts of
Saga Communications, Inc. and our wholly-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
Use of
Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
(GAAP) requires us to make estimates and assumptions that affect
the amounts reported in the financial statements and
accompanying notes. While we do not believe that the ultimate
settlement of any amounts reported will materially affect our
financial position or results of future operations, actual
results may differ from estimates provided.
Concentration
of Risk
Historically our top six markets when combined represented 47%,
48% and 50% of our net operating revenue for the years ended
December 31, 2007, 2006 and 2005, respectively.
Concentration
of Credit Risk
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.
Financial
Instruments
We account for marketable securities in accordance with
Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities,
which requires that certain debt and equity securities be
classified into one of three categories: held-to-maturity,
available-for-sale, or trading securities, and depending upon
the classification, value the security at fair market value. We
have no marketable securities at December 31, 2007 and 2006
(see Note 3). During the year ended December 31, 2005,
we realized a gain on sale of securities of approximately
$97,000.
Our financial instruments are comprised of cash and cash
equivalents, accounts receivable, accounts payable and long-term
debt. The carrying value of cash and cash equivalents, accounts
receivable and accounts payable approximate fair value due to
their short maturities. The carrying value of long-term debt
approximates fair value as it carries interest rates that either
fluctuate with the euro-dollar rate, prime rate or have been
reset at the prevailing market rate at December 31, 2007.
Allowance
for Doubtful Accounts
A provision for doubtful accounts is recorded based on our
judgment of the collectibility 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, 2007, 2006 and 2005 was as follows:
55
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write Off
|
|
|
|
|
|
|
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, 2007
|
|
$
|
774
|
|
|
$
|
804
|
|
|
$
|
(590
|
)
|
|
$
|
988
|
|
December 31, 2006
|
|
|
1,071
|
|
|
|
404
|
|
|
|
(701
|
)
|
|
|
774
|
|
December 31, 2005
|
|
|
922
|
|
|
|
700
|
|
|
|
(551
|
)
|
|
|
1,071
|
|
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.
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In thousands)
|
|
|
Land and land improvements
|
|
|
|
|
|
$
|
11,170
|
|
|
$
|
10,692
|
|
Buildings
|
|
|
31.5 years
|
|
|
|
31,300
|
|
|
|
28,712
|
|
Towers and antennae
|
|
|
7-15 years
|
|
|
|
27,184
|
|
|
|
26,231
|
|
Equipment
|
|
|
3-15 years
|
|
|
|
72,904
|
|
|
|
69,280
|
|
Furniture, fixtures and leasehold improvements
|
|
|
7-20 years
|
|
|
|
7,125
|
|
|
|
6,794
|
|
Vehicles
|
|
|
5 years
|
|
|
|
3,821
|
|
|
|
3,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,504
|
|
|
|
145,463
|
|
Accumulated depreciation
|
|
|
|
|
|
|
(77,287
|
)
|
|
|
(71,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
|
|
|
$
|
76,217
|
|
|
$
|
73,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2007,
2006 and 2005 was $7,968,000, $7,787,000 and $7,588,000,
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 beginning in the first quarter of 2008,
we expect 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.
56
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
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.
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, 2007, 2006 and 2005, we
recognized interest expense related to the amortization of debt
issuance costs of $265,000, $288,000 and $316,000, respectively.
At December 31, 2007 and 2006, the net book value of
deferred costs were $1,215,000 and $1,480,000, 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.
57
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Treasury
Stock
We have a Stock Buy-Back Program (the Buy-Back
Program), which as of December 31, 2007, allowed us
to purchase up to $30,000,000 of our Class A Common Stock.
From its inception in 1998 through December 31, 2007, we
have repurchased 1,907,210 shares of our Class A
Common Stock for approximately $26,252,000. Repurchases of
shares of our Common Stock are recorded as Treasury Stock and
result in a reduction of Stockholders Equity. During 2007,
2006 and 2005, we acquired 12,821 shares at an average
price of $9.86 per share, 420,700 shares at an average
price of $8.29 per share and 489,325 shares at an average
price of $15.19 per share, respectively. During 2007, we issued
19,273 shares of Treasury Stock in connection with our
employee stock purchase plan. During 2006, we issued
22,895 shares of Treasury Stock in connection with our
employee stock purchase plan. During 2005, we issued
326,254 shares of Treasury Stock in connection with our
acquisition of broadcast properties and our employee stock
purchase plan.
