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-eight 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, interest income, 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.
Revision of Previously Issued Consolidated Financial Statements
In connection with our review of certain digital expenses, we noted we had previously reported revenue net of expenses to third-party providers under the agent treatment, when in fact we were operating as the principal and should have been reporting the gross revenue and the expenses as part of station operating expense. As a result, our revenue and station operating expense for the years ended December 31, 2024 and 2023 were understated by approximately $2.6 million and $2.7 million, respectively with no impact on operating income, the provision for income taxes, net income, earnings per share, cash flows or retained earnings. In addition, we noted that our quarterly financial data for the first three quarters of the year ended December 31, 2024 and for each quarter of the year ended December 31, 2023 that our revenue and station operating expenses were understated. There was no impact on our Consolidated Balance Sheets as of December 31, 2024 and 2023, to our Consolidated Statements of Stockholders' Equity as of December 31, 2024 and 2023 or to our Consolidated Statement of Cash Flows for the years ended December 31, 2024 and 2023. In accordance with Staff Accounting Bulletin ("SAB") No. 99 Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated the error as part of our year-end financial reporting process for the year ended December 31, 2024 and took into consideration the impact for the interim periods of the three months ended March 31, 2024, three and six months ended June 30, 2024, three and nine months ended September 30, 2024. We determined that the impact was not material to our results of operations or financial position for any prior annual or interim period. Included in our annual reporting on Form 10-K for the year ended December 31, 2024 the impacts to the net revenue and station operating expenses amounts on the Consolidated Statement of Income
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previously reported for each of the years ended December 31, 2024 and 2023 and interim periods ended March 31, 2024 and 2023, June 30, 2024 and 2023 and September 30, 2024 and 2023 were presented.
Adjustments made as a result of and in connection with these revisions are more fully discussed in Note 2, Revisions of Previously Issued Consolidated Financial Statements. Our discussion and analysis of financial condition and results of operations have been amended to consider the effects of the revision as it relates to the years ended December 31, 2024 and 2023.
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, 2024 and 2023, approximately 88% and 90%, 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 higher in 2024 due to the increased number of national, state, and local elections in most of our markets as compared to 2023. Our gross political revenue for the years ended December 31, 2024 and 2023 was $3,263,000 and $944,000, respectively. We expect political revenue in 2025 to decrease from 2024 levels as a result of less elections in 2025 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.
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The number of advertisements that can be broadcast without jeopardizing listening levels (and the resulting ratings) is limited in part by the format of a particular radio station. Our stations strive to maximize revenue by constantly managing the number of commercials available for sale and by adjusting prices based upon local market conditions and ratings. While there may be shifts from time to time in the number of advertisements broadcast during a particular time of the day, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. Any change in our revenue, with the exception of those instances where stations are acquired or sold, is generally the result of inventory sell out ratios and pricing adjustments, which are made to ensure that the station efficiently utilizes available inventory.
Our radio stations employ a variety of programming formats. We periodically perform market research, including music evaluations, focus groups and strategic vulnerability studies. Because reaching a large and demographically attractive audience is crucial to a station’s financial success, we endeavor to develop strong listener loyalty. Our stations also employ audience promotions to further develop and secure a loyal following. We believe that the diversification of formats on our radio stations helps to insulate us from the effects of changes in musical tastes of the public on any particular format.
The primary operating expenses involved in owning and operating radio stations are employee salaries 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 continue to execute Saga’s digital strategy focused on the consumer as opposed to the product oriented, low margin, high attrition offerings that many third-party providers deliver. There has been a significant increase in digital ad spending. According to eMarketer 2024, excluding political, there was approximately $421 billion spent on advertising in the U.S. They estimate digital advertising to be approximately $309 billion of the total spend. The Radio Advertising Bureau recently released a report that radio surpassed the $2 billion mark in digital sales. This represents 0.67% of eMarketer’s estimated digital advertising spend leaving a lot of room for growth. Saga’s “Blended Advertising” process focuses on providing our customers with simple digital advertising solutions (SEM, SEO, Targeted Display among others) that are easy to understand and buy in conjunction with radio. These are the same local advertisers that studies show say they trust radio account executives the most for market knowledge and advice but aren’t currently buying digital from us. Our digital strategy focuses on the consumer journey as they Click, Visit, Call and Search. Our Radio Station’s get the advertiser wanted and our digital platform gets the advertiser found and chosen.
