Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with Item 1. Business and the consolidated financial statements and notes thereto of Saga Communications, Inc. and its subsidiaries contained elsewhere herein. The following discussion is presented on a consolidated basis. We serve twenty-seven radio markets (reporting units) that aggregate into one operating segment (Radio), which also qualifies as a reportable segment. We operate under one reportable business segment for which segment disclosure is consistent with the management decision-making process that determines the allocation of resources and the measuring of performance. Corporate general and administrative expenses, interest expense, write-off debt issuance costs, other (income) expense, and income tax provision are managed on a consolidated basis.
The discussion of our operating performance focuses on station operating income because we manage our stations primarily on station operating income. Operating performance is evaluated for each individual market.
We use certain financial measures that are not calculated in accordance with generally accepted accounting principles in the United States of America (GAAP) to assess our financial performance. For example, we evaluate the performance of our markets based on “station operating income” (operating income plus corporate general and administrative expenses, depreciation and amortization, other operating (income) expenses, and impairment of intangible assets). Station operating income is generally recognized by the broadcasting industry as a measure of performance, is used by analysts who report on the performance of the broadcasting industry, and it serves as an indicator of the market value of a group of stations. In addition, we use it to evaluate individual stations, market-level performance, overall operations and as a primary measure for incentive based compensation of executives and other members of management. Station operating income is not necessarily indicative of amounts that may be available to us for debt service requirements, other commitments, reinvestment or other discretionary uses. Station operating income is not a measure of liquidity or of performance in accordance with GAAP, and should be viewed as a supplement to, and not a substitute for, our results of operations presented on a GAAP basis.
General
We are a media company primarily engaged in acquiring, developing and operating broadcast properties including opportunities complimentary to our core radio business including digital, e-commerce and non-traditional revenue initiatives. We actively seek and explore opportunities for expansion through the acquisition of additional broadcast properties. We review acquisition opportunities on an ongoing basis.
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Radio Stations
Our radio stations’ primary source of revenue is from the sale of advertising for broadcast on our stations. Depending on the format of a particular radio station, there are a predetermined number of advertisements available to be broadcast each hour.
Most advertising contracts are short-term and generally run for a few weeks only. The majority of our revenue is generated from local advertising, which is sold primarily by each radio market’s sales staff. For the years ended December 31, 2023, 2022 and 2021, approximately 90%, 89% and 89%, respectively, of our radio stations’ gross revenue was from local advertising. To generate national advertising sales, we engage independent advertising sales representative firms that specialize in national sales for each of our broadcast markets.
Our revenue varies throughout the year. Advertising expenditures, our primary source of revenue, generally have been lowest during the winter months, which include the first quarter of each year. Political revenue was significantly lower in 2023 and 2021 due to the decreased number of national, state, and local elections in most of our markets as compared to 2022. Our gross political revenue for the years ended December 31, 2023, 2022 and 2021 was $944,000, $3,625,000 and $1,780,000, respectively. We expect political revenue in 2024 to increase from 2023 levels as a result of more elections in 2024 at the local, state and national levels.
Our net operating revenue, station operating expense and operating income vary from market to market based upon the market’s rank or size which is based upon population and the available radio advertising revenue in that particular market.
The broadcasting industry and advertising in general is influenced by the state of the overall economy, including unemployment rates, inflation, energy prices and consumer interest rates. Our stations broadcast primarily in small to midsize markets. Historically, these markets have been more stable than major metropolitan markets during downturns in advertising spending, but may not experience increases in such spending as significant as those in major metropolitan markets in periods of economic improvement.
Our financial results are dependent on a number of factors, the most significant of which is our ability to generate advertising revenue through rates charged to advertisers. The rates a station is able to charge are, in large part, based on a station’s ability to attract audiences in the demographic groups targeted by its advertisers. In a number of our markets, this is measured by periodic reports generated by independent national rating services. In the remainder of our markets it is measured by the results advertisers obtain through the actual running of an advertising schedule. Advertisers measure these results based on increased demand for their goods or services and/or actual revenues generated from such demand. Various factors affect the rate a station can charge, including the general strength of the local and national economies, population growth, ability to provide popular programming, local market competition, target marketing capability of radio compared to other advertising media, and signal strength.
