10-K 1 v433140_10k.htm 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark one) |  |
þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  | For the fiscal year ended December 31, 2015
OR
¨ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  | For the transition period for to

Commission file number 1-11588

SAGA COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware |  | 38-3042953
(State or other jurisdiction of |  | (I.R.S. Employer
incorporation or organization) |  | Identification No.)
73 Kercheval Avenue |  |
Grosse Pointe Farms, Michigan |  | 48236
(Address of principal executive offices) |  | (Zip Code)

Registrant’s telephone number, including area code:

(313) 886-7070

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Name of each exchange on which registered
Class A Common Stock, $.01 par value |  | NYSE MKT

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ | Accelerated filer þ | Non-accelerated filer ¨ | Smaller reporting company ¨

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ

Aggregate market value of the Class A Common Stock and the Class B Common Stock (assuming conversion thereof into Class A Common Stock) held by nonaffiliates of the registrant, computed on the basis of the closing price of the Class A Common Stock on June 30, 2015 on the NYSE MKT: $187,331,876.

The number of shares of the registrant’s Class A Common Stock, $.01 par value, and Class B Common Stock, $.01 par value, outstanding as of March 3, 2016 was 4,996,127 and 864,856, respectively.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2016 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s fiscal year) are incorporated by reference in Part III hereof.

Saga Communications, Inc.

2015 Form 10-K Annual Report

Table of Contents

|  | Page
PART I
Item 1. | Business | 4
Item 1A. | Risk Factors | 21
Item 1B. | Unresolved Staff Comments | 26
Item 2. | Properties | 26
Item 3. | Legal Proceedings | 26
Item 4. | Mine Safety Disclosures | 26
PART II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 26
Item 6. | Selected Financial Data | 30
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 31
Item 7A. | Quantitative and Qualitative Disclosures about Market Risk | 46
Item 8. | Financial Statements and Supplementary Data | 46
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 46
Item 9A. | Controls and Procedures | 46
Item 9B. | Other Information | 49
PART III
Item 10. | Directors, Executive Officers and Corporate Governance | 49
Item 11. | Executive Compensation | 49
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 49
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 49
Item 14. | Principal Accountant Fees and Services | 49
PART IV
Item 15. | Exhibits and Financial Statement Schedules | 50
Signatures |  | 87

| 2 |

Forward-Looking Statements

Statements contained in this Form 10-K that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, words such as “believes,” “anticipates,” “estimates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. These statements are made as of the date of this report or as otherwise indicated, based on current expectations. We undertake no obligation to update this information. A number of important factors could cause our actual results for 2016 and beyond to differ materially from those expressed in any forward-looking statements made by or on our behalf. Forward-looking statements are not guarantees of future performance as they involve a number of risks, uncertainties and assumptions that may prove to be incorrect and that may cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in such forward-looking statements. The risks, uncertainties and assumptions that may affect our performance, which are described in Item 1A of this report, include our financial leverage and debt service requirements, dependence on key personnel, dependence on key stations, U.S. and local economic conditions, our ability to successfully integrate acquired stations, regulatory requirements, new technologies, natural disasters and terrorist attacks. We cannot be sure that we will be able to anticipate or respond timely to changes in any of these factors, which could adversely affect the operating results in one or more fiscal quarters. Results of operations in any past period should not be considered, in and of itself, indicative of the results to be expected for future periods. Fluctuations in operating results may also result in fluctuations in the price of our stock.

| 3 |

PART I

Item 1. Business

We are a broadcast company primarily engaged in acquiring, developing and operating broadcast properties. As of February 29, 2016, we owned and/or operated four television stations and five low-power television stations serving two markets, and sixty-seven FM and thirty-two AM radio stations serving twenty-four markets, including Bellingham, Washington; Columbus, Ohio; Norfolk, Virginia; Milwaukee, Wisconsin; Manchester, New Hampshire; Des Moines, Iowa; and Joplin, Missouri.

The following table sets forth information about our radio stations and the markets they serve as of February 29, 2016:

|  |  |  | 2015 |  | 2015 |  |  |  |
|  |  |  | Market |  | Market |  |  |  |
|  |  |  | Ranking |  | Ranking |  |  |  |
|  |  |  | By Radio |  | By Radio |  |  |  | Target
Station |  | Market (a) |  | Revenue (b) |  | Market (b) |  | Station Format |  | Demographics
FM: |  |  |  |  |  |  |  |  |  |
WKLH |  | Milwaukee, WI |  | 28 |  | 40 |  | Classic Rock |  | Men 40-64
WHQG |  | Milwaukee, WI |  | 28 |  | 40 |  | Rock |  | Men 25-49
WJMR-FM |  | Milwaukee, WI |  | 28 |  | 40 |  | Urban Adult Contemporary |  | Women 25-54
WJMR-HD2 |  | Milwaukee, WI |  | 28 |  | 40 |  | Religious |  | 12+
WNRG-FM |  | Milwaukee, WI |  | 28 |  | 40 |  | Contemporary Hits |  | Adults 18-34
WSNY |  | Columbus, OH |  | 33 |  | 37 |  | Adult Contemporary |  | Women 25-54
WNND |  | Columbus, OH |  | 33 |  | 37 |  | Adult Hits |  | Adults 35-54
WNNP |  | Columbus, OH |  | 33 |  | 37 |  | Adult Hits |  | Adults 35-54
WLVQ (c) |  | Columbus, OH |  | 33 |  | 37 |  | Classic Rock |  | Men 40-64
WVMX |  | Columbus, OH |  | 33 |  | 37 |  | Hot Adult Contemporary |  | Women 25-44
WNOR |  | Norfolk, VA |  | 40 |  | 43 |  | Rock |  | Men 18-49
WAFX |  | Norfolk, VA |  | 40 |  | 43 |  | Classic Rock |  | Men 35-54
KSTZ |  | Des Moines, IA |  | 71 |  | 72 |  | Hot Adult Contemporary |  | Women 25-44
KSTZ-HD |  | Des Moines, IA |  | 71 |  | 72 |  | Country Legends |  | Adults 45-64
KIOA |  | Des Moines, IA |  | 71 |  | 72 |  | Classic Hits/Oldies |  | Adults 45-64
KAZR |  | Des Moines, IA |  | 71 |  | 72 |  | Rock |  | Men 18-34
KAZR-HD2 |  | Des Moines, IA |  | 71 |  | 72 |  | Adult Standards |  | Adults 45+
KMYR |  | Des Moines, IA |  | 71 |  | 72 |  | Adult Contemporary |  | Women 25-54
KIOA-HD2 |  | Des Moines, IA |  | 71 |  | 72 |  | Contemporary Hits |  | Adults 18-34
WMGX |  | Portland, ME |  | 79 |  | 91 |  | Hot Adult Contemporary |  | Women 25-44
WMGX-HD2 |  | Portland, ME |  | 79 |  | 91 |  | News |  | Adults 35-64
WYNZ |  | Portland, ME |  | 79 |  | 91 |  | Classic Hits/Oldies |  | Adults 45-64
WPOR |  | Portland, ME |  | 79 |  | 91 |  | Country |  | Adults 25-54
WCLZ |  | Portland, ME |  | 79 |  | 91 |  | Adult Album Alternative |  | Adults 25-54
WAQY |  | Springfield, MA |  | 103 |  | 92 |  | Classic Rock |  | Men 35-54
WLZX |  | Springfield, MA |  | 103 |  | 92 |  | Rock |  | Men 18-34
WZID |  | Manchester, NH |  | 120 |  | 200 |  | Adult Contemporary |  | Women 25-54
WMLL |  | Manchester, NH |  | 120 |  | 200 |  | Classic Hits |  | Adults 40-64
WZID-HD2 |  | Manchester, NH |  | 120 |  | 200 |  | Contemporary Hits |  | Adults 18-34
WOXL-FM |  | Asheville, NC |  | 160 |  | 159 |  | Adult Contemporary |  | Women 25-54
WTMT |  | Asheville, NC |  | 160 |  | 159 |  | Classic Rock |  | Men 40+
WTMT-HD2 |  | Asheville, NC |  | 160 |  | 159 |  | Country Legends |  | Adults 45-64
WOXL-HD2 |  | Asheville, NC |  | 160 |  | 159 |  | Adult Album Alternative |  | Adults 18-49
WSIG |  | Harrisonburg, VA |  | 163 |  | 255 |  | Classic Country |  | Adults 40-64
WQPO |  | Harrisonburg, VA |  | 163 |  | 255 |  | Contemporary Hits |  | Women 18-34
WQPO-HD3 |  | Harrisonburg, VA |  | 163 |  | 255 |  | Classic Rock |  | Male 40-64
WMQR |  | Harrisonburg, VA |  | 163 |  | 255 |  | Adult Contemporary |  | Female 25-44
WWRE |  | Harrisonburg, VA |  | 163 |  | 255 |  | Classic Hits |  | Adults 45+
WLRW |  | Champaign, IL |  | 168 |  | 210 |  | Hot Adult Contemporary |  | Women 25-44
WREE |  | Champaign, IL |  | 168 |  | 210 |  | Adult Hits |  | Adults 35-44
WYXY |  | Champaign, IL |  | 168 |  | 210 |  | Classic Country |  | Adults 45-64

(footnotes follow tables)