During the years ended December 31, 2024 and 2023, our Charleston, South Carolina; Columbus, Ohio; Des Moines, Iowa; Milwaukee, Wisconsin; and Norfolk, Virginia markets, when combined, represented approximately 36% and 37%, 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,
2024
2023
Market:
Charleston, South Carolina
6
%
6
%
Columbus, Ohio
8
%
9
%
Des Moines, Iowa
5
%
5
%
Milwaukee, Wisconsin
12
%
11
%
Norfolk, Virginia
5
%
6
%
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During the years ended December 31, 2024 and 2023, the radio stations in our five largest markets when combined, represented approximately 37% and 40%, 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,
2024
2023
Market:
Charleston, South Carolina
7
%
5
%
Columbus, Ohio
5
%
10
%
Des Moines, Iowa
3
%
4
%
Milwaukee, Wisconsin
17
%
12
%
Norfolk, Virginia
5
%
9
%
(*)
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 two years ended years ended December 31, 2024 and 2023.
Consolidated Results of Operations
2024 vs. 2023
Years Ended December 31,
$ Increase
% Increase
2024
2023
(Decrease)
(Decrease)
(In thousands, except %’s and per share information)
Net operating revenue
$
112,919
$
115,504
$
(2,585)
(2.2)
%
Station operating expense
96,905
92,930
3,975
4.3
%
Corporate general and administrative
12,611
10,966
1,645
15.0
%
Other operating expense (income), net
1,048
120
928
N/M
Operating income
2,355
11,488
(9,133)
(79.5)
%
Interest expense
348
173
175
101.2
%
Interest income
(1,047)
(1,441)
394
N/M
Other income
(1,516)
(119)
(1,397)
N/M
Income before income tax expense
4,570
12,875
(8,305)
(64.5)
%
Income tax provision
1,110
3,375
(2,265)
(67.1)
%
Net income
$
3,460
$
9,500
$
(6,040)
(63.6)
%
Earnings per share (diluted)
$
0.55
$
1.55
$
(1.00)
(64.5)
%
N/M = Not Meaningful
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Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
For the year ended December 31, 2024, consolidated net operating revenue was $112,919,000 compared with $115,504,000 for the year ended December 31, 2023, a decrease of $2,585,000 or 2.2%. We had an increase of approximately $1,760,000 that was attributable to stations that we did not own or operate for the entire comparable period, offset by a decrease of $4,345,000 generated by stations we owned or operated for the comparable period in 2023 (“same station”). The decrease in same station revenue in 2024 was due to decreases in gross local revenues of $8,868,000 partially offset by increases in gross political revenue of $2,308,000 and gross interactive or digital revenue of $1,745,000 and a decrease in agency commission of $439,000 from 2023. The most significant decreases in gross local revenue occurred in our Clarksville, Tennessee; Columbus, Ohio; Des Moines, Iowa; and Milwaukee, Wisconsin; markets partially offset by increases at our Asheville, North Carolina and Charlottesville, Virginia. The decrease in our agency commissions is due to the decrease in local agency revenue. The gross political revenue increased due to an increase in the number of national, state and local elections. The increase in gross interactive results is primarily due to an increase in our streaming and website advertising revenue.
Station operating expense was $96,905,000 for the year ended December 31, 2024, compared with $92,930,000 for the year ended December 31, 2023, an increase of $3,975,000 or 4.3%. We had an increase of approximately $1,883,000 that was attributable to stations that we did not own or operate for the comparable period combined with an increase of $2,092,000 generated by stations we owned or operated for the comparable period in 2023. The increase in same station operating expenses was primarily a result of increases in compensation-related expenses, bad debt expenses, interactive fulfillment and content expenses, sales rating survey expenses and advertising and promotion expenses of $1,061,000, $582,000, $283,000, $249,000, and $135,000, respectively, partially offset by decreases in music licensing expenses and barter expenses of $120,000 and $103,000, respectively from 2023.
We had operating income for the year ended December 31, 2024 of $2,355,000 compared to $11,488,000 for the year ended December 31, 2023, a decrease of $9,133,000. The decrease was a result of the decrease in net operating revenue and the increase in station operating expense, described above, combined with an increase in our corporate general and administrative expenses of $1,645,000 and an increase in other operating expense of $928,000. The increase in corporate general and administrative expenses was primarily attributable to increases in stock-based compensation, expense related to the income tax obligation relating to the transfer of a split dollar life insurance policy to our former CEO, Ed Christian’s estate, computer software and cybersecurity expenses, compensation-related expenses and travel-related expenses of $835,000, $500,000, $385,000, $334,000, and $79,000, respectively, partially offset by a decrease in insurance-related expenses of $561,000. In 2024, we recorded a loss on the sale of fixed assets and intangible assets of $1,048,000 compared to a loss on the sale of fixed assets of $120,000 in 2023. The loss on sales of fixed assets and intangible assets recorded in other operating expense in 2024 primarily relates to the sale of WYSE-AM, W275CP translator and W248CM translator located in our Asheville, North Carolina market and the relinquishment of our FCC license for KBAI-AM located in our Bellingham, Washington market described in footnote 10 (Acquisitions and Dispositions).