When we acquire and/or begin to operate a station or group of stations we generally increase programming and advertising and promotion expenses to increase our share of our target demographic audience. Our strategy sometimes requires levels of spending commensurate with the revenue levels we plan on achieving in two to five years. During periods of economic downturns, or when the level of advertising spending is flat or down across the industry, this strategy may result in the appearance that our cost of operations are increasing at a faster rate than our growth in revenues, until such time as we achieve our targeted levels of revenue for the acquired station or group of stations.
The number of advertisements that can be broadcast without jeopardizing listening levels (and the resulting ratings) is limited in part by the format of a particular radio station. Our stations strive to maximize revenue by constantly managing the number of commercials available for sale and by adjusting prices based upon local market conditions and ratings. While there may be shifts from time to time in the number of advertisements broadcast during a particular time of the day, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. Any change in our revenue, with the exception of those instances where stations are acquired or sold, is generally the result of inventory sell out ratios and pricing adjustments, which are made to ensure that the station efficiently utilizes available inventory.
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Our radio stations employ a variety of programming formats. We periodically perform market research, including music evaluations, focus groups and strategic vulnerability studies. Because reaching a large and demographically attractive audience is crucial to a station’s financial success, we endeavor to develop strong listener loyalty. Our stations also employ audience promotions to further develop and secure a loyal following. We believe that the diversification of formats on our radio stations helps to insulate us from the effects of changes in musical tastes of the public on any particular format.
The primary operating expenses involved in owning and operating radio stations are employee salaries and related benefit costs, sales commissions, programming expenses, depreciation, and advertising and promotion expenses.
The radio broadcasting industry is subject to rapid technological change, evolving industry standards and the emergence of new media technologies and services. These new technologies and media are gaining advertising share against radio and other traditional media.
We are continuing to expand our digital initiative to provide a seamless experience across multiple platforms. Our goal is to allow our listeners to connect with our brands on demand wherever, however, and whenever they choose. We continue to create and expand opportunities for revenue generation through targeted digital advertising, online community news, entertainment and events and an array of digital services that include online promotions, mobile messaging, and email marketing.
During the years ended December 31, 2023, 2022 and 2021, our Columbus, Ohio; Des Moines, Iowa; Milwaukee, Wisconsin; Norfolk, Virginia and Portland, Maine markets, when combined, represented approximately 36%, 38%, and 39%, respectively, of our consolidated net operating revenue. An adverse change in any of these radio markets or relative market position in those markets could have a significant impact on our operating results as a whole.
The following tables describe the percentage of our consolidated net operating revenue represented by each of these markets:
Percentage of Consolidated
Net Operating Revenue
for the Years
Ended December 31,
2023
2022
2021
Market:
Columbus, Ohio
9
%
10
%
10
%
Des Moines, Iowa
5
%
5
%
6
%
Milwaukee, Wisconsin
11
%
12
%
11
%
Norfolk, Virginia
6
%
6
%
6
%
Portland, Maine
5
%
5
%
6
%
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During the years ended December 31, 2023, 2022 and 2021, the radio stations in our five largest markets when combined, represented approximately 40%, 44% and 43%, 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,
2023
2022
2021
Market:
Columbus, Ohio
10
%
13
%
12
%
Des Moines, Iowa
4
%
4
%
5
%
Milwaukee, Wisconsin
12
%
14
%
12
%
Norfolk, Virginia
9
%
7
%
7
%
Portland, Maine
5
%
6
%
7
%
(*)
Operating income plus corporate general and administrative expenses, depreciation and amortization, other operating (income) expenses, and impairment of intangible assets.
Results of Operations
The following tables summarize our results of operations for the three years ended December 31, 2023, 2022 and 2021.