In January 2008, our board of directors authorized an increase
in the amount committed to the Buy-Back Program from
$30 million to $60 million. In connection therewith,
we entered into a stock repurchase plan under
Rule 10b5-1
of the Securities Exchange Act of 1934 to facilitate the
repurchase of our Class A Common Stock. Our previous
Rule 10b5-1
plan terminated on November 8, 2006.
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
interpretations. Revenue and expenses related to
TBAs/LMAs are included in the accompanying
Consolidated Statements of Income.
Advertising
and Promotion Costs
Advertising and promotion costs are expensed as incurred. Such
costs amounted to approximately $6,405,000, $6,495,000 and
$7,942,000 for the years ended December 31, 2007, 2006 and
2005, 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.
58
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Stock
Based Compensation
On January 1, 2006, we adopted the Revised SFAS
No. 123, Share-Based Payment,
(SFAS 123R) and elected to use the modified
prospective transition method and the Black-Scholes valuation
model. SFAS 123R requires us to measure and recognize
compensation expense for all share-based compensation awards.
Compensation cost under SFAS 123R is recognized ratably
using the straight-line attribution method over the expected
vesting period. In addition, SFAS 123R requires the
estimation of expected forfeitures at the grant date and the
recognition of compensation cost only for those awards expected
to vest. If actual forfeitures differ from the estimates, then
the estimated forfeitures are revised in subsequent periods. See
Note 7 Stock-Based Compensation for further
details regarding the expense calculated under the fair value
based method.
Prior to January 1, 2006, expense related to stock options
was calculated using the intrinsic value method under the
guidelines of Accounting Principles Board (APB)
Opinion No. 25, and has therefore not been included in
consolidated statement of income in 2005.
Earnings
Per Share
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
11,004
|
|
|
$
|
12,448
|
|
|
$
|
10,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share-weighted average shares
|
|
|
20,091
|
|
|
|
20,442
|
|
|
|
20,482
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
24
|
|
|
|
16
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share adjusted
weighted-average shares and assumed conversions
|
|
|
20,115
|
|
|
|
20,458
|
|
|
|
20,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
.55
|
|
|
$
|
.61
|
|
|
$
|
.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
.55
|
|
|
$
|
.61
|
|
|
$
|
.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of options outstanding that currently have an
anti-dilutive effect on our earnings per share calculation is
approximately 2,683,000. 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 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). SFAS 141R will have an impact on
accounting for business combinations once adopted but the effect
is dependent upon acquisitions at that time.
59
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
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. 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 February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159),
which allows entities the option to measure eligible financial
instruments at fair value as of specified dates. Such election,
which may be applied on an instrument by instrument basis, is
typically irrevocable once elected. An entity would report
unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting
date. SFAS 159 is effective for fiscal years beginning
after November 15, 2007 and we are currently evaluating its
impact and effect on our 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 in accordance
with accounting standards generally accepted in the United
States, and expands disclosures about fair value measurements.
Companies will need to apply the recognition and disclosure
provision of SFAS 157 for financial assets and financial
liabilities and for nonfinancial assets and nonfinancial
liabilities that are remeasured at least annually 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. However, the Company would still be
required to adopt SFAS 157 as of January 1, 2008 for
certain assets which were not included in FSP FAS 157-2. We are
currently evaluating its impact and effect on our financial
position, results of operations and cash flows.
In September 2006, the Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue
No. 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. EITF
No. 06-4
requires that for endorsement split-dollar life insurance
arrangements that provide a benefit to an employee that extends
to postretirement periods, an employer should recognize a
liability for future benefits in accordance with
SFAS No. 106 (if, in substance, a postretirement
benefit plan exists) or Accounting Principles Board Opinion
No. 12 (if the arrangement is, in substance, an individual
deferred compensation contract) based on the substantive
agreement with the employee. EITF
No. 06-4
is effective for fiscal years beginning after December 15,
2007. We are currently evaluating the impact of EITF Issue
No. 06-4
on our financial position, results of operations and cash flows.
|
|
2.
|
Broadcast
Licenses, Goodwill and Other Intangibles Assets
|
We evaluate our FCC licenses for impairment annually, or more
frequently if events or changes in circumstances indicate that
the asset might be impaired. 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.