| 4 |

|  |  |  | 2015 |  | 2015 |  |  |  |
|  |  |  | Market |  | Market |  |  |  |
|  |  |  | Ranking |  | Ranking |  |  |  |
|  |  |  | By Radio |  | By Radio |  |  |  | Target
Station |  | Market (a) |  | Revenue (b) |  | Market (b) |  | Station Format |  | Demographics
WIXY-HD2 |  | Champaign, IL |  | 168 |  | 210 |  | Rock |  | Men 18-49
WIXY-HD3 |  | Champaign, IL |  | 168 |  | 210 |  | Contemporary Hits |  | Adults 18-34
WLRW-HD2 |  | Champaign, IL |  | 168 |  | 210 |  | Oldies/Classic Hits |  | Adults 45-64
WNAX-FM |  | Yankton, SD |  | 192 |  | 262 |  | Country |  | Adults 35+
WWWV |  | Charlottesville, VA |  | 219 |  | 206 |  | Classic Rock |  | Men 35+
WQMZ |  | Charlottesville, VA |  | 219 |  | 206 |  | Adult Contemporary |  | Women 25-54
WCNR |  | Charlottesville, VA |  | 219 |  | 206 |  | Adult Album Alternative |  | Adults 18-49
KEGI |  | Jonesboro, AR |  | 225 |  | 227 |  | Classic Hits |  | Men 25-54
KDXY |  | Jonesboro, AR |  | 225 |  | 227 |  | Country |  | Adults 25-54
KJBX |  | Jonesboro, AR |  | 225 |  | 227 |  | Adult Contemporary |  | Women 25-54
KJBX-HD2 |  | Jonesboro, AR |  | 225 |  | 227 |  | Country Legends |  | Adults 45-64
KDXY-HD2 |  | Jonesboro, AR |  | 225 |  | 227 |  | Contemporary Hits |  | Adults 18-34
KDXY-HD3 |  | Jonesboro, AR |  | 225 |  | 227 |  | Sports ESPN |  | Men 35+
KISM |  | Bellingham, WA |  | N/A |  | N/A |  | Classic Rock |  | Men 25-54
KAFE |  | Bellingham, WA |  | N/A |  | N/A |  | Adult Contemporary |  | Women 25-54
WKVT-FM |  | Brattleboro, VT |  | N/A |  | N/A |  | Classic Hits |  | Adults 25-54
WRSY |  | Brattleboro, VT |  | N/A |  | N/A |  | Adult Album Alternative |  | Adults 25-54
WQEL |  | Bucyrus, OH |  | N/A |  | N/A |  | Classic Hits |  | Adults 25-54
WCVQ |  | Clarksville, TN — Hopkinsville, KY |  | N/A |  | N/A |  | Hot Adult Contemporary |  | Women 25-54
WVVR |  | Clarksville, TN — Hopkinsville, KY |  | N/A |  | N/A |  | Country |  | Adults 25-54
WZZP |  | Clarksville, TN — Hopkinsville, KY |  | N/A |  | N/A |  | Rock |  | Men 18-34
WRND-FM |  | Clarksville, TN — Hopkinsville, KY |  | N/A |  | N/A |  | Classic Hits |  | Adults 35-54
WHAI |  | Greenfield, MA |  | N/A |  | N/A |  | Adult Contemporary |  | Women 25-54
WPVQ |  | Greenfield, MA |  | N/A |  | N/A |  | Country |  | Adults 25-54
WIII |  | Ithaca, NY |  | N/A |  | N/A |  | Classic Rock |  | Men 35-64
WQNY |  | Ithaca, NY |  | N/A |  | N/A |  | Country |  | Adults 25-54
WYXL |  | Ithaca, NY |  | N/A |  | N/A |  | Adult Contemporary |  | Women 25-54
WYXL-HD2 |  | Ithaca, NY |  | N/A |  | N/A |  | Adult Album Alternative |  | Adults 35-54
WYXL-HD3 |  | Ithaca, NY |  | N/A |  | N/A |  | Sports |  | Men 25-54
WQNY-HD2 |  | Ithaca, NY |  | N/A |  | N/A |  | Progressive Talk |  | Adults 35+
WQNY-HD3 |  | Ithaca, NY |  | N/A |  | N/A |  | News Talk |  | Adults 35+
WFIZ-FM |  | Ithaca, NY |  | N/A |  | N/A |  | Contemporary Hits |  | Adults 18-34
WFIZ-HD2 |  | Ithaca, NY |  | N/A |  | N/A |  | Classic Hits/Oldies |  | Adults 35+
WKNE |  | Keene, NH |  | N/A |  | N/A |  | Hot Adult Contemporary |  | Women 25-54
WSNI |  | Keene, NH |  | N/A |  | N/A |  | Adult Contemporary |  | Women 35-54
WINQ |  | Keene, NH |  | N/A |  | N/A |  | Country |  | Adults 25-54
WKNE-HD2 |  | Keene, NH |  | N/A |  | N/A |  | Adult Album Alternative |  | Adult 18-49
WKNE-HD3 |  | Keene, NH |  | N/A |  | N/A |  | Classic Hits/Oldies |  | Adults 45-64
KMIT |  | Mitchell, SD |  | N/A |  | N/A |  | Country |  | Adults 35+
KMIT-HD2 |  | Mitchell, SD |  | N/A |  | N/A |  | Adult Contemporary |  | Women 25-54
KUQL |  | Mitchell, SD |  | N/A |  | N/A |  | Classic Hits/Oldies |  | Adults 45-64
WRSI |  | Northampton, MA |  | N/A |  | N/A |  | Adult Album Alternative |  | Adults 25-54
WLZX-HD2 |  | Northampton, MA |  | N/A |  | N/A |  | Contemporary Hits |  | Adults 18-34
KICD-FM |  | Spencer, IA |  | N/A |  | N/A |  | Country |  | Adults 35+
KMRR |  | Spencer, IA |  | N/A |  | N/A |  | Adult Contemporary |  | Women 25-54
WYMG |  | Springfield, IL |  | N/A |  | N/A |  | Classic Rock |  | Men 25-54
WQQL |  | Springfield, IL |  | N/A |  | N/A |  | Classic Hits/Oldies |  | Adults 45-64
WDBR |  | Springfield, IL |  | N/A |  | N/A |  | Contemporary Hits |  | Adults 18-34
WLFZ |  | Springfield, IL |  | N/A |  | N/A |  | Country |  | Adults 25-54
WDBR-HD2 |  | Springfield, IL |  | N/A |  | N/A |  | Country Legends |  | Adults 45-64

(footnotes follow tables)

| 5 |

|  |  |  | 2015 |  | 2015 |  |  |  |  |
|  |  |  | Market |  | Market |  |  |  |  |
|  |  |  | Ranking |  | Ranking |  |  |  |  |
|  |  |  | By Radio |  | By Radio |  |  |  | Target |
Station |  | Market (a) |  | Revenue (b) |  | Market (b) |  | Station Format |  | Demographics |
AM: |  |  |  |  |  |  |  |  |  |  |
WJYI |  | Milwaukee, WI |  | 28 |  | 40 |  | Christian |  | Adults 18+ |
WJOI |  | Norfolk, VA |  | 40 |  | 43 |  | Adult Standards |  | Adults 45+ |
KRNT |  | Des Moines, IA |  | 71 |  | 72 |  | Adult Standards/Sports |  | Adults 45+ |
KPSZ |  | Des Moines, IA |  | 71 |  | 72 |  | Christian |  | Adults 18+ |
WGAN |  | Portland, ME |  | 79 |  | 91 |  | News/Talk |  | Adults 35+ |
WZAN |  | Portland, ME |  | 79 |  | 91 |  | News/Talk/Sports |  | Men 25-54 |
WBAE |  | Portland, ME |  | 79 |  | 91 |  | News/Talk/Sports |  | Adults 35+ |
WGIN |  | Portland, ME |  | 79 |  | 91 |  | News/Talk/Sports |  | Adults 35+ |
WHNP |  | Springfield, MA |  | 103 |  | 92 |  | News/Talk |  | Adults 35+ |
WFEA |  | Manchester, NH |  | 120 |  | 200 |  | News/Talk |  | Adults 35+ |
WISE |  | Asheville, NC |  | 160 |  | 159 |  | Sports/Talk |  | Men 18+ |
WYSE |  | Asheville, NC |  | 160 |  | 159 |  | Sports/Talk |  | Men 18+ |
WSVA |  | Harrisonburg, VA |  | 163 |  | 255 |  | News/Talk |  | Adults 35+ |
WHBG |  | Harrisonburg, VA |  | 163 |  | 255 |  | Sports ESPN |  | Men 25+ |
WNAX |  | Yankton, SD |  | 192 |  | 262 |  | News/Talk |  | Adults 35+ |
WINA |  | Charlottesville, VA |  | 219 |  | 206 |  | News/Talk |  | Adults 35+ |
WVAX |  | Charlottesville, VA |  | 219 |  | 206 |  | Sports Talk |  | Men 18+ |
KGMI |  | Bellingham, WA |  | N/A |  | N/A |  | News/Talk |  | Adults 35+ |
KPUG |  | Bellingham, WA |  | N/A |  | N/A |  | Sports/Talk |  | Men 18+ |
KBAI |  | Bellingham, WA |  | N/A |  | N/A |  | Progressive Talk |  | Adults 35+ |
WKVT |  | Brattleboro, VT |  | N/A |  | N/A |  | News/Talk |  | Adults 35+ |
WBCO |  | Bucyrus, OH |  | N/A |  | N/A |  | Adult Standards |  | Adults 45+ |
WRND |  | Clarksville, TN — Hopkinsville, KY |  | N/A |  | N/A |  | Classic Hits |  | Adults 35-54 |
WKFN |  | Clarksville, TN — Hopkinsville, KY |  | N/A |  | N/A |  | Sports/Talk ESPN |  | Men 25+ |
WHMQ |  | Greenfield, MA |  | N/A |  | N/A |  | News/Talk |  | Adults 35+ |
WNYY |  | Ithaca, NY |  | N/A |  | N/A |  | Progressive Talk |  | Adults 35+ |
WHCU |  | Ithaca, NY |  | N/A |  | N/A |  | News/Talk |  | Adults 35+ |
WKBK |  | Keene, NH |  | N/A |  | N/A |  | News/Talk |  | Adults 35+ |
WZBK |  | Keene, NH |  | N/A |  | N/A |  | Sports Talk |  | Men 18+ |
WHMP |  | Northampton, MA |  | N/A |  | N/A |  | News/Talk |  | Adults 35+ |
KICD |  | Spencer, IA |  | N/A |  | N/A |  | News/Talk |  | Adults 35+ |
WTAX |  | Springfield, IL |  | N/A |  | N/A |  | News/Talk |  | Adults 35+ |

| (a) | Actual city of license may differ from metropolitan market actually served.
| (b) | Derived from Investing in Radio 2015 Market Report.
| (c) | Station operated under the terms of a Local Marketing Agreement (“LMA”) effective November 16, 2015.

| 6 |

The following table sets forth information about the television stations that we own or operate and the markets they serve as of February 29, 2016:

|  |  |  | 2015 Market |  |  |  |
|  |  |  | Ranking by |  |  |  | Fall 2015
|  |  |  | Number of TV |  | Station |  | Station Ranking
Station |  | Market (a) |  | Households (b) |  | Affiliate |  | (by # of viewers) (b)
KOAM-TV |  | Joplin, MO — Pittsburg, KS |  | 151 |  | CBS |  | 1
KFJX(d) |  | Joplin, MO — Pittsburg, KS |  | 151 |  | FOX |  | 3
KAVU-TV |  | Victoria, TX |  | 203 |  | ABC |  | N/S
KVCT(c) |  | Victoria, TX |  | 203 |  | FOX |  | N/S
KMOL-LD |  | Victoria, TX |  | 203 |  | NBC |  | N/S
KXTS-LD |  | Victoria, TX |  | 203 |  | CBS |  | N/S
KUNU-LD |  | Victoria, TX |  | 203 |  | Univision |  | N/S
KVTX-LP |  | Victoria, TX |  | 203 |  | Telemundo |  | N/S
KQZY-LP |  | Victoria, TX |  | 203 |  | Cozi TV |  | N/S

| (a) | Actual city of license may differ from metropolitan market actually served.

| (b) | Derived from Fall 2015 A.C. Nielsen ratings and data.

| (c) | Station operated under the terms of a Time Brokerage Agreement (“TBA”).

| (d) | Station operated under the terms of a Shared Services Agreement.

| N/S | Station is a non-subscriber to the A.C. Nielsen ratings and data.

