Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Summary Of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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, 2012 we owned or operated ninety-one radio stations, four television stations, four low-power television stations and five radio information networks serving twenty-five markets throughout the United States.

Basis of Presentation

On January 16, 2013 the Company consummated a four-for-three stock split of its Class A and Class B Common Stock, to shareholders of record as of the close of business on December 28, 2012. The stock split increased the Company’s issued and outstanding shares of common stock from 3,659,753 shares of Class A Common Stock and 597,504 shares of Class B Common Stock to 4,877,323 and 796,672 shares, respectively.

All share and per share information in the accompanying financial statements have been restated retroactively to reflect the stock split. The common stock and additional paid-in capital accounts at December 31, 2012 and 2011 reflect the retroactive capitalization of the four-for-three stock split.

Principles of Consolidation

The consolidated financial statements include the accounts of Saga Communications, Inc. and our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we do not believe that the ultimate settlement of any amounts reported will materially affect our financial position or results of future operations, actual results may differ from estimates provided.

Concentration of Risk

Our top six markets when combined represented 44%, 44% and 45% of our net operating revenue for the years ended December 31, 2012, 2011 and 2010, respectively.

We sell advertising to local and national companies throughout the United States. We perform ongoing credit evaluations of our customers and generally do not require collateral. We maintain an allowance for doubtful accounts at a level which we believe is sufficient to cover potential credit losses.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and time deposits with original maturities of three months or less. We did not have any time deposits at December 31, 2012 and 2011.

Financial Instruments

Our financial instruments are comprised of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short maturities. The carrying value of long-term debt approximates fair value as it carries interest rates that either fluctuate with the euro-dollar rate, prime rate or have been reset at the prevailing market rate at December 31, 2012.

Allowance for Doubtful Accounts

A provision for doubtful accounts is recorded based on our judgment of the collectability of receivables. Amounts are written off when determined to be fully uncollectible. Delinquent accounts are based on contractual terms. The activity in the allowance for doubtful accounts during the years ended December 31, 2012, 2011 and 2010 was as follows:

			Write Off of
	Balance	Charged to	Uncollectible	Balance at
	at Beginning	Costs and	Accounts, Net of	End of
Year Ended	of Period	Expenses	Recoveries	Period
	(In thousands)
December 31, 2012	$794	$134	$(351)	$577
December 31, 2011	$797	$526	$(529)	$794
December 31, 2010	$733	$560	$(496)	$797

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 review our property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If the assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair market value. We did not record any impairment of property and equipment during 2012, 2011 and 2010.

Property and equipment consisted of the following:

	Estimated		December 31,
	Useful Life		2012			2011
			(In thousands)
Land and land improvements		—	$	11,321		$	11,178
Buildings		31.5 years		32,367			31,741
Towers and antennae		7-15 years		25,687			25,582
Equipment		3-15 years		74,874			74,403
Furniture, fixtures and leasehold improvements		7-20 years		7,768			7,623
Vehicles		5 years		3,762			3,720
				155,779			154,247
Accumulated depreciation				(97,317	)		(93,625	)
Net property and equipment			$	58,462		$	60,622

Depreciation expense for the years ended December 31, 2012, 2011 and 2010 was $6,805,000, $7,053,000 and $7,285,000, respectively.

Intangible Assets

Intangible assets deemed to have indefinite useful lives, which include broadcast licenses, are not amortized and are subject to impairment tests which are conducted as of October 1 of each year, or more frequently if impairment indicators arise.

We have 97 broadcast licenses serving 25 markets, some of which are currently under renewal, while others require renewal over the period 2014-2021. In determining that the Company’s broadcast licenses qualified as indefinite-lived intangible assets, management considered a variety of factors including our broadcast licenses may be renewed indefinitely at little cost; our broadcast licenses are essential to our business and we intend to renew our licenses indefinitely; we have never been denied the renewal of a FCC broadcast license nor do we believe that there will be any compelling challenge to the renewal of our broadcast licenses; and we do not believe that the technology used in broadcasting will be replaced by another technology in the foreseeable future.

Separable intangible assets that have finite lives are amortized over their useful lives using the straight-line method. Favorable lease agreements are amortized over the leases ranging from 4 to 26 years. Other intangibles are amortized over one to eleven years.