We also evaluate goodwill in each of its reporting units
(reportable segment) for impairment annually, or more frequently
if certain circumstances are present. If the carrying amount of
goodwill in a reporting unit is greater than the implied value
of goodwill 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.
We utilize independent appraisals in testing FCC licenses and
goodwill for impairment when indicators of impairment are
present. These appraisals principally use the discounted cash
flow methodology. This income approach consists of a
quantitative model, which incorporates variables such as market
advertising revenues, market revenue share projections,
anticipated operating profit margins and various discount rates.
60
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The variables used in the analysis reflect historical station
and advertising market growth trends, as well as anticipated
performance and market conditions. Multiples of operating cash
flow are also considered.
We completed the impairment tests for our broadcast licenses and
goodwill as of October 1, 2007 and October 1, 2006 and
no impairment was indicated. In 2005, we recorded an impairment
charge of approximately $1,168,000 related to our Jonesboro,
Arkansas radio market and Greenville, Mississippi television
market. We estimated the fair value of those markets
intangible assets with the assistance of an independent
third-party valuation company. See Note 13 for impairment
charges by segment recorded in 2005.
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.
Broadcast
licenses
We have recorded the changes to broadcast licenses for each of
the years ended December 31, 2007 and 2006 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2006
|
|
$
|
157,112
|
|
|
$
|
8,187
|
|
|
$
|
148,925
|
|
Acquisitions
|
|
|
1,189
|
|
|
|
|
|
|
|
1,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
158,301
|
|
|
$
|
8,187
|
|
|
$
|
150,114
|
|
Acquisitions
|
|
|
12,210
|
|
|
|
|
|
|
|
12,210
|
|
Reclass from Goodwill
|
|
|
778
|
|
|
|
|
|
|
|
778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
171,289
|
|
|
$
|
8,187
|
|
|
$
|
163,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
We have recorded the changes to goodwill for each of the years
ended December 31, 2007 and 2006 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2006
|
|
$
|
61,853
|
|
|
$
|
13,091
|
|
|
$
|
48,762
|
|
Acquisitions
|
|
|
843
|
|
|
|
|
|
|
|
843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
62,696
|
|
|
$
|
13,091
|
|
|
$
|
49,605
|
|
Acquisitions
|
|
|
834
|
|
|
|
|
|
|
|
834
|
|
Reclass to Broadcast License
|
|
|
(778
|
)
|
|
|
|
|
|
|
(778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
62,752
|
|
|
$
|
13,091
|
|
|
$
|
49,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Other
Intangible Assets
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have recorded amortizable intangible assets at
December 31, 2006 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Non-competition agreements
|
|
$
|
4,565
|
|
|
$
|
4,469
|
|
|
$
|
96
|
|
Favorable lease agreements
|
|
|
5,849
|
|
|
|
5,177
|
|
|
|
672
|
|
Other intangibles
|
|
|
1,558
|
|
|
|
1,473
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
$
|
11,972
|
|
|
$
|
11,119
|
|
|
$
|
853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense for these intangible assets for
the years ended December 31, 2007, 2006 and 2005, was
$218,000, $367,000 and $1,452,000, respectively. Our estimated
annual amortization expense for the years ending
December 31, 2008, 2009, 2010, 2011 and 2012 is
approximately $128,000, $37,000, $37,000, $37,000 and $37,000,
respectively.
|
|
3.
|
Total
Comprehensive Income and Accumulated Other Comprehensive
Income
|
Total comprehensive income consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
11,004
|
|
|
$
|
12,448
|
|
|
$
|
10,566
|
|
Accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in market value of securities net of taxes of $-, $- and
$1, respectively
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Gain realized on sale of securities, net of taxes of $35
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
11,004
|
|
|
$
|
12,448
|
|
|
$
|
10,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated comprehensive income consisted of marketable
securities as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2005
|
|
$
|
60
|
|
Change in market value of securities, net of $1 taxes
|
|
|
2
|
|
Gain realized on sale of securities, net of taxes of $35
|
|
|
(62
|
)
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
|
|
|
|
|
|
|
62
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Credit Agreement:
|
|
|
|
|
|
|
|
|
Reducing revolver facility
|
|
$
|
128,850
|
|
|
$
|
132,850
|
|
Secured debt of affiliate
|
|
|
1,061
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,911
|
|
|
|
133,911
|
|
Amounts payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,911
|
|
|
$
|
133,911
|
|
|
|
|
|
|
|
|
|
|
Future maturities of long-term debt are as follows:
|
|
|
|
|
Year Ending December 31,
|
|
(In thousands)
|
|
|
2008
|
|
$
|
|
|
2009
|
|
|
1,061
|
|
2010
|
|
|
28,850
|
|
2011
|
|
|
50,000
|
|
2012
|
|
|
50,000
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,911
|
|
|
|
|
|
|
Our Credit Agreement is a $200,000,000 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. We have approximately $71,150,000 of unused
borrowing capacity under the Credit Agreement at
December 31, 2007.