Consolidated Results of Operations
2023 vs. 2022
2022 vs. 2021
Years Ended December 31,
$ Increase
% Increase
$ Increase
% Increase
2023
2022
2021
(Decrease)
(Decrease)
(Decrease)
(Decrease)
(In thousands, except %’s and per share information)
Net operating revenue
$
112,773
$
114,893
$
108,343
$
(2,120)
(1.8)
%
$
6,550
6.0
%
Station operating expense
90,199
87,537
83,245
2,662
3.0
%
4,292
5.2
%
Corporate general and administrative
10,966
14,300
10,040
(3,334)
(23.3)
%
4,260
42.4
%
Other operating expense (income), net
120
(14)
7
134
N/M
(21)
N/M
Operating income
11,488
13,070
15,051
(1,582)
(12.1)
%
(1,981)
(13.2)
%
Interest expense
173
130
284
43
33.1
%
(154)
(54.2)
%
Interest income
(1,441)
(410)
(16)
(1,031)
N/M
(394)
N/M
Other income
(119)
(652)
(634)
533
(82)
%
(18)
N/M
Income before income tax expense
12,875
14,002
15,417
(1,127)
(8.0)
%
(1,415)
(9.2)
%
Income tax provision
3,375
4,800
4,260
(1,425)
(29.7)
%
540
12.7
%
Net income
$
9,500
$
9,202
$
11,157
$
298
3.2
%
$
(1,955)
(17.5)
%
Earnings per share (diluted)
$
1.55
$
1.52
$
1.85
$
0.03
2.0
%
$
(0.33)
(17.8)
%
N/M = Not Meaningful
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Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
For the year ended December 31, 2023, consolidated net operating revenue was $112,773,000 compared with $114,893,000 for the year ended December 31, 2022, a decrease of $2,120,000 or 1.8%. The decrease in revenue in 2023 was due to decreases in gross political revenue of $2,681,000, and gross local revenue of $2,401,000 partially offset by increases in gross interactive revenue of $1,890,000, non-spot revenue of $679,000 and gross national revenue of $385,000 from 2022. The gross political revenue decreased due to a decrease in the number of national, state and local elections. The most significant decreases in gross local revenue occurred in our Charleston, South Carolina; Columbus, Ohio; Ithaca, New York; Milwaukee, Wisconsin; Portland, Maine and Springfield, Illinois markets partially offset by increases at our Asheville, North Carolina; Harrisonburg, Virginia and Ocala, Florida markets. The increase in gross interactive results is primarily due to an increase in our streaming revenue. The markets with the most significant increases in 2023 in non-spot events were Bellingham, Washington; Charleston, South Carolina; Ithaca, New York and Yankton, South Dakota. The most significant increases in gross national revenue occurred in our Charleston, South Carolina; Charlottesville, Virginia; Des Moines, Iowa; Ocala, Florida and Springfield, Massachusetts markets.
Station operating expense was $90,199,000 for the year ended December 31, 2023, compared with $87,537,000 for the year ended December 31, 2022, an increase of $2,662,000 or 3.0%. The increase in operating expenses was primarily a result of increases in compensation-related expenses, healthcare costs, sales survey expenses, utility expenses, building maintenance and repairs, and programming rights expenses of $1,605,000, $469,000, $314,000, $248,000, $235,000, and $172,000, respectively, partially offset by decreases in commission expenses of $383,000 from 2022.
We had operating income for the year ended December 31, 2023 of $11,488,000 compared to $13,070,000 for the year ended December 31, 2022, a decrease of $1,582,000. The decrease was a result of the decrease in net operating revenue and the increase in station operating expense, described above, a increase in other operating expense of $134,000 partially offset by a decrease in our corporate general and administrative expenses of $3,334,000 or 23.3%. We recorded a loss on sale of fixed assets of $120,000 in 2023 compared to a gain on sale of fixed assets of $14,000 in 2022. The decrease in corporate general and administrative expenses was primarily attributable to the $3.8 million expense recorded in the third quarter of 2022 related the employment agreement we had with our founder and former CEO, Mr. Christian, that was required upon his death. Additionally, we had a decrease of $1,020,000 in compensation-related expense partially offset by increase of $416,000 in insurance costs, $407,000 in directors’ fees, $379,000 in legal and other consulting fees, and $30,000 in travel and seminar related expenses.
