SGA

Saga Communications, Inc. 2010 Form 10-K Summary

Business Context and Reporting Period

This filing covers the fiscal year ended December 31, 2010. Saga Communications, Inc. is a broadcast company operating radio and television stations in mid-sized markets across the United States. As of February 28, 2011, the company owned or operated 91 radio stations (61 FM, 30 AM) and 5 radio information networks in 23 markets, as well as 5 television stations and 4 low-power television stations in 3 markets. The company is organized into two reportable segments: Radio and Television.

Key Financial Metrics

Segment Performance (2010): The Radio segment generated $109.9 million in revenue and $30.9 million in operating income. The Television segment generated $17.9 million in revenue and $4.2 million in operating income.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated net operating revenue increased 5.8% to $127.8 million, driven by a strengthening U.S. economy and a significant increase in political advertising due to the 2010 election cycle.
• Profitability Turnaround: The company returned to profitability with $15.1 million in net income, compared to a $2.6 million loss in 2009. This improvement was primarily due to the absence of the $17.3 million non-cash impairment charge on broadcast licenses recorded in Q4 2009.
• Expense Reduction: Station operating expenses decreased 2.0% to $92.8 million, aided by lower severance costs, license fees, and ratings service expenses. Corporate G&A expenses also declined 8.4%.
• Debt Reduction: Total long-term debt decreased by approximately $25 million to $96.1 million, reflecting scheduled principal payments and a reduction in the revolving credit facility commitment.

Guidance, Outlook, and Risks

• Outlook: Management expects revenue to continue growing in 2011 but at a lower rate than 2010. Political advertising revenue is expected to decline significantly in 2011 as it is not an election year.
• Capital Expenditures: Anticipated capital expenditures for 2011 are approximately $5.0 million, to be financed through operating cash flows.
• Debt Maturity: The company's Credit Agreement matures on July 29, 2012. Management is seeking refinancing and expects to complete the process in 2011. The agreement includes mandatory quarterly reductions of the revolving commitment.
• Risks: Key risks include dependence on the top six markets (representing 44% of revenue), substantial indebtedness and debt service requirements, dependence on key personnel (specifically CEO Edward K. Christian), and extensive federal regulation by the FCC. The company also faces competition from new media technologies and economic uncertainty.
• Unusual Items: In Q1 2010, the company recorded $3.6 million in non-recurring income from an agreement to downgrade an FCC license. No impairment charges were recorded in 2010.

Investor Verification Checklist

• Debt Refinancing: Verify the status of the refinancing for the Credit Agreement maturing in July 2012 and the terms of the new facility.
• Political Revenue Normalization: Assess the impact of the expected decline in political advertising revenue on 2011 earnings compared to the 2010 election-year boost.
• Market Concentration: Review the performance of the top six markets (Bellingham, Des Moines, Manchester, Milwaukee, Norfolk, Columbus) which drive the majority of operating income.
• Impairment Sensitivity: Monitor the assumptions used in the annual impairment test for broadcast licenses, as a 10% reduction in fair value estimates could trigger a $0.9 million impairment charge.
• Related Party Transactions: Review the ongoing Time Brokerage Agreement and debt guarantee ($1.1 million outstanding) with Surtsey Productions, an affiliate of the CEO's family.