On March 31, 2008, the Revolving Commitments (as defined in
the Credit Agreement) will be permanently reduced quarterly in
amounts ranging from 3.125% to 12.5% of the total Revolving
Commitments in effect on March 31, 2008. Any outstanding
balance under the Credit Agreement will be due on the maturity
date of July 29, 2012. 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.
In May 2006, we amended our current credit agreement (the
Credit Agreement) to reduce the interest rate margin
for LIBOR and the Agent banks base rate; to reduce the
banks commitment fee percentage; to increase the total
Revolving Commitments to $200,000,000; and to extend the
maturity date of the Revolving Commitments to July 29,
2012. Interest rates under the Credit Agreement are payable, at
our option, at alternatives equal to LIBOR at the reset date
(4.50% to 4.9375% at December 31, 2007) plus 0.75% to
1.25% (5.375% to 5.50% at December 31, 2006 plus 0.75% to
1.25%) or the Agent banks base rate plus 0%. The spread
over LIBOR and the base rate vary from time to time, depending
upon our financial leverage. We also pay quarterly commitment
fees of 0.25% to 0.375% 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,
2007) 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,
63
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
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; and
(vi) mergers, changes in business and management,
investments and transactions with affiliates. The financial
covenants become more restrictive over the life of the Credit
Agreement. The Credit Agreement allows for the payment of
dividends provided certain requirements are met.
|
|
5.
|
Supplemental
Cash Flow Information
|
For the purposes of the statements of cash flows, cash and cash
equivalents include temporary investments with maturities of
three months or less.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
9,235
|
|
|
$
|
8,424
|
|
|
$
|
8,032
|
|
Income taxes
|
|
|
2,245
|
|
|
|
2,816
|
|
|
|
3,506
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Barter revenue
|
|
$
|
4,331
|
|
|
$
|
4,226
|
|
|
$
|
4,447
|
|
Barter expense
|
|
|
4,217
|
|
|
|
4,021
|
|
|
|
4,208
|
|
Acquisition of property and equipment
|
|
|
67
|
|
|
|
60
|
|
|
|
75
|
|
In conjunction with the acquisition of the net assets of
broadcasting companies, debt and liabilities were assumed as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Fair value of assets acquired
|
|
$
|
14,151
|
|
|
$
|
3,771
|
|
|
$
|
39,054
|
|
Cash paid
|
|
|
(10,298
|
)
|
|
|
(2,869
|
)
|
|
|
(31,729
|
)
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
(4,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and liabilities assumed
|
|
$
|
3,853
|
|
|
$
|
902
|
|
|
$
|
2,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
8,112
|
|
|
$
|
8,003
|
|
Intangible assets
|
|
|
30,431
|
|
|
|
24,695
|
|
Prepaid expenses
|
|
|
562
|
|
|
|
573
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
39,105
|
|
|
|
33,271
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
399
|
|
|
|
308
|
|
Compensation
|
|
|
2,574
|
|
|
|
2,042
|
|
Other accrued liabilities
|
|
|
116
|
|
|
|
154
|
|
Loss carry forwards
|
|
|
177
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,266
|
|
|
|
2,573
|
|
Less: valuation allowance
|
|
|
177
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
|
3,089
|
|
|
|
2,504
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
36,016
|
|
|
$
|
30,767
|
|
|
|
|
|
|
|
|
|
|
Current portion of deferred tax assets
|
|
$
|
813
|
|
|
$
|
600
|
|
Non-current portion of deferred tax liabilities
|
|
|
(36,829
|
)
|
|
|
(31,367
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(36,016
|
)
|
|
$
|
(30,767
|
)
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, we have state and local tax loss
carry forwards of approximately $6,619,000, which will expire
from 2009 to 2023. During 2007, we generated approximately
$5,625,000 in state and local tax loss carry forwards and we
utilized approximately $467,000 in state and local tax loss
carry forwards and accordingly, the valuation allowances
increased by $108,000. At December 31, 2007, 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, 2007 and 2006, net deferred tax liabilities
include a deferred tax asset of $686,000 and $302,000,
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, 2007 and 2006. See
Note 7 Stock-Based Compensation for further
discussion of SFAS 123R.