We generated net income of $9,500,000 ($1.55 per share on a fully diluted basis) during the year ended December 31, 2023, compared to $9,202,000 ($1.52 per share on a fully diluted basis) for the year ended December 31, 2022, an increase of $298,000. The increase in net income is due to the decrease of operating income, described above, an increase in interest expense of $43,000, a decrease of other income of $533,000 offset by an increase in interest income of $1,031,000 and a decrease in income taxes of $1,425,000. The increase in interest expense is due to an increase in the interest rates attributable to our unused commitment fees and amortization of bank fees. The decrease in other income is primarily due to reimbursements from the FCC related to their spectrum auction of $115,000 in 2023 versus insurance proceeds in 2022 of $535,000 and reimbursements from the FCC related to their spectrum auction of $116,000 in 2022 as described in footnote 16 (Other Income). The increase in interest income is related to higher rates of return on money market accounts reflected as cash equivalents and from our short-term investment accounts which began in May 2022. The decrease in our income tax expense is due to the decreased in net income before income tax combined with the increase in rate in 2022 as a result of the permanent difference between book and taxable income related to the compensation paid to our founder and former CEO as described above and in footnote 6 (Income Taxes).
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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
For the year ended December 31, 2022, consolidated net operating revenue was $114,893,000 compared with $108,343,000 for the year ended December 31, 2021, an increase of $6,550,000 or 6.0%. The increase in revenue in 2022 was due to increases in gross local revenue of $2,284,000, gross political revenue of $1,846,000, non-spot revenue of $1,689,000, gross interactive revenue of $1,577,000, and gross barter revenue of $302,000 partially offset by a decrease in gross national revenue of $697,000 and an increase in agency commissions of $598,000 from 2021. The most significant increases in gross local revenue and in agency commissions occurred in our Asheville, North Carolina; Charleston, South Carolina; Ithaca, New York; and Manchester, New Hampshire markets. The gross political revenue increased due to an increase in the number of national, state and local elections. The increase in non-spot revenue is primarily due to us hosting more events again in 2022. The markets with the most significant increases in 2022 in non-spot events were Charleston, South Carolina; Clarksville, Tennessee; Hilton Head, South Carolina; Jonesboro, Arkansas; Milwaukee, Wisconsin; Portland, Maine and Yankton, South Dakota. The increase in gross interactive results is primarily due to an increase in our streaming and website content revenue. The decrease in gross national revenue was attributable to decreases at the majority of markets due to the focus on local market advertisers offset by increases at our Columbus, Ohio; Manchester, New Hampshire; and Portland, Maine markets.
Station operating expense was $87,537,000 for the year ended December 31, 2022, compared with $83,245,000 for the year ended December 31, 2021, an increase of $4,292,000 or 5.2%. The increase in operating expenses was primarily a result of increases in sales survey expenses, compensation related expenses, commission expense, bad debt expenses, barter expenses, music licensing fees, utilities, merchant account fees, and promotional expenses of $1,407,000, $965,000, $840,000, $352,000, $346,000, $311,000, $286,000, $153,000 and $113,000, respectively, partially offset by decreases in healthcare costs of $530,000 from 2021.
We had operating income for the year ended December 31, 2022 of $13,070,000 compared to $15,051,000 for the year ended December 31, 2021, a decrease of $1,981,000. The decrease was a result of the increase in net operating revenue partially offset by the increase in station operating expense, described above, a decrease in other operating (income) expense of $21,000 offset by an increase in our corporate general and administrative expenses of $4,260,000 or 42.4%. The increase in corporate general and administrative expenses was primarily attributable to expenses under the employment agreement we had with our founder and CEO, Mr. Christian upon his death of which $3,900,000 was recorded in the third quarter of 2022. In addition, we had an increase in legal expenses, and transportation related costs of $207,000, and $156,000, respectively, from 2021. For our other operating (income) expense, net in 2022 we recorded a gain on the sale of fixed assets of $14,000 compared to a loss on the sale of fixed assets of $7,000 in 2021.