For purposes of business segment reporting, we have aligned operations with similar characteristics into two business segments: Radio and Television. The Radio segment includes twenty-four markets, which includes all ninety-nine of our radio stations. The Television segment includes two markets and consists of four television stations and five low power television (“LPTV”) stations. For more information regarding our reportable segments, see Note 14 of the Notes to Consolidated Financial Statements included with this Form 10-K, which is incorporated herein by reference.

Strategy

Our strategy is to operate top billing radio and television stations in mid-sized markets, which we define as markets ranked from 20 to 200 out of the markets summarized by Investing in Radio Market Report and Investing in Television Market Report.

Programming and marketing are key components in our strategy to achieve top ratings in both our radio and television operations. In many of our markets, the three or four most highly rated stations (radio and/or television) receive a disproportionately high share of the market’s advertising revenues. As a result, a station’s revenue is dependent upon its ability to maximize its number of listeners/viewers within an advertiser’s given demographic parameters. In certain cases we use attributes other than specific market listener data for sales activities. In those markets where sufficient alternative data is available, we do not subscribe to an independent listener rating service.

The radio stations that we own and/or operate employ a variety of programming formats, including Classic Hits, Adult Contemporary, Classic Rock, News/Talk and Country. We regularly perform extensive market research, including music evaluations, focus groups and strategic vulnerability studies. Our stations also employ audience promotions to further develop and secure a loyal following.

The television stations that we own and/or operate are comprised of two CBS affiliates, one ABC affiliate, two Fox affiliates, one Univision affiliate, one NBC affiliate, one Telemundo affiliate and one Cozi TV affiliate. In addition to securing network programming, we carefully select available syndicated programming to maximize viewership. We also develop local programming, including a strong local news franchise in each of our television markets.

| 7 |

We concentrate on the development of strong decentralized local management, which is responsible for the day-to-day operations of the stations we own and/or operate. We compensate local management based on the station’s financial performance, as well as other performance factors that are deemed to affect the long-term ability of the stations to achieve financial performance objectives. Corporate management is responsible for long-range planning, establishing policies and procedures, resource allocation and monitoring the activities of the stations.

Under the Telecommunications Act of 1996 (the “Telecommunications Act”), we are permitted to own as many as 8 radio stations in a single market. See “Federal Regulation of Radio and Television Broadcasting”. We seek to acquire reasonably priced broadcast properties with significant growth potential that are located in markets with well-established and relatively stable economies. We often focus on local economies supported by a strong presence of state or federal government or one or more major universities. Future acquisitions will be subject to the availability of financing, the terms of our credit facility, and compliance with the Communications Act of 1934 (the “Communications Act”) and Federal Communications Commission (“FCC”) rules.

Advertising Sales

Our 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 broadcast each hour. The number of advertisements broadcast on our television stations may be limited by certain network affiliation and syndication agreements and, with respect to children’s programs, federal regulation. We determine the number of advertisements broadcast hourly that can maximize a station’s available revenue dollars without jeopardizing listening/viewing levels. 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 pricing adjustments, which are made to ensure that the station efficiently utilizes available inventory.

Advertising rates charged by radio and television stations are based primarily on a station’s ability to attract audiences in the demographic groups targeted by advertisers, the number of stations in the market competing for the same demographic group, the supply of and demand for radio and television advertising time, and other qualitative factors including rates charged by competing radio and television stations within a given market. Radio rates are generally highest during morning and afternoon drive-time hours, while television advertising rates are generally higher during prime time evening viewing periods. Most advertising contracts are short-term, generally running for only a few weeks. This allows broadcasters the ability to modify advertising rates as dictated by changes in station ownership within a market, changes in listener/viewer ratings and changes in the business climate within a particular market.

Approximately $127,449,000 or 89% of our gross revenue for the year ended December 31, 2015 (approximately $127,214,000 or 87% in fiscal 2014 and approximately $122,400,000 or 87% in fiscal 2013) was generated from the sale of local advertising. Additional revenue is generated from the sale of national advertising, network compensation payments, barter and other miscellaneous transactions. In all of our markets, we attempt to maintain a local sales force that is generally larger than our competitors. The principal goal in our sales efforts is to develop long-standing customer relationships through frequent direct contacts, which we believe represents a competitive advantage. We also typically provide incentives to our sales staff to seek out new opportunities resulting in the establishment of new client relationships, as well as new sources of revenue, not directly associated with the sale of broadcast time.

Each of our stations also engages independent national sales representatives to assist us in obtaining national advertising revenues. These representatives obtain advertising through national advertising agencies and receive a commission from us based on our net revenue from the advertising obtained. Total gross revenue resulting from national advertising in fiscal 2015 was approximately $16,477,000 or 11% of our gross revenue (approximately $19,074,000 or 13% in fiscal 2014 and approximately $18,904,000 or 13% in fiscal 2013).

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Competition

Both radio and television broadcasting are highly competitive businesses. Our stations compete for listeners/viewers and advertising revenues directly with other radio and/or television stations, as well as other media, within their markets. Our radio and television stations compete for listeners/viewers primarily on the basis of program content and by employing on-air talent which appeals to a particular demographic group. By building a strong listener/viewer base comprised of a specific demographic group in each of our markets, we are able to attract advertisers seeking to reach these listeners/viewers.

Other media, including broadcast television and/or radio (as applicable), cable television, newspapers, magazines, direct mail, the Internet, coupons and billboard advertising, also compete with us for advertising revenues.

The radio and television broadcasting industries are also subject to competition from new media technologies, such as the delivery of audio programming by cable and satellite television systems, satellite radio systems, direct reception from satellites, and streaming of audio on the Internet.

Seasonality

Our revenue varies throughout the year. Advertising expenditures, our primary source of revenue, is generally lowest in the first quarter.

Environmental Compliance

As the owner, lessee or operator of various real properties and facilities, we are subject to various federal, state and local environmental laws and regulations. Historically, compliance with these laws and regulations has not had a material adverse effect on our business. There can be no assurance, however, that compliance with existing or new environmental laws and regulations will not require us to make significant expenditures of funds.

Employees

As of December 31, 2015, we had approximately 797 full-time employees and 344 part-time employees, none of whom are represented by unions. We believe that our relations with our employees are good.

We employ several high-profile personalities with large loyal audiences in their respective markets. We have entered into employment and non-competition agreements with our President and with most of our on-air personalities, as well as non-competition agreements with our commissioned sales representatives.

Available Information

You can find more information about us at our Internet website www.sagacommunications.com. Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports are available free of charge on our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”).

Federal Regulation of Radio and Television Broadcasting

Introduction. The ownership, operation and sale of radio and television stations, including those licensed to us, are subject to the jurisdiction of the FCC, which acts under authority granted by the Communications Act. Among other things, the FCC assigns frequency bands for broadcasting; determines the particular frequencies, locations and operating power of stations; issues, renews, revokes and modifies station licenses; determines whether to approve changes in ownership or control of station licenses; regulates equipment used by stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations; and has the power to impose penalties for violations of its rules or the Communications Act. For additional information on the impact of FCC regulations and the introduction of new technologies on our operations, see “Forward Looking Statements” and “Risk Factors” contained elsewhere herein.

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The following is a brief summary of certain provisions of the Communications Act and of specific FCC regulations and policies. Reference should be made to the Communications Act, FCC rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of broadcast stations.

License Renewal. Radio and television broadcasting licenses are granted for maximum terms of eight years, and are subject to renewal upon application to the FCC. Under its “two-step” renewal process, the FCC must grant a renewal application if it finds that during the preceding term the licensee has served the public interest, convenience and necessity, and there have been no serious violations of the Communications Act or the FCC’s rules which, taken together, would constitute a pattern of abuse. If a renewal applicant fails to meet these standards, the FCC may either deny its application or grant the application on such terms and conditions as are appropriate, including renewal for less than the full 8-year term. In making the determination of whether to renew the license, the FCC may not consider whether the public interest would be served by the grant of a license to a person other than the renewal applicant. If the FCC, after notice and opportunity for a hearing, finds that the licensee has failed to meet the requirements for renewal and no mitigating factors justify the imposition of lesser sanctions, the FCC may issue an order denying the renewal application, and only thereafter may the FCC accept applications for a construction permit specifying the broadcasting facilities of the former licensee. Petitions may be filed to deny the renewal applications of our stations, but any such petitions must raise issues that would cause the FCC to deny a renewal application under the standards adopted in the “two-step” renewal process. All the Company’s licenses have been renewed for their regular terms. In the future, we intend to timely file renewal applications, as required for the Company’s stations. Under the Communications Act, if a broadcast station fails to transmit signals for any consecutive 12-month period, the FCC license expires at the end of that period, unless the FCC exercises its discretion to extend or reinstate the license “to promote equity and fairness.” The FCC, to date, has rarely exercised such discretion.

The following table sets forth the market and broadcast power of each of the broadcast stations that we own or operate with an attributable interest and the date on which each such station’s FCC license expires:

|  |  |  | Power |  | Expiration Date of
Station |  | Market (1) |  | (Watts) (2) |  | FCC Authorization
FM: |  |  |  |  |  |
WOXL |  | Asheville, NC |  | 25,000 |  | December 1, 2019
WTMT |  | Asheville, NC |  | 50,000 |  | December 1, 2019
KISM |  | Bellingham, WA |  | 100,000 |  | February 1, 2022
KAFE |  | Bellingham, WA |  | 100,000 |  | February 1, 2022
WRSY |  | Brattleboro, VT |  | 3,000 |  | April 1, 2022
WKVT |  | Brattleboro, VT |  | 6,000 |  | April 1, 2022
WQEL |  | Bucyrus, OH |  | 3,000 |  | October 1, 2020
WLRW |  | Champaign, IL |  | 50,000 |  | December 1, 2020
WIXY |  | Champaign, IL |  | 25,000 |  | December 1, 2020
WREE |  | Champaign, IL |  | 25,000 |  | December 1, 2020
WYXY |  | Champaign, IL |  | 50,000 |  | December 1, 2020
WWWV |  | Charlottesville, VA |  | 50,000 |  | October 1, 2019
WQMZ |  | Charlottesville, VA |  | 6,000 |  | October 1, 2019
WCNR |  | Charlottesville, VA |  | 6,000 |  | October 1, 2019
WCVQ |  | Clarksville, TN/Hopkinsville, KY |  | 100,000 |  | August 1, 2020
WZZP |  | Clarksville, TN/Hopkinsville, KY |  | 6,000 |  | August 1, 2020
WVVR |  | Clarksville, TN/Hopkinsville, KY |  | 100,000 |  | August 1, 2020
WRND |  | Clarksville, TN/Hopkinsville, KY |  | 6,000 |  | August 1, 2020
WSNY |  | Columbus, OH |  | 50,000 |  | October 1, 2020
WNNP |  | Columbus, OH |  | 6,000 |  | October 1, 2020
WNND |  | Columbus, OH |  | 6,000 |  | October 1, 2020
WVMX |  | Columbus, OH |  | 6,000 |  | October 1, 2020
WLVQ |  | Columbus, OH |  | 50,000 |  | October 1, 2020
KSTZ |  | Des Moines, IA |  | 100,000 |  | February 1, 2021
KIOA |  | Des Moines, IA |  | 100,000 |  | February 1, 2021
KAZR |  | Des Moines, IA |  | 100,000 |  | February 1, 2021
KMYR |  | Des Moines, IA |  | 100,000 |  | February 1, 2021
WHAI |  | Greenfield, MA |  | 3,000 |  | April 1, 2022
WPVQ |  | Greenfield, MA |  | 3,000 |  | April 1, 2022

