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Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2017
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, 2017, we owned or operated seventy-five FM and thirty-three AM radio stations, serving twenty-six markets throughout the United States. On May 9, 2017 the Company entered into an agreement to sell its Joplin, Missouri and Victoria, Texas television stations and subsequently closed on this transaction on September 1, 2017. The historical results of operations for the television stations are presented in the discontinued operations for all periods presented (see Note 3). As a result of the Company’s television stations being reported as discontinued operations the Company only has one reportable segment at December 31, 2017. Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to the Company’s continuing operations.
 
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
 
Certain cash deposits with financial institutions may at times exceed FDIC insurance limits.
 
Our top six markets when combined represented 46%, 48% and 46% of our net operating revenue for the years ended December 31, 2017, 2016 and 2015, 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, 2017 and 2016.
 
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, 2017.
 
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, 2017, 2016 and 2015 was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Write Off of
 
 
 
 
 
 
Balance
 
Charged to
 
Allowance
 
Uncollectible
 
Balance at
 
 
 
at Beginning
 
Costs and
 
From
 
Accounts, Net of
 
End of
 
Year Ended
 
of Period
 
Expenses
 
Acquisitions
 
Recoveries
 
Period
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
$
518
 
$
333
 
$
181
 
$
(305)
 
$
727
 
December 31, 2016
 
$
614
 
$
195
 
$
 
$
(291)
 
$
518
 
December 31, 2015
 
$
378
 
$
294
 
$
99
 
$
(157)
 
$
614
 
 
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 received are 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 2017, 2016 and 2015.
 
Property and equipment consisted of the following:
 
 
 
Estimated
 
December 31,
 
 
 
Useful Life
 
2017
 
2016
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Land and land improvements
 
 
 
$
13,594
 
$
12,307
 
Buildings
 
 
31.5 years
 
 
34,905
 
 
32,046
 
Towers and antennae
 
 
7-15 years
 
 
24,538
 
 
23,066
 
Equipment
 
 
3-15 years
 
 
52,534
 
 
56,745
 
Furniture, fixtures and leasehold improvements
 
 
7-20 years
 
 
6,822
 
 
7,261
 
Vehicles
 
 
5 years
 
 
3,463
 
 
3,255
 
 
 
 
 
 
 
135,856
 
 
134,680
 
Accumulated depreciation
 
 
 
 
 
(79,621)
 
 
(85,506)
 
Net property and equipment
 
 
 
 
$
56,235
 
$
49,174
 
 
Depreciation expense for continuing operations for the years ended December 31, 2017, 2016 and 2015 was $5,391,000, $5,234,000 and $5,194,000, respectively. Depreciation expense for discontinued operations for the years ended December 31, 2017, 2016 and 2015 was $445,000, $1,387,000 and $1,399,000, respectively.
 
Intangible Assets
 
Intangible assets deemed to have indefinite useful lives, which include broadcast licenses and goodwill, 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 108 broadcast licenses serving 26 markets, which require renewal over the period of 2019-2022. 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 an 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 length, ranging from five to twenty-six years. Other intangibles are amortized over one to fifteen years. Customer relationships are amortized over three 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, 2017, 2016 and 2015, we recognized interest expense related to the amortization of debt issuance costs of $53,000, $53,000 and $131,000, respectively. In 2015 we wrote-off unamortized debt issuance costs of $557,000, pre-tax, in connection with our new credit facility. See Note 4 – Long-Term Debt.
 
At December 31, 2017 and 2016 the net book value of debt issuance costs related to our line of credit was $138,000, and $191,000, respectively, and was presented in other intangibles, deferred costs and investments in our Consolidated Balance Sheets.
 
Treasury Stock
 
In March 2013, our board of directors authorized an increase in the amount committed to our Stock Buy-Back Program (the “Buy-Back Program”) from $60 million to $75.8 million. The Buy-Back Program allows us to repurchase our Class A Common Stock. As of December 31, 2017, we had remaining authorization of $22.4 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 2017, 2016 and 2015, we acquired 37,141 shares at an average price of $47.72 per share, 18,612 shares at an average price of $40.06 per share and 129,384 shares at an average price of $36.53 per share, respectively.
 