We generated net income of $9,202,000 ($1.52 per share on a fully diluted basis) during the year ended December 31, 2022, compared to $11,157,000 ($1.85 per share on a fully diluted basis) for the year ended December 31, 2021, a decrease of $1,955,000. The decrease in net income is due to the decrease of operating income, described above, an increase income taxes of $540,000, offset by a decrease in interest expense of $154,000, an increase in interest income of $394,000 and an increase in other income of $18,000. The decrease in interest expense is due to no longer having any debt outstanding, after paying off the remaining balance in the fourth quarter of 2021. The increase in interest income is related to our short-term investments as described in footnote 1 (Summary of Significant Accounting Policies). The increase in other income is primarily due to insurance proceeds for weather-related damages of $535,000 and reimbursements from the FCC related to their spectrum auction of $116,000 in 2022 versus insurance proceeds in 2021 of $589,000 and other gains of $45,000 in 2021 as described in footnote 16 (Other Income). The increase in our income tax expense is due to the permanent difference between book and taxable income related to the compensation paid to our founder and CEO as described above and in footnote 6 (Income Taxes).
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Liquidity and Capital Resources
Debt Arrangements and Debt Service Requirements
On December 19, 2022, we entered into a Third Amendment to our Credit Facility, (the “Third Amendment”), which extended the maturity date to December 19, 2027, reduced the lenders to JPMorgan Chase Bank, N.A., and the Huntington National Bank (collectively, the “Lenders”), established an interest rate equal to the secured overnight financing rate (“SOFR”) as administered by the SOFR Administrator (currently established as the Federal Reserve Bank of New York) as the interest base and increased the basis points.
We have pledged substantially all of our assets (excluding our FCC licenses and certain other assets) in support of the Credit Facility and each of our subsidiaries has guaranteed the Credit Facility and has pledged substantially all of their assets (excluding their FCC licenses and certain other assets) in support of the Credit Facility.
Approximately $266,000 of debt issuance costs related to the Credit Facility were capitalized and are being amortized over the life of the Credit Facility. These debt issuance costs are included in other assets, net in the consolidated balance sheets. As a result of the Second Amendment, the Company incurred an additional $120,000 of transaction fees related to the Credit Facility that were capitalized. As a result of the Third Amendment, the Company incurred an additional $161,000 of transaction fees related to the Credit Facility that were capitalized. The cumulative transaction fees are being amortized over the remaining life of the Credit Facility.
Interest rates under the Credit Facility are payable, at our option, at alternatives equal to SOFR (5.38% at December 31, 2023), plus 1% to 2% or the base rate plus 0% to 1%. The spread over SOFR and the base rate vary from time to time, depending upon our financial leverage. Letters of credit issued under the Credit Facility will be subject to a participation fee (which is equal to the interest rate applicable to Eurocurrency Loans, as defined in the Credit Agreement) payable to each of the Lenders and a fronting fee equal to 0.25% per annum payable to the issuing bank. Under the Third Amendment, we now pay quarterly commitment fees of 0.25% per annum on the unused portion of the Credit Facility. We previously paid quarterly commitment fees of 0.2% to 0.3% per annum on the unused portion of the Credit Facility.
The Credit Facility contains a number of financial covenants (all of which we were in compliance with at December 31, 2023) which, among other things, require us to maintain specified financial ratios and impose certain limitations on us with respect to investments, additional indebtedness, dividends, distributions, guarantees, liens and encumbrances.
We had no debt outstanding at December 31, 2022 or December 31, 2023.
We had approximately $50 million of unused borrowing capacity under the Revolving Credit Facility at both December 31, 2022 and December 31, 2023.
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Sources and Uses of Cash
During the years ended December 31, 2023, 2022 and 2021, we had net cash flows from operating activities of $15,379,000, $17,125,000 and $19,104,000, respectively. We believe that cash flow from operations will be sufficient to meet any quarterly debt service requirements for interest and scheduled payments of principal under the Credit Facility if we borrow in the future. However, if such cash flow is not sufficient, we may be required to sell additional equity securities, refinance our obligations or dispose of one or more of our properties in order to make such scheduled payments. There can be no assurance that we would be able to effect any such transactions on favorable terms, if at all.