We generated net income of $3,460,000 ($0.55 per share on a fully diluted basis) during the year ended December 31, 2024, compared to $9,500,000 ($1.55 per share on a fully diluted basis) for the year ended December 31, 2023, a decrease of $6,040,000. The decrease in net income is due to the decrease of operating income, described above, an increase in interest expense of $175,000, and a decrease in interest income of $394,000 partially offset by an increase in other income of $1,397,000 and a decrease in income taxes of $2,265,000. The increase in interest expense is due to an increase in debt outstanding. The decrease in interest income is related to the decrease in the amount of short-term investment accounts. The increase in other income is due to the $1,133,000 received related to the sale of an investment in BMI and $384,000 in insurance proceeds received as a result of weather-related damages. The gain on sale of investment and gain on insurance claims are recorded in other (income) expense, net in the Company’s Consolidated Statement of Income. The decrease in our income tax expense is due to lower income before income tax expense for the comparable period.
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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 (4.49% at December 31, 2024), 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, 2024) 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 $5,000,000 debt outstanding at December 31, 2024 and no debt outstanding at December 31, 2023.
We had approximately $45 million and $50 million unused borrowing capacity under the Revolving Credit Facility at December 31, 2024 and 2023, respectively.
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Sources and Uses of Cash
During the years ended December 31, 2024 and 2023, we had net cash flows from operating activities of $13,772,000 and $15,379,000, 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 February 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, 2024, we have repurchased 2.2 million shares of our Class A Common Stock for $58.1 million. During the year ended December 31, 2024, approximately 21,865 shares were retained for payment of withholding taxes for $290,344 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, 2024 were $3,767,000 ($4,356,000 in 2023). We anticipate capital expenditures in 2025 to be approximately $4.0 million to $4.5 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, subject to certain purchase price adjustments. The Company closed on this transaction on May 31, 2024, using funds from operations and borrowings under our credit agreement, of $5,832,000, which included the purchase price of $5,300,000, the purchase of $499,000 in accounts receivable and transactional costs of approximately $121,000 offset by $88,000 in certain closing adjustments.
During 2024, the Company’s Board of Directors has declared four quarterly cash dividends and a variable dividend on its Class A Common Stock. These dividends, totaling $1.60 per share and approximately $10.0 million were paid during 2024.
During 2023, the Company’s Board of Directors declared four quarterly cash dividends and one special dividend on its Class A Common Stock. These dividends, totaling $3.00 per share and approximately $18.6 million were accrued or paid during 2023.
During 2024, 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 $21.7 million in U.S. Treasury Bills and purchased an additional $19.7 million in U.S. Treasury Bills. At December 2024, we have recorded $8.9 million of held-to-maturity U.S. Treasury Bills at amortized cost basis that have a fair market value of $8.9 million. Our held-to-maturity U.S. Treasury Bills all have original maturity dates ranging from March 2025 to June 2025.
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.
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Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require us to make estimates, judgments and assumptions that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures and contingencies. We evaluate estimates used in preparation of our financial statements on a continual basis, including estimates related to the following:
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, 2024, we have recorded approximately $91,497,000 in broadcast licenses and $19,229,000 in goodwill, which represents 50% 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 or goodwill in 2024 or 2023.
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 2024 impairment test had the fair values of each of our broadcasting licenses been lower by 10% we would have recorded an additional broadcast license impairment of approximately $108,000; had the fair values of each of our broadcasting licenses been lower by 20%, we would have recorded an additional broadcast license impairment of approximately $335,000; and had the fair value of our broadcasting licenses been lower by 30%, we would have recorded an additional broadcast license impairment of approximately $714,000.
Additionally, our estimate of the value of our goodwill is a critical accounting estimate and our estimate of the value uses assumptions that incorporate variables based on past experiences and judgments about future operating performance. We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of our goodwill, however, these estimates and assumptions are highly judgmental in nature. Our estimated fair value of our goodwill exceeds our carrying value by 22%. Actual results can be materially different from estimate and assumptions. If actual market conditions are less favorable than those projected by the industry or by us, of if events occur or circumstances changes that would reduce the estimated fair value of our goodwill below the carrying value, we may recognize future impairment charges, the amount of which may be material. For illustrative purposes only, if the discount rate increased by 1.0%, the estimated fair value of our goodwill would only exceed our carrying value by 13%.
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
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allowances if the Company believes it is more than likely than not that some portion or the entire asset will not be realized.
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.