(footnotes follow tables)

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|  |  |  | Power |  | Expiration Date of
Station |  | Market (1) |  | (Watts) (2) |  | FCC Authorization
WMQR |  | Harrisonburg, VA |  | 25,000 |  | October 1, 2019
WQPO |  | Harrisonburg, VA |  | 50,000 |  | October 1, 2019
WSIG |  | Harrisonburg, VA |  | 25,000 |  | October 1, 2019
WWRE |  | Harrisonburg, VA |  | 6,000 |  | October 1, 2019
WYXL |  | Ithaca, NY |  | 50,000 |  | June 1, 2020
WQNY |  | Ithaca, NY |  | 50,000 |  | June 1, 2020
WIII |  | Ithaca, NY |  | 50,000 |  | June 1, 2020
KEGI |  | Jonesboro, AR |  | 50,000 |  | June 1, 2020
KDXY |  | Jonesboro, AR |  | 25,000 |  | June 1, 2020
KJBX |  | Jonesboro, AR |  | 6,000 |  | June 1, 2020
WKNE |  | Keene, NH |  | 50,000 |  | April 1, 2022
WSNI |  | Keene, NH |  | 6,000 |  | April 1, 2022
WINQ |  | Keene, NH |  | 6,000 |  | April 1, 2022
WZID |  | Manchester, NH |  | 50,000 |  | April 1, 2022
WMLL |  | Manchester, NH |  | 6,000 |  | April 1, 2022
WKLH |  | Milwaukee, WI |  | 50,000 |  | December 1, 2020
WHQG |  | Milwaukee, WI |  | 50,000 |  | December 1, 2020
WNRG |  | Milwaukee, WI |  | 6,000 |  | December 1, 2020
WJMR |  | Milwaukee, WI |  | 6,000 |  | December 1, 2020
KMIT |  | Mitchell, SD |  | 100,000 |  | April 1, 2021
KUQL |  | Mitchell, SD |  | 100,000 |  | April 1, 2021
WNOR |  | Norfolk, VA |  | 50,000 |  | October 1, 2019
WAFX |  | Norfolk, VA |  | 100,000 |  | October 1, 2019
WRSI |  | Northampton, MA |  | 3,000 |  | April 1, 2022
WPOR |  | Portland, ME |  | 50,000 |  | April 1, 2022
WCLZ |  | Portland, ME |  | 50,000 |  | April 1, 2022
WMGX |  | Portland, ME |  | 50,000 |  | April 1, 2022
WYNZ |  | Portland, ME |  | 25,000 |  | April 1, 2022
KICD |  | Spencer, IA |  | 100,000 |  | February 1, 2021
KMRR |  | Spencer, IA |  | 25,000 |  | February 1, 2021
WLZX |  | Springfield, MA |  | 6,000 |  | April 1, 2022
WAQY |  | Springfield, MA |  | 50,000 |  | April 1, 2022
WYMG |  | Springfield, IL |  | 50,000 |  | December 1, 2020
WLFZ |  | Springfield, IL |  | 50,000 |  | December 1, 2020
WDBR |  | Springfield, IL |  | 50,000 |  | December 1, 2020
WQQL |  | Springfield, IL |  | 25,000 |  | December 1, 2020
WNAX |  | Yankton, SD |  | 100,000 |  | April 1, 2021

(footnotes follow tables)

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|  |  |  | Power |  | Expiration Date of
Station |  | Market (1) |  | (Watts) (2) |  | FCC Authorization
AM: |  |  |  |  |  |
WISE |  | Asheville, NC |  | 5,000 |  | December 1, 2019
WYSE |  | Asheville, NC |  | 5,000(5) |  | December 1, 2019
KGMI |  | Bellingham, WA |  | 5,000 |  | February 1, 2022
KPUG |  | Bellingham, WA |  | 10,000 |  | February 1, 2022
KBAI |  | Bellingham, WA |  | 1,000(5) |  | February 1, 2022
WKVT |  | Brattleboro, VT |  | 1,000 |  | April 1, 2022
WBCO |  | Bucyrus, OH |  | 500(5) |  | October 1, 2020
WINA |  | Charlottesville, VA |  | 5,000 |  | October 1, 2019
WVAX |  | Charlottesville, VA |  | 1,000 |  | October 1, 2019
WRND |  | Clarksville, TN/Hopkinsville, KY |  | 1,000(5) |  | August 1, 2020
WKFN |  | Clarksville, TN |  | 1,000(5) |  | August 1, 2020
KRNT |  | Des Moines, IA |  | 5,000 |  | February 1, 2021
KPSZ |  | Des Moines, IA |  | 10,000 |  | February 1, 2021
WHMQ |  | Greenfield, MA |  | 1,000 |  | April 1, 2022
WSVA |  | Harrisonburg, VA |  | 5,000 |  | October 1, 2019
WHBG |  | Harrisonburg, VA |  | 1,000(5) |  | October 1, 2019
WHCU |  | Ithaca, NY |  | 5,000 |  | June 1, 2020
WNYY |  | Ithaca, NY |  | 5,000 |  | June 1, 2020
WKBK |  | Keene, NH |  | 5,000 |  | April 1, 2022
WZBK |  | Keene, NH |  | 1,000(5) |  | April 1, 2022
WFEA |  | Manchester, NH |  | 5,000 |  | April 1, 2022
WJYI |  | Milwaukee, WI |  | 1,000 |  | December 1, 2020
WJOI |  | Norfolk, VA |  | 1,000 |  | October 1, 2019
WHMP |  | Northampton, MA |  | 1,000 |  | April 1, 2022
WGAN |  | Portland, ME |  | 5,000 |  | April 1, 2022
WZAN |  | Portland, ME |  | 5,000 |  | April 1, 2022
WBAE |  | Portland, ME |  | 1,000 |  | April 1, 2022
WGIN |  | Portland, ME |  | 1,000 |  | April 1, 2022
KICD |  | Spencer, IA |  | 1,000 |  | February 1, 2021
WHNP |  | Springfield, MA |  | 2,500(5) |  | April 1, 2022
WTAX |  | Springfield, IL |  | 1,000 |  | December 1, 2020
WNAX |  | Yankton, SD |  | 5,000 |  | April 1, 2021
TV/Channel: |  |  |  |  |  |
KOAM (DTV Ch 7) |  | Joplin, MO/Pittsburg, KS |  | DTV 14,800 |  | June 1, 2022
KFJX (3) (DTV Ch 13) |  | Joplin, MO/Pittsburg, KS |  | DTV 5,600 |  | June 1, 2022
KAVU (DTV Ch 15) |  | Victoria, TX |  | DTV 900,000 |  | August 1, 2022
KVCT(3) (DTV Ch 11) |  | Victoria, TX |  | DTV 11,350 |  | August 1, 2022
KUNU-LD(4) (Digital Ch 28) |  | Victoria, TX |  | DTV 15,000 |  | August 1, 2022
KVTX-LP(4) (Digital Ch 45) |  | Victoria, TX |  | DTV 15,000 |  | August 1, 2022
KXTS-LD(4) (Digital Ch 19) |  | Victoria, TX |  | DTV 15,000 |  | August 1, 2022
KMOL-LD(4) (Digital Ch 17) |  | Victoria, TX |  | DTV 15,000 |  | August 1, 2022
KQZY-LP(4)(Digital Ch 33) |  | Victoria, TX |  | DTV 4,000 |  | August 2, 2022

| (1) | Some stations are licensed to a different community located within the market that they serve.

| (2) | Some stations are licensed to operate with a combination of effective radiated power (“ERP”) and antenna height, which may be different from, but provide equivalent coverage to, the power shown. The ERP of our television stations is expressed in terms of visual (“vis”) components. WHBG, WYSE, WISE, KPSZ, KPUG, KGMI, KBAI, WZBK, WBCO, WRND, WKFN, WNYY and WHCU operate with lower power at night than the power shown.

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| (3) | We provide services to KFJX pursuant to an shared services agreement with the licensee of KFJX, Surtsey Media, LLC (“Surtsey”). We program KVCT pursuant to a time brokerage agreement with Surtsey. See Note 10 of the Notes to Consolidated Financial Statements included with this Form 10-K for additional information on our relationship with Surtsey.

| (4) | KUNU-LD, KXTS-LD, KVTX-LP, KMOL-LD and KQZY-LP are LPTV stations that operate as “secondary” stations (i.e., if they conflict with the operations of a “full power” television station, the LPTV stations must change their facilities or terminate operations).

| (5) | Operates daytime only or with greatly reduced power at night.

Ownership Matters. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant or renew a broadcast license, the FCC considers a number of factors pertaining to the licensee, including compliance with the Communications Act’s limitations on alien ownership; compliance with various rules limiting common ownership of broadcast, cable and newspaper properties; and the “character” and other qualifications of the licensee and those persons holding “attributable or cognizable” interests therein.

Under the Communications Act, broadcast licenses may not be granted to any corporation having more than one-fifth of its issued and outstanding capital stock owned or voted by aliens (including non-U.S. corporations), foreign governments or their representatives (collectively, “Aliens”). The Communications Act also prohibits a corporation, without FCC waiver, from holding a broadcast license if that corporation is controlled, directly or indirectly, by another corporation in which more than 25% of the issued and outstanding capital stock is owned or voted by Aliens. The FCC has issued interpretations of existing law under which these restrictions in modified form apply to other forms of business organizations, including partnerships. Although we serve as a holding company for most of our various radio station subsidiaries (where we could not have more than 25% of our stock owned or voted by Aliens), we directly own two radio stations and two FM translators so that we cannot have more than 20% of our stock owned by Aliens. In 2013, the FCC released Review of Foreign Ownership Policies for Common Carrier and Aeronautical Radio Licenses Under Section 310(b)(4) of the Communications Act of 1934, as Amended, IB Docket No. 11-133, Second Report and Order, 28 FCC Rcd 5741 (2013) (2013 Foreign Ownership Second Report and Order). On November 6, 2015, the FCC released a Notice of Proposed Rulemaking (“NPRM”) that proposes to extend the foreign ownership rules and procedures established in the 2013 Foreign Ownership Second Report and Order to broadcast licensees, with certain modifications to tailor them to this context. The NPRM also seeks comment on whether and how to revise the methodology a licensee should use to assess its compliance with the 25 percent foreign ownership benchmark in section 310(b)(4) in order to reduce regulatory burdens on applicants and licensees. Finally, the NPRM makes several proposals to clarify and update existing policies and procedures for broadcast, common carrier and aeronautical licensees. The Company cannot predict what action the FCC may take as a result of this NPRM.