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.
 
Local Marketing Agreements
 
We have entered into Local Marketing Agreements (“LMA’s”) in certain markets. In a typical 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 LMA’s are included in the accompanying Consolidated Statements of Income. Assets and liabilities related to the LMA’s are included in the accompanying Consolidated Balance Sheets. 
 
Advertising and Promotion Costs
 
Advertising and promotion costs are expensed as incurred. Such costs related to our continuing operations amounted to $2,441,000, $2,633,000 and $2,475,000 for the years ended December 31, 2017, 2016 and 2015, respectively. Advertising and promotion costs related to our discontinued operations amounted to $240,000, $341,000 and $328,000 for the years ended December 31, 2017, 2016 and 2015, 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. Our effective tax rate is higher than the federal statutory rate as a result of the inclusion of state taxes in the income tax amount.
 
Dividends
 
On December 7, 2017, the Company’s Board of Directors declared a quarterly cash dividend of $0.30 per share and a special cash dividend of $0.80 per share on its Classes A and B shares. This dividend totaling approximately $6.5 million was paid on January 5, 2018 to shareholders of record on December 18, 2017.
 
On September 13, 2017, the Company’s Board of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling approximately $1.8 million was paid on October 13, 2017 to shareholders of record on September 25, 2017 and funded by cash on the Company’s balance sheet.  
 
On May 3, 2017, the Company’s Board of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling approximately $1.8 million, was paid on June 9, 2017 to shareholders of record on May 22, 2017 and funded by cash on the Company’s balance sheet. 
 
On March 3, 2017, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling  approximately $1.8 million, was paid on April 14, 2017 to shareholders of record on March 28, 2017 and funded by cash on the Company’s balance sheet.
  
On November 21, 2016 the Company’s Board of Directors declared a quarterly cash dividend of $0.30 per share and a special cash dividend of $0.20 per share on its Classes A and B shares. This dividend totaling $2.9 million was paid on December 23, 2016 to shareholders of record on December 5, 2016.
 
On August 30, 2016, the Company’s Board of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling $1.8 million was paid on September 30, 2016 to shareholders of record on September 14, 2016.
 
On June 1, 2016, the Company’s Board of Directors declared a regular cash dividend of $0.25 per share on its Classes A and B Common Stock. This dividend, totaling $1.5 million, was paid on July 8, 2016 to shareholders of record on June 15, 2016.
 
On March 2, 2016, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.25 per share on its Classes A and B Common Stock. This dividend, totaling $1.5 million, was paid on April 15, 2016 to shareholders of record on March 28, 2016.
 
On November 17, 2015 the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share and a special cash dividend of $0.25 per share on its Classes A and B Common Stock. This dividend totaling $2.9 million was paid on December 11, 2015 to shareholders of record on November 30, 2015.
 
On September 2, 2015 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 $1.2 million was paid on October 2, 2015 to shareholders of record on September 14, 2015.
 
On June 10, 2015 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 $1.2 million was paid on July 10, 2015 to shareholders of record on June 22, 2015.
 
On March 25, 2015 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 $1.2 million was paid on April 6, 2015 to shareholders of record on April 17, 2015.
 
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.
 
Earnings Per Share
 
Earnings per share is calculated using the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security. The Company has participating securities related to restricted stock units, granted under the Company’s Second Amended and Restated 2005 Incentive Compensation Plan, that earn dividends on an equal basis with common shares. In applying the two-class method, earnings are allocated to both common shares and participating securities.
 
