Acquisitions and Dispositions

9 Months Ended

Sep. 30, 2018

7. Acquisitions and Dispositions

We actively seek and explore opportunities for expansion through the acquisition of additional broadcast properties. The consolidated statements of income include the operating results of the acquired stations from their respective dates of acquisition. All acquisitions were accounted for as purchases and, accordingly, the total purchase consideration was allocated to the acquired assets and assumed liabilities based on their estimated fair values as of the acquisition dates. The excess of the consideration paid over the estimated fair value of net assets acquired have been recorded as goodwill. The Company accounts for acquisition under the provisions of FASB ASC Topic 805,

Business Combinations

Management assigned fair values to the acquired property and equipment through a combination of cost and market approaches based upon each specific asset’s replacement cost, with a provision for depreciation, and to the acquired intangibles, primarily an FCC license, based on the Greenfield valuation methodology, a discounted cash flow approach.

2017 Acquisitions and Disposals

On May 9, 2017 we entered into a definitive agreement to sell our Joplin, Missouri and Victoria, Texas television stations for approximately $66.6 million, subject to certain adjustments, to Evening Telegram Company d/b/a Morgan Murphy Media. The Television Sale was completed on September 1, 2017 and the Company received net proceeds of $69.5 million which included the sales price of $66.6 million, and the proceeds from sale of related accounts receivable of approximately $3.4 million, offset by certain closing adjustments and transactional costs of approximately $500 thousand.

On May 9, 2017, the Company entered into an Asset Purchase Agreement with Apex Media Corporation and Pearce Development, LLC f/k/a Apex Real Property, LLC, both Companies of which a member of our Board of directors, G. Dean Pearce, is President of, to purchase radio stations principally serving the South Carolina area for approximately $23 million (subject to certain purchase price adjustments) plus the right to air certain radio commercials, substantially all the assets related to the operation of the following radio stations: WCKN(FM), WMXF(FM), WXST(FM), WAVF(FM), WSPO(AM), W261DG, W257BQ, WVSC(FM), WLHH(FM), WOEZ(FM), W256CB, W293BZ. The Company closed this transaction effective September 1, 2017, simultaneously with the closing of the Television Sale using funds generated from the Television Sale for $24.2 million, which included the purchase price of $23 million, and the purchase of $1.3 million in related accounts receivable offset by certain closing adjustments and transactional costs of approximately $50,000. Management attributes the goodwill recognized in the acquisition to the power of the existing brands in the Charleston, South Carolina and Hilton Head, South Carolina market as well as synergies and growth opportunities expected through the combination with the Company’s existing stations.

On January 16, 2017, we entered into an asset purchase agreement to purchase an FM radio station (WCVL) from WUVA, Incorporated, serving the Charlottesville, Virginia market for approximately $1,658,000, which included $8,000 in transactional costs. Simultaneously, we entered into a TBA to begin operating the station on February 1, 2017. We completed this acquisition on April 18, 2017. This acquisition was financed through funds generated from operations. Unaudited proforma results of operations for this acquisition are not required, as such information is not material to our financial statements and therefore is not presented in the pro forma tables in the following pages.

Condensed Consolidated Balance Sheet of 2018 and 2017 Acquisitions:

The following unaudited condensed balance sheets represent the estimated fair value assigned to the related assets and liabilities of the 2017 acquisitions at their respective acquisition dates.

Saga Communications, Inc.

Condensed Consolidated Balance Sheet of 2018 and 2017 Acquisitions

	Acquisitions in
	2018		2017
	(In thousands)
Assets Acquired:
Current assets	$	—	$	1,335
Property and equipment		—		6,678
Other assets:
Broadcast licenses		—		8,086
Goodwill		—		8,151
Other intangibles, deferred costs and investments		—		2,019
Total other assets		—		18,256
Total assets acquired		—		26,269
Liabilities Assumed:
Current liabilities		—		413
Total liabilities assumed		—		413
Net assets acquired	$	—	$	25,856

Pro Forma Results of Operations for Acquisitions (Unaudited)

The following unaudited pro forma results of our operations for the three and nine months ended September 30, 2018 and 2017 assume the 2017 acquisitions occurred as of January 1, 2017. The translators are start-up stations and therefore, have no pro forma revenue and expenses. The pro forma results give effect to certain adjustments, including depreciation, amortization of intangible assets, increased interest expense on acquisition debt and related income tax effects.

The pro forma results have been prepared for comparative purposes only and do not purport to indicate the results of operations which would actually have occurred had the combinations been in effect on the dates indicated or which may occur in the future.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017

Pro Forma Results of Operation
Net operating revenue	$	31,648		$	31,546		$	91,891		$	92,187
Station operating expense		23,429			23,000			69,966			69,325
Corporate general and administrative		2,813			3,132			8,205			8,875
Other operating expense (income), net		85			(127	)		47			(69	)
Operating income		5,321			5,541			13,673			14,056
Interest expense		243			254			717			691
Interest income		(167	)		—			(444	)		—
Other income		(25	)		—			(25	)		—
Income from continuing operations, before tax		5,270			5,287			13,425			13,365
Income tax expense		1,575			2,303			4,030			5,566
Income from continuing operations, net of tax		3,695			2,984			9,395			7,799
Income from discontinued operations, net of tax		—			30,451			—			32,501
Net income	$	3,695		$	33,435		$	9,395		$	40,300

Basic earnings per share:
From continuing operations	$	.62		$	.51		$	1.58		$	1.32
From discontinued operations		—			5.15			—			5.51
Basic earnings per share	$	.62		$	5.66		$	1.58		$	6.83

Diluted earnings per share:
From continuing operations	$	.62		$	.51		$	1.58		$	1.32
From discontinued operations		—			5.15			—			5.51
Diluted earnings per share	$	.62		$	5.66		$	1.58		$	6.83