The Communications Act and FCC rules also generally prohibit or restrict the common ownership, operation or control of a radio broadcast station and a television broadcast station serving the same geographic market. In its 2006 Quadrennial Regulatory Review , released February 4, 2008, the FCC adopted a presumption, in the top 20 Nielsen Designated Market Areas (“DMAs”), that it is not inconsistent with the public interest for one entity to own a daily newspaper and a radio station or, under the following limited circumstances, a daily newspaper and a television station, if (1) the television station is not ranked among the top four stations in the DMA and (2) at least eight independent “major media voices” remain in the DMA. In all other instances, the FCC adopted a presumption that a newspaper/broadcast station combination would not be in the public interest, with two limited exceptions, and emphasized that the Commission is unlikely to approve such transactions. Taking into account these respective presumptions, in determining whether the grant of a transaction that would result in newspaper/broadcast cross-ownership is in the public interest, the Commission will consider the following factors: (1) whether the cross-ownership will increase the amount of local news disseminated through the affected media outlets in the combination; (2) whether each affected media outlet in the combination will exercise its own independent news judgment; (3) the level of concentration in the DMA; and (4) the financial condition of the newspaper or broadcast outlet, and if the newspaper or broadcast station is in financial distress, the proposed owner’s commitment to invest significantly in newsroom operations.

The FCC established criteria for obtaining a waiver of the rules to permit the ownership of two television stations in the same DMA that would not otherwise comply with the FCC’s rules. Under certain circumstances, a television station may merge with a “failed” or “failing” station or an “unbuilt” station if strict criteria are satisfied. Additionally, the FCC now permits a party to own up to two television stations (if permitted under the modified TV duopoly rule) and up to six radio stations (if permitted under the local radio ownership rules), or one television station and up to seven radio stations, in any market (“Qualifying Market”) where at least 20 independently owned media voices remain in the market after the combination is effected. The FCC will permit the common ownership of up to two television stations and four radio stations in any market where at least 10 independently owned media voices remain after the combination is affected. The FCC will permit the common ownership of up to two television stations (if permitted under the FCC’s local television multiple ownership rule) and one radio station notwithstanding the number of voices in the market. The FCC also adopted rules that make television time brokerage agreements or TBA’s count as if the brokered station were owned by the brokering station in making a determination of compliance with the FCC’s multiple ownership rules. TBA’s entered into before November 5, 1996, are grandfathered until the FCC announces a required termination date. As a result of the FCC’s rules, we would not be permitted to acquire a television broadcast station (other than LPTV) in a non-Qualifying Market in which we now own any television properties. The FCC revised its rules to permit a television station to affiliate with two or more major networks of television broadcast stations under certain conditions. (Major existing networks are still subject to the FCC’s dual network ban). For more detailed information, see the discussion of recent FCC action under “Time Brokerage Agreements.”

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We are permitted to own an unlimited number of radio stations on a nationwide basis (subject to the local ownership restrictions described below). We are permitted to own an unlimited number of television stations on a nationwide basis so long as the ownership of the stations would not result in an aggregate national audience reach (i.e., the total number of television households in the DMAs in which the relevant stations are located divided by the total national television households as measured by DMA data at the time of a grant, transfer or assignment of a license. For purposes of making this calculation, UHF television stations are attributed with 50 percent of the television households in their DMA market) of 39%. The multiple ownership rules now permit opportunities for newspaper-broadcast combinations, as follows:

In markets with three or fewer TV stations, no cross-ownership is permitted among TV, radio and newspapers. A company may obtain a waiver of that ban if it can show that the television station does not serve the area served by the cross-owned property ( i.e., the radio station or the newspaper).

In markets with between 4 and 8 TV stations, combinations are limited to one of the following:

| (A) | A daily newspaper; one TV station; and up to half of the radio station limit for that market ( i.e ., if the radio limit in the market is 6, the company can only own 3) or

| (B) | A daily newspaper; and up to the radio station limit for that market; (i.e ., no TV stations) or

| (C) | Two TV stations (if permissible under local TV ownership rule); and up to the radio station limit for that market (i.e., no daily newspapers).

In markets with nine or more TV stations, the FCC has eliminated the newspaper-broadcast cross-ownership ban and the television-radio cross-ownership ban.

Under the rules, the number of radio stations one party may own in a local Nielsen Audio-rated radio market is determined by the number of full-power commercial and noncommercial radio stations in the market as determined by Nielsen Audio and BIA/Kelsey. Radio markets that are not Nielsen Audio rated are determined by analysis of the broadcast coverage contours of the radio stations involved. Numerous parties, including the Company, have sought reconsideration of the multiple ownership rules. In Prometheus Radio v. FCC , Case No. 03-3388 (U.S. Court of Appeals D.C. Circuit), on June 24, 2004, the court remanded the case to the FCC for the FCC to justify or modify its approach to setting numerical limits and for the FCC to reconsider or better explain its decision to repeal the failed station solicitation rule, and lifted a previously-imposed stay on the effect of the revised radio multiple ownership rules. By Further Notice of Proposed Rule Making (2006 Quadrennial Regulatory Review), released July 24, 2006, the Commission solicited comments. The rules adopted in the 2006 Quadrennial Regulatory Review were vacated in part by the Third Circuit Court of Appeals in Prometheus Radio Project v. FCC (652 F. 3d 432 (2011)) because the FCC’s procedures in the rule making proceeding did not satisfy the Administrative Procedure Act. The newspaper-broadcast cross-ownership rule was vacated, but the media ownership rules were affirmed. The FCC had created special benefits for so-called “eligible entities.” Because there was no data attempting to show a connection between the FCC’s eligible entity definition and the goal of increasing ownership of minorities and women under §309(j) of the Telecommunication Act of 1996, the “eligible entity” definition adopted was vacated as arbitrary and capricious. On April 15, 2014, the FCC released its 2014 Quadrennial Regulatory Review which consists of a Further Notice of Proposed Rulemaking (“FNPRM”) and Report and Order(“R&O”) incorporating the record of its 2010 Quadrennial Regulatory Review into the FNPRM. (In the 2010 Quadrennial Regulatory Review, the FCC also sought comment on whether television local news service (“LNS”) agreements and shared service agreements (“SSA”) are substantively equivalent to agreements that are already subject to the FCC’s attribution rules, and are therefore attributable now or should be in the future.) The FNPRM seeks comment on whether to eliminate restrictions on newspaper/radio combinations and the radio/television cross-ownership rule in favor of reliance on the local radio rule and the local television rule. The FCC proposed to retain the current local television ownership rule with a minor modification to update the previous analog contour provision in light of the digital transition. The FCC sought comment on whether to retain the prohibition on the cross-ownership of newspapers and television stations, and if so, whether the FCC should reform the restriction to consider waivers for newspaper/television combinations. The FCC proposed to retain the current local radio ownership rule and the dual network rule without modification. In addition, in the R&O, the FCC attributed to the brokering station same-market television JSAs that cover more than 15 percent of the weekly advertising time for the brokered station.

Under the Communications Act, we are permitted to own radio stations (without regard to the audience shares of the stations) based upon the number of full-power radio stations in the relevant radio market as follows:

Number of Stations |  |
In Radio Market |  | Number of Stations We Can Own
14 or Fewer |  | Total of 5 stations, not more than 3 in the same service (AM or FM), except the Company cannot own more than 50% of the stations in the market.
15-29 |  | Total of 6 stations, not more than 4 in the same service (AM or FM).
30-44 |  | Total of 7 stations, not more than 4 in the same service (AM or FM).
45 or More |  | Total of 8 stations, not more than 5 in the same service (AM or FM).

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New rules to be promulgated under the Communications Act may permit us to own, operate, control or have a cognizable interest in additional radio broadcast stations if the FCC determines that such ownership, operation, control or cognizable interest will result in an increase in the number of radio stations in operation. No firm date has been established for initiation of this rule-making proceeding. New rules could restrict the Company’s ability to acquire additional radio and television stations in some markets and could require the Company to terminate its arrangements with Surtsey. The Court and FCC proceedings are ongoing and we cannot predict what action, if any, the Court or the FCC may take to further modify its rules. The statements herein are based solely on the FCC’s multiple ownership rules in effect as of the date hereof and do not include any forward-looking statements concerning compliance with any future multiple ownership rules.

The FCC generally applies its ownership limits to “attributable” interests held by an individual, corporation, partnership or other association. In the case of corporations holding broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation’s stock (or 20% or more of such stock in the case of certain passive investors that are holding stock for investment purposes only) are generally attributable, as are positions of an officer or director of a corporate parent of a broadcast licensee. Currently, none of our directors has an attributable interest or interests in companies applying for or licensed to operate broadcast stations other than us.

The FCC’s ownership attribution rules (a) apply to limited liability companies and registered limited liability partnerships the same attribution rules that the FCC applies to limited partnerships; and (b) include an equity/debt plus (“EDP”) rule that attributes the other media interests of an otherwise passive investor if the investor is (1) a “major-market program supplier” that supplies over 15% of a station’s total weekly broadcast programming hours, or (2) a same-market media entity subject to the FCC’s multiple ownership rules (including broadcasters, cable operators and newspapers) so that its interest in a licensee or other media entity in that market will be attributed if that interest, aggregating both debt and equity holdings, exceeds 33% of the total asset value (equity plus debt) of the licensee or media entity. We could be prohibited from acquiring a financial interest in stations in markets where application of the EDP rule would result in us having an attributable interest in the stations. In reconsidering its rules, the FCC also eliminated the “single majority shareholder exemption” which provides that minority voting shares in a corporation where one shareholder controls a majority of the voting stock are not attributable; however, in December 2001 the FCC “suspended” the elimination of this exemption until the FCC resolved issues concerning cable television ownership.