In March 2013, our Board of Directors authorized an increase to our Stock Buy-Back Program (the “Buy-Back Program”) to allow us to purchase up to $75.8 million of our Class A Common Stock. From the Buy-Back Program’s inception in 1998 through December 31, 2023, we have repurchased 2.2 million shares of our Class A Common Stock for $57.8 million. During the year ended December 31, 2023, approximately 11,274 shares were retained for payment of withholding taxes for $226,781 related to the vesting of restricted stock. We halted the directions for any additional buybacks under our plan in 2020. We continue to monitor economic conditions to determine if and when it makes sense to make additional buybacks under our plan.
Our capital expenditures, exclusive of acquisitions, for the year ended December 31, 2023 were $4,356,000 ($5,994,000 in 2022). We anticipate capital expenditures in 2024 to be approximately $5.0 million to $5.5 million, which we expect to finance through funds generated from operations.
On February 13, 2024, we entered into an agreement to purchase the assets of WKOA (FM), WKHY (FM), WASK (FM), WXXB (FM), WASK (AM) and W269DJ from Neuhoff Communications, Inc. serving the Greater Lafayette, Indiana radio market for $5.3 million which we expect to finance through funds generated from operations or borrowings under our credit agreement. We expect to close on this acquisition in the second quarter of 2024.
On July 12, 2021, we entered into an agreement to acquire WIZZ-AM and a translator from P. & M. Radio for $61,800 of which $5,000 was paid in 2021 and the remainder was paid on April 6, 2022 when we closed on the transaction. Management attributes the goodwill recognized in the acquisition to the power of the existing brands in the Greenfield, Massachusetts market as well as synergies and growth opportunities expected through the combination with the Company’s existing stations. The translators are start-up stations and therefore, have no pro forma revenue and expenses.
On January 8, 2021, we closed on an agreement to purchase WBQL and W288DQ from Consolidated Media, LLC, for an aggregate purchase price of $175,000, of which $25,000 was paid in 2020 and the remaining $150,000 paid in 2021. Management attributes the goodwill recognized in the acquisition to the power of the existing brands in the Clarksville, Tennessee market as well as synergies and growth opportunities expected through the combination with the Company’s existing stations.
On December 7, 2023, the Company’s Board of Directors declared a special cash dividend of $2.00 per share on its Classes A Common Stock. This dividend, totaling approximately $12,500,000, was paid on January 12, 2024 to shareholders of record on December 20, 2023 and is recorded in dividends payable in our Consolidated Balance Sheet at December 31, 2023.
On November 16, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share on its Class A Common Stock. This dividend, totaling approximately $1,500,000, was paid on December 15, 2023 to shareholders of record on November 27, 2023.
On September 27, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share on its Class A Common Stock. This dividend, totaling approximately $1,500,000, was paid on November 3, 2023 to shareholders of record on October 11, 2023.
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On May 9, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share on its Class A Common Stock. This dividend, totaling approximately $1,500,000, was paid on June 16, 2023 to shareholders of record on May 22, 2023.
On March 1, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share on its Class A Common Stock. This dividend, totaling approximately $1,500,000, was paid on April 7, 2023 to shareholders of record on March 20, 2023.
On December 7, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share and a special cash dividend of $2.00 per share on its Class A Common Stock. This dividend, totaling approximately $13,800,000, was paid on January 13, 2023 to shareholders of record on December 21, 2022 and is recorded in dividends payable in our Consolidated Balance Sheet at December 31, 2022.
On September 20, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share and a special cash dividend of $2.00 per share on its Class A Common Stock. This dividend, totaling approximately $13,600,000, was paid on October 21, 2022 to shareholders of record on October 3, 2022.
On June 6, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per share on its Classes A and B Common Stock. This dividend, totaling approximately $1,200,000, was paid to our transfer agent on June 29, 2022. The dividend was paid by our transfer agent on July 1, 2022 to shareholders of record on June 13, 2022.
On March 1, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.16 per share on its Classes A and B Common Stock. This dividend, totaling approximately $970,000, was paid on April 8, 2022 to shareholders of record on March 21, 2022.