65
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,075
|
|
|
$
|
3,100
|
|
|
$
|
2,120
|
|
State
|
|
|
471
|
|
|
|
382
|
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
2,546
|
|
|
|
3,482
|
|
|
|
2,627
|
|
Total deferred
|
|
|
5,144
|
|
|
|
5,183
|
|
|
|
3,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,690
|
|
|
$
|
8,665
|
|
|
$
|
6,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, we realized tax (expense) benefits as a result of
stock option exercises for the difference between compensation
expense for financial statement and income tax purposes. These
tax (expense) benefits were recorded to additional paid-in
capital in the amounts of approximately $(14,000), $(4,000) and
$44,000 for the years ended December 31, 2007, 2006 and
2005, 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Tax at U.S. statutory rates
|
|
$
|
6,496
|
|
|
$
|
7,433
|
|
|
$
|
5,933
|
|
State taxes, net of federal benefit
|
|
|
1,038
|
|
|
|
1,220
|
|
|
|
755
|
|
Other, net
|
|
|
48
|
|
|
|
25
|
|
|
|
(99
|
)
|
Change in valuation allowance on loss carry forwards
|
|
|
108
|
|
|
|
(13
|
)
|
|
|
(372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,690
|
|
|
$
|
8,665
|
|
|
$
|
6,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
income 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.
Included in the balance sheets at December 31, 2007 and
2006 are tax accruals of approximately $135,000 and $288,000,
respectively, for uncertain tax positions. The decrease in these
accruals during the
66
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
year ended December 31, 2007 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 year ended December 31,
2007, we recognized $31,000 of tax-related interest and
penalties and had approximately $31,000 accrued at
December 31, 2007.
|
|
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.
2003
Stock Option Plan
In 2003, we adopted the 2003 Plan, upon expiration of our 1992
Stock Option Plan (the 1992 Plan) in December 2002,
pursuant to which our key employees, including directors who are
employees, were eligible to receive grants of options to
purchase our Class A Common Stock or Class B Common
Stock. Options granted under the 2003 Plan were either incentive
stock options (within the meaning of Section 422A of the
Internal Revenue Code of 1986) or non-qualified options.
Options for Class A Common Stock could be granted to any
employee of the Corporation. Options for Class B Common
Stock could 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. With the approval of the 2005 Plan, the 2003
Plan was terminated as to future grants, therefore the shares
available for future grants under the 2003 Plan are no longer
available.
67
Saga
Communications, Inc.
Notes to
Consolidated Financial
Statements (Continued)
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 $.01 per share. The option exercise price is $.01 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 shall receive cash for his or her services as a
director.
Impact of
the adoption of the SFAS 123R
We adopted SFAS 123R using the modified prospective
transition method beginning January 1, 2006. Accordingly,
during the year ended December 31, 2006, we recorded
stock-based compensation expense for awards granted prior to,
but not yet vested, as of January 1, 2006, as if the fair
value method required for pro forma disclosure under
SFAS 123 were in effect for expense recognition purposes,
adjusted for forfeitures. For stock-based awards granted after
January 1, 2006, we have recognized compensation expense
based on the estimated grant date fair value method using the
Black-Scholes valuation model. 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 year ended
December 31, 2007 and 2006 has been reduced for
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, 2007 and 2006 was
approximately $943,000 and $760,000, respectively. The
associated future income tax benefit recognized for the years
ended December 31, 2007 and 2006 was approximately $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
|
|
$
|
4.82
|
|
|
$
|
4.49
|
|
|
$
|
6.91
|
|
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.
68
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, 2005
|
|
|
2,721,004
|
|
|
$
|
15.58
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
271,941
|
|
|
|
14.25
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(28,278
|
)
|
|
|
5.92
|
|
|
|
|
|
|
|
|
|
Forfeited/canceled/expired
|
|
|
(895,717
|
)
|
|
|
19.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
2,068,950
|
|
|
$
|
13.97
|
|
|
|
4.9
|
|
|
$
|
343,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
506,138
|
|
|
|
9.00
|
|