On January 21, 2010, the FCC launched an initiative on the future of media and the information needs of communities in the digital age, which will examine the changes underway in the media marketplace, analyze the full range of future technologies and services that will provide communities with news and information in the digital age, and, as appropriate, make policy recommendations to the FCC, other government entities, and other parties. Initial topics under consideration include: the state of TV, radio, newspaper, and Internet news and information services; the effectiveness and nature of public interest obligations in a digital era; the role of public media and private sector foundations; and many others. Proposals are before the FCC whereby the government would take back part of the spectrum allotted for over-the-air television in favor of wireless broadband. The FCC is conducting a proceeding whereby broadcasters may voluntarily participate in a “reverse auction” of their over-the-air broadcast spectrum, otherwise agree to modifications in the spectrum available to them, move from the UHF to the VHF band (with or without compensations), or become subject to restrictions on their usage of the spectrum. The Company has filed an application with the FCC seeking to participate in the reverse auction, however, the Company is not obligated at this time, to relinquish any of its spectrum.

In addition to the FCC’s multiple ownership rules, the Antitrust Division of the United States Department of Justice and the Federal Trade Commission and some state governments have the authority to examine proposed transactions for compliance with antitrust statutes and guidelines. The Antitrust Division has issued “civil investigative demands” and obtained consent decrees requiring the divestiture of stations in a particular market based on antitrust concerns.

Programming and Operation. The Communications Act requires broadcasters to serve the “public interest.” Licensees are required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. Complaints from listeners concerning a station’s programming often will be considered by the FCC when it evaluates renewal applications of a licensee, although such complaints may be filed at any time and generally may be considered by the FCC at any time. Stations also must follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identification, the advertisement of contests and lotteries, obscene and indecent broadcasts, and technical operations, including limits on radio frequency radiation. The FCC now requires the owners of antenna supporting structures (towers) to register them with the FCC. As an owner of such towers, we are subject to the registration requirements. The Children’s Television Act of 1990 and the FCC’s rules promulgated thereunder require television broadcasters to limit the amount of commercial matter which may be aired in children’s programming to 10.5 minutes per hour on weekends and 12 minutes per hour on weekdays. The Children’s Television Act and the FCC’s rules also require each television licensee to serve, over the term of its license, the educational and informational needs of children through the licensee’s programming (and to present at least three hours per week of “core” educational programming specifically designed to serve such needs). Licensees are required to publicize the availability of this programming and to file quarterly a report with the FCC on these programs and related matters. On April, 27, 2012, the FCC released a Second Report and Order that requires television stations to post their public files online in a central, Commission-hosted database, rather than maintaining the files locally at their main studios. It did not impose any new reporting obligation on the Company. The FCC did not adopt new disclosure obligations for sponsorship identification and shared services agreements as had been proposed (But see the discussion in “Time Brokerage Agreements” concerning the disclosure of JSAs. On January 29, 2016, the FCC released a Report and Order which expanded to cable operators, direct satellite TV providers, broadcast radio licensees, and satellite radio licensees the requirement that public inspection files be posted to the FCC's online database. The Company’s radio stations located in the top 50 radio markets must comply with these rules within 30 days after the FCC has announced in the Federal Register that the Office of Management and Budget has completed its review of the new rules under the Paperwork Reduction Act. All other radio stations owned by the Company must comply with the new rule by March 1, 2018.

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Equal Employment Opportunity Rules. Equal employment opportunity (EEO) rules and policies for broadcasters prohibit discrimination by broadcasters and multichannel video programming distributors (“MVPDs”). They also require broadcasters to provide notice of job vacancies and to undertake additional outreach measures, such as job fairs and scholarship programs. The rules mandate a “three prong” outreach program; i.e., Prong 1: widely disseminate information concerning each full-time (30 hours or more) job vacancy, except for vacancies filled in exigent circumstances; Prong 2: provide notice of each full-time job vacancy to recruitment organizations that have requested such notice; and Prong 3: complete two (for broadcast employment units with five to ten full-time employees or that are located in smaller markets) or four (for employment units with more than ten full-time employees located in larger markets) longer-term recruitment initiatives within a two-year period. These include, for example, job fairs, scholarship and internship programs, and other community events designed to inform the public as to employment opportunities in broadcasting. The rules mandate extensive record keeping and reporting requirements. The EEO rules are enforced through review at renewal time, at mid-term for larger broadcasters, and through random audits and targeted investigations resulting from information received as to possible violations. The FCC has not yet decided on whether and how to apply the EEO rule to part-time positions. Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of “short” (less than the full eight-year) renewal terms or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license.

Time Brokerage Agreements. As is common in the industry, we have entered into what have commonly been referred to as Time Brokerage Agreements (“TBAs”). Such arrangements are an extension of the concept of agreements under which a licensee of a station sells blocks of time on its station to an entity or entities which purchase the blocks of time and which sell their own commercial advertising announcements during the time periods in question. While these agreements may take varying forms, under a typical TBA, separately owned and licensed radio or television stations agree to enter into cooperative arrangements of varying sorts, subject to compliance with the requirements of antitrust laws and with the FCC’s rules and policies. Under these types of arrangements, separately-owned stations agree to function cooperatively in terms of programming, advertising sales, and other matters, subject to the licensee of each station maintaining independent control over the financing, programming and station operations of its own station. One typical type of TBA is a programming agreement between two separately-owned radio or television stations serving a common service area, whereby the licensee of one station purchases substantial portions of the broadcast day on the other licensee’s station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during such program segments.

The FCC’s rules provide that a station purchasing (brokering) time on another station serving the same market will be considered to have an attributable ownership interest in the brokered station for purposes of the FCC’s multiple ownership rules. As a result, under the rules, a broadcast station will not be permitted to enter into a time brokerage agreement giving it the right to purchase more than 15% of the broadcast time, on a weekly basis, of another local station that it could not own under the local ownership rules of the FCC’s multiple ownership rules. The FCC’s rules also prohibit a broadcast licensee from simulcasting more than 25% of its programming on another station in the same broadcast service (i.e., AM-AM or FM-FM) whether it owns the stations or through a TBA arrangement, where the brokered and brokering stations serve substantially the same geographic area.

The FCC’s multiple ownership rules count stations brokered under a JSA toward the brokering station’s permissible ownership totals, as long as (1) the brokering entity owns or has an attributable interest in one or more stations in the local market, and (2) the joint advertising sales amount to more than 15% of the brokered station’s advertising time per week. In December, 2014, the Commission adopted a Notice of Proposed Rulemaking and Report and Order in connection with its 2014 Quadrennial Regulatory Review – Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996 (“ Report and Order ”). The Commission adopted a new attribution rule for JSAs that applies when: (1) both broadcast television stations are licensed to the same DMA; and (2) the brokering station is authorized to sell more than 15 percent of the weekly advertising time of the brokered station. In these circumstances, the brokering station will have an attributable interest in the brokered station. The rule became effective on June 19, 2014. However, as a result of action by the U. S. Congress in 2015, stations that have a television JSA signed before the release of the Report and Order will have until October 1, 2025, to ensure that the agreement complies with the Commission’s media ownership rules or to come into compliance with the media ownership rules by another means. For example, if the local television ownership rule (47 C.F.R. § 73.3555(b)) prohibits the brokering station from having an attributable interest in more than one broadcast television station in the same DMA, the licensees of the affected stations would either have to terminate the agreement or modify the agreement to ensure that the brokering station is authorized to sell no more than 15 percent of the brokered station’s weekly advertising time, or the licensee of the brokering station would have to take other steps to avoid having an attributable interest in more than one broadcast television station in the market. Licensees that believe application of the attribution rule to their particular circumstances would not serve the public interest may seek a waiver of this rule. Likewise, licensees that believe application of the local television ownership rule would adversely affect competition, diversity, or localism may seek a waiver of that rule. Television JSAs entered into after the release of the Report and Order must comply with the Commission’s media ownership rules at the time they are executed; the compliance period does not apply to any television JSA entered into after the release of the Report and Order . The Report and Order requires that all attributable television JSAs be filed with the Commission, and we have complied with this deadline.

We currently have a television TBA in the Victoria, Texas, market with Surtsey. On January 31, 2012, we entered into an agreement which included an extension of the grandfathered TBA for KVCT-TV and an assignable option with Surtsey for KVCT-TV. Even though the Victoria market is not a Qualifying Market such that the duopoly would otherwise be permissible, as discussed above, we believe that the TBA is “grandfathered” under the FCC’s rules and need not be terminated earlier than the date to be established in the ownership review proceeding. See “Ownership Matters” above.

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On March 7, 2003 we entered into an agreement of understanding with Surtsey, whereby we have guaranteed up to $1,250,000 of the debt incurred by Surtsey in closing on the acquisition of a construction permit for KFJX-TV, a television station in Pittsburg, Kansas, serving the Joplin, Missouri television market. In consideration for our guarantee, Surtsey has entered into various agreements with us relating to the station, including a Shared Services Agreement, Agreement for Use of Ancillary Digital Spectrum and Agreement for the Sale of Commercial Time, which is considered by the FCC to be a JSA. On January 31, 2012, the Company and Surtsey amended these agreements and entered into an agreement which included an assignable option with Surtsey for KFJX-TV.

Other FCC Requirements

The “V-Chip.” The FCC adopted rules requiring every television receiver, 13 inches or larger, sold in the United States since January 2000 to contain a “V-chip” which allows parents to block programs on a standardized rating system. The FCC also adopted the TV Parental Guidelines, developed by the Industry Ratings Implementation Group, which apply to all broadcast television programming except for news and sports. As a part of the legislation, television station licensees are required to attach as an exhibit to their applications for license renewal a summary of written comments and suggestions received from the public and maintained by the licensee that comment on the licensee’s programming characterized as violent.

Digital Television. Under the FCC’s rules all U.S. television broadcasters have been required to convert their operations from NTSC (analog) to digital television (“DTV”). DTV licensees may use their DTV channels for a multiplicity of services such as high-definition television broadcasts, multiple standard definition television broadcasts, data, audio, and other services so long as the licensee provides at least one free video channel equal in quality to the previous NTSC technical standard. Our full-service television stations and Low Power Television (“LPTV”) stations currently provide DTV service and have terminated NTSC operations. We hold licenses that authorize KOAM-TV to operate on Channel 7 for DTV and KAVU-TV to operate on Channel 15 for DTV. The FCC’s rules require broadcasters to include Program and System Information Protocol (“PSIP”) information in their digital broadcast signals.

Brokered Station KVCT is providing DTV service on Channel 11. KFJX-TV, with which KOAM-TV shares certain services, is providing DTV services on Channel 13.

In October 2003, the FCC adopted rules requiring “plug and play” cable compatibility which would allow consumers to plug their cable directly into their digital TV set without the need for a set-top box. In January 2013, the U.S. Court of Appeals for the D.C. Circuit vacated the rules. The Company cannot predict whether the FCC will adopt other proposals to address this matter. The FCC has adopted rules whereby television licensees are charged a fee of 5% of gross revenue derived from the offering of ancillary or supplementary services on DTV spectrum for which a subscription fee is charged. Licensees and “permittees” of DTV stations must file with the FCC a report by December 1 of each year describing such services. None of the Company’s stations to date are offering ancillary or supplementary services on their DTV channels.