Deferred Costs

The costs related to the issuance of debt are capitalized and amortized to interest expense over the life of the debt. During the years ended December 31, 2012, 2011 and 2010, we recognized interest expense related to the amortization of debt issuance costs of $231,000, $642,000 and $1,079,000, respectively. During 2011 we wrote-off unamortized debt issuance costs of $1,326,000, pre-tax, in connection with the refinancing of our bank debt, included in Long-term obligations. See Note 4 – Long-Term Debt.

At December 31, 2012 and 2011, the net book value of deferred costs was $793,000 and $1,024,000, respectively, and was presented in Other intangibles, deferred costs and investments in our consolidated balance sheet.

Broadcast Program Rights

We record the capitalized costs of broadcast program rights when the license period begins and the programs are available for use. Amortization of the program rights is recorded using the straight-line method over the license period or based on the number of showings. Amortization of broadcast program rights is included in station operating expense. Unamortized broadcast program rights are classified as current or non-current based on estimated usage in future years.

Treasury Stock

We have a Stock Buy-Back Program (the “Buy-Back Program”) which allows us to purchase up to $60 million of our Class A Common Stock. As of December 31, 2012, we had remaining authorization of $14.2 million for future repurchases of our Class A Common Stock.

Repurchases of shares of our Common Stock are recorded as Treasury Stock and result in a reduction of Stockholders’ Equity. During 2012, 2011 and 2010, we acquired 2,924 shares at an average price of $27.30 per share, 5,380 shares at an average price of $21.71 per share and 7,288 shares at an average price of $10.69 per share, respectively.

In March 2013, our board of directors authorized an increase in the amount committed to the Buy-Back Program from $60 million at December 31, 2012 to $75.8 million, with the amount available to $30 million for future repurchases of our Class A Common Stock.

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 605, Revenue Recognition.

Time Brokerage Agreements/Local Marketing Agreements

We have entered into Time Brokerage Agreements (“TBA’s”) or Local Marketing Agreements (“LMA’s”) in certain markets. In a typical TBA/LMA, the FCC licensee of a station makes available, for a fee, blocks of air time on its station to another party that supplies programming to be broadcast during that air time and sells its own commercial advertising announcements during the time periods specified. Revenue and expenses related to TBA’s/LMA’s 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 $3,182,000, $3,675,000 and $3,562,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

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.

Stock-Based Compensation

Stock-based compensation cost for stock option awards is estimated on the date of grant using a Black-Scholes valuation model and is expensed on a straight-line method over the vesting period of the options. Stock-based compensation expense is recognized net of estimated forfeitures. The fair value of restricted stock awards is determined based on the closing market price of the Company’s Class A Common Stock on the grant date and is adjusted at each reporting date based on the amount of shares ultimately expected to vest. See Note 7 — Stock-Based Compensation for further details regarding the expense calculated under the fair value based method.

Dividends

On October 2, 2012 the Company’s Board of Directors declared a special cash dividend of $1.24 per share on its Classes A and B Common Stock. This dividend totaling $7.0 million was paid on December 3, 2012 to shareholders of record on November 15, 2012. No dividends were declared by the Company in 2011 or 2010.

Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Years Ended December 31,
	2012		2011		2010
	(In thousands, except per share data)
Numerator:
Net income available to common stockholders	$	17,925	$	12,631	$	15,136
Denominator:
Denominator for basic earnings per share-weighted average shares		5,659		5,651		5,640
Effect of dilutive securities:
Stock options		13		5		1
Denominator for diluted earnings per share — adjusted weighted-average shares and assumed conversions		5,672		5,656		5,641
Basic earnings per share	$	3.17	$	2.24	$	2.68
Diluted earnings per share	$	3.16	$	2.23	$	2.68

Potentially dilutive common shares primarily consist of employee stock options. Employee stock options to purchase approximately 93,000, 304,000 and 392,000 shares of our stock were outstanding at December 31, 2012, 2011 and 2010, respectively, but were not included in the computation of diluted earnings per share because the effect would have been antidilutive as the options’ exercise prices exceeded the average market price. 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 July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. The guidance gives companies the option to first perform a qualitative assessment to determine whether it is more likely that not that an indefinite-lived intangible asset is impaired. If the qualitative assessment supports that it is more likely than not the fair value of the asset exceeds its carrying amount, the company would not be required to perform a quantitative impairment test. If the qualitative assessment does not support the fair value of the asset, then a quantitative assessment is performed. ASU 2012-02 is effective for public entities for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. This guidance is effective for the Company for the first quarter of 2013 and is not expected to have a material impact on our consolidated financial statements.