The following table sets forth the computation of basic and diluted earnings per share:
 
 
 
Years Ended December 31,
 
 
 
2017
 
2016
 
2015
 
 
 
(In thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
22,246
 
$
12,910
 
$
9,146
 
Less: Income allocated to unvested participating securities
 
 
370
 
 
231
 
 
171
 
Income from continuing operations available to common stockholders
 
$
21,876
 
$
12,679
 
$
8,975
 
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations
 
$
32,471
 
$
5,276
 
$
4,268
 
Less: Income allocated to unvested participating securities
 
 
541
 
 
94
 
 
80
 
Income from discontinued operations available to common stockholders
 
$
31,930
 
$
5,182
 
$
4,188
 
 
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
53,806
 
$
17,861
 
$
13,163
 
 
 
 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
 
 
Denominator for basic earnings per share-weighted average shares
 
 
5,803
 
 
5,761
 
 
5,706
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
Stock options
 
 
4
 
 
10
 
 
34
 
Denominator for diluted earnings per share — adjusted weighted-average shares and assumed conversions
 
 
5,807
 
 
5,771
 
 
5,740
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
From continuing operations
 
$
3.77
 
$
2.20
 
$
1.58
 
From discontinued operations
 
 
5.50
 
 
0.90
 
 
0.73
 
Basic earnings per share
 
$
9.27
 
$
3.10
 
$
2.31
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
 
 
 
 
 
 
 
 
 
From continuing operations
 
$
3.77
 
$
2.19
 
$
1.56
 
From discontinued operations
 
 
5.50
 
 
0.90
 
 
0.73
 
Diluted earnings per share
 
$
9.27
 
$
3.09
 
$
2.29
 
 
The number of stock options outstanding that had an antidilutive effect on our earnings per share calculation, and therefore have been excluded from dilutive earnings per share calculation, was 0, 0 and 0 for the years ended December 31, 2017, 2016, and 2015, respectively. 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
 
Recently Adopted Accounting Pronouncements
 
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, “Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”), which requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. This amendment was adopted on January 1, 2017 on a retrospective basis. As a result we have reclassified approximately $1,022,000 of current deferred tax assets into the noncurrent deferred tax liability line item within the Condensed Consolidated Balance Sheet for the period ended December 31, 2016.
 
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), which includes multiple amendments intended to simplify aspects of share-based payment accounting. Amendments to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, and forfeitures will be applied using a modified retrospective transition method through a cumulative-effect adjustment to equity as of the beginning of the period of adoption. Amendments to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement will be applied retrospectively, and amendments requiring the recognition of excess tax benefits and tax deficiencies in the income statement are to be applied prospectively. This amendment was adopted on January 1, 2017 and did not have a material impact on our consolidated financial statements.
 
Recent Accounting Pronouncements – Not Yet Adopted
 
In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting)” (“ASU 2017-09”) which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact that this standard will have on our consolidated financial statements.
 
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350)” (“ASU 2017-04”) which removes step 2 from the goodwill impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds it fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. ASU 2017-04 will be applied prospectively and is effective for fiscal years and interim impairment tests performed in periods beginning after December 15, 2019 with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on our consolidated financial statements.
 
In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230): Statement of Cash Flows” (“ASU 2016-15”), which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. ASU 2016-15 also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. ASU 2016-15 is effective for fiscal years and interim periods beginning after December 15, 2017. The Company is currently evaluating the impact that this standard will have on our consolidated financial statements.
 
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. The Company is currently evaluating the impact that this standard will have on our consolidated financial statements.
 
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”)¸which requires that all leases with a term of more than one year, covering leased assets such as real estate, broadcasting towers and equipment, be reflected on the balance sheet as assets and liabilities for the rights and obligations created by these leases. ASU 2016-02 is effective for fiscal years fiscal years and interim periods beginning after December 15, 2018. While the Company is currently reviewing the effects of this guidance, the Company believes that this would result in an increase in the assets and liabilities reflected on the Company’s consolidated balance sheets. We are still evaluating the impact on our consolidated statements of operations.
 
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under GAAP. The FASB has also issued a number of updates to this standard. This standard is effective for the fiscal and interim periods beginning January 1, 2018. The Company adopted the new guidance on January 1, 2018, using the modified retrospective method, with no impact on its 2017 financial statements. The cumulative effect of initially applying the new guidance had no impact on the opening balance of retained earnings as of January 1, 2018. The Company does not expect the new guidance to have a material impact on its financial statements in future periods. However, additional disclosures will be included in future reporting periods in accordance with requirements of the new guidance.