White Spaces. On September 23, 2010, the FCC adopted a Second Memorandum Opinion and Order in ET Docket No. 04-186 that updated the rules for unlicensed wireless devices that can operate in broadcast television spectrum at locations where that spectrum is unused by licensed services. This unused TV spectrum is commonly referred to as television "white spaces." The rules allow for the use of unlicensed TV bands devices in the unused spectrum to provide broadband data and other services for consumers and businesses. It is possible that such operations have the potential for causing interference to broadcast operation, but we cannot yet judge whether such operations will have an adverse impact on the Company’s operations.

“Must-Carry” Rules. The Cable Television Consumer Protection and Competition Act of 1992, among other matters, requires cable television system operators to carry the signals of local commercial and non-commercial television stations and certain LPTV stations. Cable television operators and other MVPDs may not carry broadcast signals without, in certain circumstances, obtaining the transmitting station’s consent. A local television broadcaster must make a choice every three years whether to proceed under the “must-carry” rules or waive the right to mandatory-uncompensated coverage and negotiate a grant of retransmission consent in exchange for consideration from the MVPD. Such must-carry rights extend to the DTV signals broadcast by our stations. For the three-year period commencing on January 1, 2012, we generally elected “retransmission consent” in notifying MVPDs that carry our television programming in our television markets.

LPTV and Class A Television Stations. Currently, the service areas of LPTV stations are not protected. LPTV stations can be required to terminate their operations if they cause interference to full power stations. LPTV stations meeting certain criteria were permitted to certify to the FCC their eligibility to be reclassified as “Class A Television Stations” whose signal contours would be protected against interference from other stations. Stations deemed “Class A Stations” by the FCC would thus be protected from interference. We own five operating LPTV stations, KUNU-LD, KVTX-LP, KXTS-LD, KMOL-LD, and KQZY-LD, Victoria, Texas, all of which operate in the digital mode. None of the stations qualifies under the FCC’s established criteria for Class A status.

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Low Power FM Radio. The FCC has created a “low power radio service” on the FM band (“LPFM”) in which the FCC authorizes the construction and operation of noncommercial educational FM stations with up to 100 watts effective radiated power (“ERP”) with antenna height above average terrain (“HAAT”) at up to 30 meters (100 feet). This combination is calculated to produce a service area radius of approximately 3.5 miles. The FCC’s rules will not permit any broadcaster or other media entity subject to the FCC’s ownership rules to control or hold an attributable interest in an LPFM station or enter into related operating agreements with an LPFM licensee. Thus, absent a waiver, we could not own or program an LPFM station. LPFM stations are allocated throughout the FM broadcast band, (i.e., 88.1 to 107.9 MHz), although they must operate with a noncommercial format. The FCC has established allocation rules that require FM stations to be separated by specified distances to other stations on the same frequency, and stations on frequencies on the first, second and third channels adjacent to the center frequency. The FCC has granted construction permits and licenses for LPFM stations. On January 4, 2011, the President signed into law the Local Community Radio Act of 2010 which required the Commission to modify the rules authorizing the operation of LPFM, as proposed in MM Docket No. 99-25. In an order released December 4, 2012, the FCC modified its rules to implement the new law. The law requires the FCC to comply with its existing minimum distance separation requirements for full-service FM stations, FM translator stations, and FM booster stations that broadcast radio reading services via an analog subcarrier frequency to avoid potential interference by LPFM stations; and when licensing new FM translator stations, FM booster stations, and LPFM stations, to ensure that: (i) licenses are available to FM translator stations, FM booster stations, and LPFM stations; (ii) such decisions are made based on the needs of the local community; and (iii) FM translator stations, FM booster stations, and LPFM stations remain equal in status and secondary to existing and modified full-service FM stations.

On January 5, 2012, the FCC released a Report to Congress on the impact that LPFM stations will have on full-service commercial FM stations. The FCC “found no statistically reliable evidence that low-power FM stations have a substantial or consistent economic impact on full-service commercial FM stations,” and that “low-power FM stations generally do not have, and in the future are unlikely to have, a demonstrable economic impact on full-service commercial FM radio stations.” We cannot predict what, if any, impact the new LPFM stations will have on the Company’s full-service stations and FM translators.

Digital Audio Radio Satellite Service and Internet Radio. In adopting its rules for the Digital Audio Radio Satellite Service (“DARS”) in the 2310-2360 MHz frequency band, the FCC stated, “although healthy satellite DARS systems are likely to have some adverse impact on terrestrial radio audience size, revenues and profits, the record does not demonstrate that licensing satellite DARS would have such a strong adverse impact that it threatens the provision of local service.” The FCC granted two nationwide licenses, one to XM Satellite Radio, which began broadcasting in May 2001, and a second to Sirius Satellite Radio, which began broadcasting in February 2002. The satellite radio systems provide multiple channels of audio programming in exchange for the payment of a subscription fee. The FCC approved the application of Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. to transfer control of the licenses and authorizations held by the two companies to one company, which is now known as Sirius XM Radio, Inc. Various companies have introduced devices that permit the reception of audio programming streamed over the Internet on home computers, on portable receivers, such as cell phones, and in automobiles. A number of digital music providers have developed and are offering their product through the Internet. Terrestrial radio operators (including the Company) are also making their product available through the Internet. We cannot predict whether, or the extent to which, such competing reception devices and DARS will have an adverse impact on our business.

Satellite Carriage of Local TV Stations. The Satellite Home Viewer Improvement Act (“SHVIA”), a copyright law, prevents direct-to-home satellite television carriers from retransmitting broadcast network television signals to consumers unless those consumers (1) are “unserved” by the over-the-air signals of their local network affiliate stations, and (2) have not received cable service in the preceding 90 days. According to the SHVIA, “unserved” means that a consumer cannot receive, using a conventional outdoor rooftop antenna, a television signal that is strong enough to provide an adequate television picture. In December 2001 the U.S. Court of Appeals for the District of Columbia upheld the FCC’s rules for satellite carriage of local television stations which require satellite carriers to carry upon request all local TV broadcast stations in local markets in which the satellite carriers carry at least one TV broadcast station, also known as the “carry one, carry all” rule. In December 2004, Congress passed and the President signed the Satellite Home Viewer Extension and Reauthorization Act of 2004 (“SHVERA”), which again amends the copyright laws and the Communications Act. The SHVIA governs the manner in which satellite carriers offer local broadcast programming to subscribers, but the SHVIA copyright license for satellite carriers was more limited than the statutory copyright license for cable operators. Specifically, for satellite purposes, “local,” though out-of-market (i.e., “significantly viewed”) signals were treated the same as truly “distant” (e.g., hundreds of miles away) signals for purposes of the SHVIA’s statutory copyright licenses. The SHVERA is intended to address this inconsistency by giving satellite carriers the option to offer Commission-determined “significantly viewed” signals to subscribers. In November, 2005, the FCC adopted a Report and Order to implement SHVERA to enable satellite carriers to offer FCC-determined “significantly viewed” signals of out-of-market broadcast stations to subscribers subject to certain constraints set forth in SHVERA. The Order includes an updated list of stations currently deemed significantly viewed. On November 23, 2010, the FCC released three orders that implemented the Satellite Television Extension and Localism Act of 2010 (“STELA”). The FCC modified its Significantly Viewed (“SV”) rules to implement Section 203 of the STELA which amends Section 340 of the Communications Act to give satellite carriers the authority to offer out-of-market but SV broadcast television stations as part of their local service to subscribers. Section 203 of the STELA changes the restrictions on subscriber eligibility to receive SV network stations from satellite carriers. To implement the STELA, the FCC revised its satellite subscriber eligibility rules. The new rules could result in satellite carriers providing additional signals in DMAs where the Company operates television stations, but we cannot predict at this time, what, if any, impact the rules might have on the Company.

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In-Band On-Channel “Hybrid Digital” Radio. The FCC has adopted rules permitting radio stations to broadcast using in-band, on-channel (IBOC) as the technology that allows AM and FM stations to operate using the IBOC systems developed by iBiquity Digital Corporation. This technology has become commonly known as “hybrid digital” or HD radio. Stations broadcast the same main channel program material in both analog and digital modes. HD radio technology permits “hybrid” operations, the simultaneous transmission of analog and digital signals with a single AM and FM channel. HD radio technology can provide near CD-quality sound on FM channels and FM quality on AM channels. HD radio technology also permits the transmission of up to three additional program streams over the radio stations. At the present time, we are configured to broadcast in HD radio on 55 stations and we continue to convert stations to HD radio on an ongoing basis.

Use of FM Translators by AM Stations and Digital Program Streams. FM translator stations are relatively low power radio stations (maximum ERP: 250 Watts) that rebroadcast the programs of full-power FM stations on a secondary basis, meaning they must terminate or modify their operation if they cause interference to a full-power station. The FCC permits AM stations to be rebroadcast on FM translator stations in order to improve reception of programs broadcast by AM stations. The Company intends to continue to use some of its existing FM translators in connection with some of its AM stations. The Company is using some of its existing FM translators to rebroadcast HD radio program streams generated by some of its FM stations, which is permitted by the FCC. In a Report and Order released October 23, 2015, Revitalization of the AM Service, the FCC announced an opportunity, restricted to AM licensees and permittees, to apply for and receive authorizations for new FM translator stations for the sole and limited purpose of enhancing their existing service to the public. On January 29, 2016, the FCC opened a one-time only filing window during which only Class C and Class D AM broadcast stations may participate. That window will close on July 28, 2016, and a second window will open on July 29, 2016, during which only Class A and Class B AM broadcast stations may participate. That window will close on October 31, 2016. Thereafter, the FCC plans to open windows permitting the licensees of AM stations to apply for a construction permit for a new FM translator to enhance their existing service. In the filing windows, qualifying AM licensees may apply for one, and only one, new FM translator station, in the non-reserved FM band to be used solely to re-broadcast the AM licensee’s AM signal to provide fill-in and/or nighttime service. The FM translator must rebroadcast the related AM station for at least four years, not counting any periods of silence. The Company is an AM licensee and is participating in the filing opportunities.

Hart-Scott-Rodino Antitrust Improvements Act of 1976. The Federal Trade Commission and the Department of Justice, the federal agencies responsible for enforcing the federal antitrust laws, may investigate certain acquisitions. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, an acquisition meeting certain size thresholds requires the parties to file Notification and Report Forms with the Federal Trade Commission and the Department of Justice and to observe specified waiting period requirements before consummating the acquisition. Any decision by the Federal Trade Commission or the Department of Justice to challenge a proposed acquisition could affect our ability to consummate the acquisition or to consummate it on the proposed terms. We cannot predict whether the FCC will adopt rules that would restrict our ability to acquire additional stations.