On December 14, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.16 per share and special cash dividend of $0.50 per share on its Classes A and B Common Stock. This dividend, totaling approximately $3,988,000, was paid on January 14, 2022 to shareholders of record on December 27, 2021 and was recorded in dividends payable on the Company’s Consolidated Balance Sheet at December 31, 2021.
On September 28, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.16 per share on its Classes A and B Common Stock. This dividend, totaling approximately $960,000, was paid on October 22, 2021 to shareholders of record on October 8, 2021.
On June 18, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.16 per share on its Classes A and B Common Stock. This dividend, totaling approximately $960,000, was paid on July 16, 2021 to shareholders of record on June 30, 2021 and was recorded in dividends payable on the Company’s Condensed Consolidated Balance Sheet at June 30, 2021. The Company had previously temporarily suspended the quarterly cash dividend in response to the uncertainty of the ongoing impact of COVID-19 as of June 18, 2020.
On October 27, 2021, we used $10 million from funds generated by operations to voluntarily pay down the remaining amount on our Revolving Credit Facility.
On May 3, 2022, we used $10 million in cash to purchase U.S. Treasury Bills to be held to maturity with maturity dates between July 2022 and February 2023. During 2022, $8 million of those $10 million were redeemed and we used the proceeds to purchase an additional $8 million of U.S. Treasury Bills to be held to maturity. At December 31, 2022, we had recorded $10.1 million of held-to-maturity U.S. Treasury Bills at amortized cost basis that have a fair market value of $10 million.
During 2023, we used the proceeds from our U.S. Treasury Bills to purchase additional U.S. Treasury Bills when they were up for redemption at various times through the year. We redeemed $20.7 million in U.S. Treasury Bills and purchase an additionally $20.7 million in U.S. Treasury Bills. At December 2023, we have recorded $10.6 million of held-to-maturity U.S. Treasury Bills at amortized cost basis that have a fair market value of $10.6 million. Our held-to-maturity U.S. Treasury Bills all have original maturity dates ranging from March 2024 to July 2024.
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We continue to actively seek and explore opportunities for expansion through the acquisitions of additional broadcast properties.
We anticipate that any future acquisitions of radio stations and dividend payments will be financed through funds generated from operations, borrowings under the Credit Agreement, additional debt or equity financing, or a combination thereof. However, there can be no assurances that any such financing will be available on acceptable terms, if at all.
Summary Disclosures About Contractual Obligations
We have future cash obligations under various types of contracts, including the terms of our Credit Facility, operating leases, programming contracts, employment agreements, and other operating contracts. The following table reflects a summary of our contractual cash obligations and other commercial commitments as of December 31, 2023:
Payments Due By Period
Less Than
More Than
Contractual Obligations:
Total
1 Year
1 to 3 Years
4 to 5 Years
5 Years
(In thousands)
Interest Payments on Long-Term Debt (1)
$
564
$
135
$
299
$
130
$
—
Operating Leases
8,803
1,857
3,180
2,166
1,600
Purchase Obligations (2)
31,791
18,081
10,585
3,125
—
Total Contractual Cash Obligations
$
41,158
$
20,073
$
14,064
$
5,421
$
1,600
(1) Interest payments on our Credit Facility are based on unused commitment of the credit facility and scheduled debt maturities, if we were to borrow in the future and the interest rates are held constant over the remaining terms.
(2) Includes $13,708,000 in obligations under employment agreements and contracts with on-air personalities, other employees, and our President, and CEO, Christopher S. Forgy and $5,300,000 in obligations under the asset purchase agreement for the acquisition of radio stations in the Lafayette, Indiana market.
We anticipate that the above contractual cash obligations will be financed through funds generated from operations or additional borrowings under our Credit Facility, or a combination thereof.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require us to make estimates, judgments and assumptions that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures and contingencies. We evaluate estimates used in preparation of our financial statements on a continual basis, including estimates related to the following:
Revenue Recognition: Revenue from the sale of commercial broadcast time to advertisers is recognized when commercials are broadcast. Revenue is reported net of advertising agency commissions. Agency commissions, when applicable, are based on a stated percentage applied to gross billing. All revenue is recognized in accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, Topic 13, Revenue Recognition Revised and Updated and the Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers .
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Carrying Value of Accounts Receivable and Related Allowance for Credit Losses: We evaluate the collectability of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us (e.g., bankruptcy filings, credit history, COVID-19 potential impact on our customers’ business, etc.), we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize reserves for bad debts based on past loss history and the length of time the receivables are past due, ranging from 50% for amounts 90 days outstanding to 100% for amounts over 120 days outstanding. If our evaluations of the collectability of our accounts receivable differ from actual results, additional bad debt expense and allowances may be required. Our historical estimates have been a reliable method to estimate future allowances and our reserves have averaged approximately 2-5% of our outstanding receivables. The effect of an increase in our allowance of 1% of our outstanding receivables as of December 31, 2023, from 3.8% to 4.8% or from $618,000 to $781,000 would result in a decrease in net income of $158,000, net of taxes for the year ended December 31, 2023. In the event we recover amounts previously written off, we will reduce the specific allowance for credit loss.
Purchase Accounting: We account for our acquisitions under the purchase method of accounting. The total cost of acquisitions is allocated to the underlying net assets, based on their respective estimated fair values as of the acquisition date. The excess of consideration paid over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair values of the net assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items.
Broadcast Licenses and Goodwill: As of December 31, 2023, we have recorded approximately $90,240,000 in broadcast licenses and $19,236,000 in goodwill, which represents 47% of our total assets. In assessing the recoverability of these assets, we must conduct impairment testing and charge to operations an impairment expense only in the periods in which the carrying value of these assets is more than their fair value. We conduct the impairment testing of broadcast licenses and goodwill annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.
There was no impairment of broadcast licenses in 2021, 2022 or 2023.
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We believe our estimate of the value of our broadcast licenses is a critical accounting estimate as the value is significant in relation to our total assets, and our estimate of the value uses assumptions that incorporate variables based on past experiences and judgments about future operating performance of our stations. These variables include but are not limited to: (1) the forecast growth rate of each radio market, including population, household income, retail sales and other expenditures that would influence advertising expenditures; (2) market share and profit margin of an average station within a market; (3) estimated capital start-up costs and losses incurred during the early years; (4) risk-adjusted discount rate; (5) the likely media competition within the market area; and (6) terminal values. Changes in our estimates of the fair value of these assets could result in material future period write-downs in the carrying value of our broadcast licenses. For illustrative purposes only, during our 2023 impairment test had the fair values of each of our broadcasting licenses been lower by 10%-30%, we would not have had to record any additional broadcast license impairment.
Tax Provisions: Our estimates of income taxes and the significant items giving rise to the deferred tax assets and liabilities are shown in the notes to our consolidated financial statements and reflect our assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability of these estimates. Actual income taxes could vary from these estimates due to future changes in income tax law or results from the final review of our tax returns by federal, state or foreign tax authorities. We use our judgment to determine whether it is more likely than not that our deferred tax assets will be realized. Deferred tax assets are reduced by valuation allowances if the Company believes it is more than likely than not that some portion or the entire asset will not be realized.
Litigation and Contingencies: On an ongoing basis, we evaluate our exposure related to litigation and contingencies and record a liability when available information indicates that a liability is probable and estimable. We also disclose significant matters that are reasonably possible to result in a loss or are probable but not estimable.
Market Risk and Risk Management Policies
Our earnings are affected by changes in short-term interest rates as a result of our long-term debt arrangements. If we had borrowings against our long-term debt arrangements, in the event of an adverse change in interest rates, management may take actions to mitigate our exposure.
Inflation
The impact of inflation on our operations has not been significant to date. We are however, starting to see the effects of higher inflation starting to impact costs of most goods and services. There can be no assurance that a high rate of inflation in the future would not have an adverse effect on our operations.
Recent Accounting Pronouncements
Recent accounting pronouncements are described in Note 1 to the accompanying financial statements.
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.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.