Changes to Application and Assignment Procedures. In January 2010, the FCC adopted a First Report and Order that gives Native American tribes a priority to obtain broadcast radio licenses in tribal communities. The Order provides an opportunity for tribes to establish new service specifically designed to offer programming that meets the needs of tribal citizens. In addition, the First Report and Order modified the Commission’s radio application and assignment procedures, assisting qualified applicants to more rapidly introduce new radio service to the public. These modifications (1) Prohibit an AM applicant that obtains a construction permit through a dispositive Section 307(b) preference from downgrading the service level that led to the dispositive preference; (2) Requires technical proposals for new or major change AM facilities filed with Form 175 ( i.e ., FCC “short-form” Auction) applications to meet certain minimum technical standards to be eligible for further auction processing; and (3) Gives FCC operating bureaus authority to cap filing window applications. On December 29, 2011, the FCC released its Third Report and Order which limits eligibility for authorizations associated with allotments added to the FM Table of Allotments using the “Tribal Priority” to the tribes whom the Tribal Priority was intended to benefit. In a Public Notice released December 2, 2010 (GN Docket No. 10-244) the FCC sought comment on how it could design, adopt, and implement an additional new preference program in its competitive bidding process for persons or entities that have overcome substantial disadvantage and would be eligible for a bidding credit. In a Notice of Proposed Rulemaking, released October 10, 2014, and in the Quadrennial Regulatory Review NPRM , the Commission also sought comment on a proposal for applicants to be accorded licensing preferences if they could demonstrate that they have overcome “significant social and economic disadvantages.” The Company cannot predict whether such preferences will be adopted, or whether they would have any impact on the Company.

Spectrum Auctions and Channel Sharing. Congress passed and the President signed into law the Middle Class Tax Relief and Job Creation Act of 2012, (codified at 47 U.S.C. § 309(j)(8)(G) 47 U.S.C. § 1452) (2012) (“Spectrum Act”). In a Report and Order, released June 2, 2014, in GN Docket 12-268, the FCC adopted rules to implement the Spectrum Act, including rules to implement the auction of broadcast television spectrum for use by other services. The FCC stated its mandate to protect full power and Class A television facilities that already were operating pursuant to a license (or a pending application for a license to cover a construction permit) on February 22, 2012, and to protect facilities in addition to those the statute requires the FCC to protect, based on consideration of the potential impact on the FCC’s flexibility in the repacking process and its auction goals. The FCC concluded that protecting other categories of facilities, including stations and television translator stations, would unduly constrain the FCC’s flexibility in the repacking process and undermine the likelihood of meeting its objectives for the incentive auction. To help preserve the services provided by LPTV and TV translator stations, the FCC will open a special filing window for such stations that are displaced to select a new channel and will amend its rules to expedite the process for displaced stations to relocate. The reverse and forward spectrum auctions will be integrated in a series of stages. Each stage will consist of a reverse auction and a forward auction bidding process, and additional stages will be run if necessary. Broadcasters will indicate through the pre-auction application process their willingness to relinquish spectrum usage rights at the opening prices. Based on broadcasters’ collective willingness, the initial spectrum clearing target will be set. Then the reverse auction bidding process will be run to determine the total amount of incentive payments to broadcasters required to clear that amount of spectrum. The forward auction bidding process will follow the reverse auction bidding process. Full power and Class A station licensees will be eligible to participate in the reverse auction. They may bid to voluntarily relinquish the spectrum usage rights associated with station facilities that are eligible for protection in the repacking process. Bidders will have the three bid options specified by the Spectrum Act: (1) license relinquishment; (2) reassignment from a UHF to a VHF channel; and (3) channel sharing. UHF-to-VHF bidders may limit their bids to a high (channels 7 to 13) or low (channels 2 to 6) VHF channel. Bidders will have the additional option to bid for reassignment from a high VHF channel to a low VHF channel. Potential bidders will have to submit certified applications. Between the short-form application filing deadline and the announcement of the results of the reverse auction and the repacking process, all full power and Class A licensees will be prohibited from communicating directly or indirectly any reverse or forward auction applicant’s bids or bidding strategies to any other full power or Class A licensee or forward auction applicant. The FCC will share forward auction proceeds with licensees that relinquish rights in the reverse auction as soon as practicable following the successful conclusion of the incentive auction. The FCC will reimburse costs reasonably incurred by television stations that are reassigned to new channels in the repacking process. The FCC will grandfather existing broadcast station combinations that otherwise would no longer comply with the media ownership rules as a result of the reverse auction. The Company has timely filed an application to participate in the reverse auction.

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The Company pays for the use of music broadcast on its stations by obtaining licenses from organizations called performing rights societies, e.g. Broadcast Music, Inc. (“BMI”), which, in turn pay composers, authors and publishers for their works. Federal law grants a performance right for sound recordings in favor of recording companies and performing artists for non-interactive digital transmissions and Internet radio. As a result, users of music, including the Company, are required to pay royalties for these uses through Sound Exchange, a non-profit performance rights organization. In 2009, a bill, H.R. 848, the Performance Rights Act, was introduced in Congress, but did not pass in the 111 th Congress. If passed, this bill would have required the Company to pay additional fees to an organization called MusicFirst which would distribute the money to other entities. Efforts continue by MusicFirst to persuade Congress to enact a law that would require such payments. We cannot predict whether such a law might be enacted. Should such a law be enacted, it would impose an additional financial burden on the Company, but the extent of the burden would depend on how the fee payment requirement was structured.

On January 3, 2013, the FCC released the Sixth Further Notice of Proposed Rulemaking , which sought comment on the requirement that persons with attributable interests in broadcast licensees and other entities filing an FCC Ownership Report provide an “FCC Registration Number” (“FRN”) linked to their social security numbers. Questions had been raised about the security of the FCC’s Registration System where this data would be stored. On January 20, 2016, the FCC released its Report and Order, Second Report and Order and Order on Reconsideration, that implemented a Restricted Use FRN (RUFRN) that individuals may use solely for the purpose of broadcast ownership report filings. The FCC stated its belief that the RUFRN will allow for sufficient unique identification of individuals listed on broadcast ownership reports without necessitating the disclosure to the Commission of individuals’ full Social Security Numbers (SSNs). The FCC eliminated the availability of the Special Use FRN (SUFRN) for broadcast station ownership reports, except in very limited circumstances. The FCC is also seeking comment on whether to expand the biennial ownership reporting requirement to include interests, entities and individuals that are not attributable because of (a) the single majority shareholder exemption and (b) the exemption for interests held in eligible entities pursuant to the higher EDP threshold. The Company has utilized the single majority shareholder exemption in reporting ownership interests in the Company. The Company cannot predict whether these proposals will be adopted, and if so, whether information provided by those persons with a reportable attributable interest in the Company will be secure.

Proposed Changes. The FCC has under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect us and the operation and ownership of our broadcast properties. Application processing rules adopted by the FCC might require us to apply for facilities modifications to our standard broadcast stations in future “window” periods for filing applications or result in the stations being “locked in” with their present facilities. The FCC is authorized to use auctions for the allocation of radio broadcast spectrum frequencies for commercial use. The implementation of this law could require us to bid for the use of certain frequencies.

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Executive Officers

Our current executive officers are:

Name |  | Age |  | Position
Edward K. Christian |  | 71 |  | President, Chief Executive Officer and Chairman; Director
Warren S. Lada |  | 61 |  | Chief Operating Officer
Samuel D. Bush |  | 58 |  | Senior Vice President, Treasurer and Chief Financial Officer
Marcia K. Lobaito |  | 67 |  | Senior Vice President, Corporate Secretary, and Director of Business Affairs
Catherine A. Bobinski |  | 56 |  | Senior Vice President/Finance, Chief Accounting Officer and Corporate Controller

Officers are elected annually by our Board of Directors and serve at the discretion of the Board. Set forth below is information with respect to our executive officers.

Mr. Christian has been President, Chief Executive Officer and Chairman since our inception in 1986.

Mr. Lada has been Chief Operating Officer since March 2016. He was Executive Vice President, Operations since from 2012 to 2016. He was Senior Vice President, Operations from 2000 to 2012 and Vice President, Operations from 1997 to 2000. From 1992 to 1997 he was Regional Vice President of our subsidiary, Saga Communications of New England, Inc.

Mr. Bush has been Senior Vice President since 2002 and Chief Financial Officer and Treasurer since September 1997. He was Vice President from 1997 to 2002. From 1988 to 1997 he held various positions with the Media Finance Group at AT&T Capital Corporation, including senior vice president.

Ms. Lobaito has been Senior Vice President since 2005, Director of Business Affairs and Corporate Secretary since our inception in 1986 and Vice President from 1996 to 2005.

Ms. Bobinski has been Senior Vice President/Finance since March 2012 and Chief Accounting Officer and Corporate Controller since September 1991. She was Vice President from March 1999 to March 2012. Ms. Bobinski is a certified public accountant.

Item 1A. Risk Factors

The more prominent risks and uncertainties inherent in our business are described in more detail below. However, these are not the only risks and uncertainties we face. Our business may face additional risks and uncertainties that are unknown to us at this time.

Global Economic Conditions and Uncertainties May Continue to Affect our Business

We derive revenues from the sale of advertising and expenditures by advertisers tend to be cyclical and are reflective of economic conditions. Periods of a slowing economy, recession or economic uncertainty may be accompanied by a decrease in advertising. The global economic downturn that began in 2008 caused a decline in advertising and marketing by our customers, which had an adverse effect on our revenue, profit margins and cash flows. Global economic conditions have been slow to recover and remain uncertain. There can be no assurance that any of the recent economic improvements will be broad based and sustainable, or that they will enhance conditions in markets relevant to us. If economic conditions do not continue to improve, economic uncertainty increases or economic conditions deteriorate again; global economic conditions may once again adversely impact our business. Due to the continued uncertain pace of economic growth, we cannot predict future revenue trends. Further, there can be no assurance that we will not experience future adverse effects that may be material to our cash flows, competitive position, financial condition, results of operations, or our ability to access capital.

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The volatility in global financial markets may also limit our ability to access the capital markets at a time when we would like, or need, to do so, which could have an impact on our flexibility to react to changing economic and business conditions. Accordingly, if the economy does not fully recover or worsens, our business, results of operations and financial condition could be materially and adversely affected.

We Have Substantial Indebtedness and Debt Service Requirements

At December 31, 2015 our long-term debt (including our guarantee of debt of Surtsey Media, LLC) was approximately $36,365,000. We have borrowed and expect to continue to borrow to finance acquisitions and for other corporate purposes. Because of our indebtedness, a portion of our cash flow from operations is required for debt service. Our leverage could make us vulnerable to an increase in interest rates, a downturn in our operating performance, or a decline in general economic conditions. The term loan principal under our credit facility amortizes in equal installments of 5% of the term loan during each year, however, upon satisfaction of certain conditions, as defined in the credit facility, no amortization payment is required. The credit facility is also subject to mandatory prepayment requirements, including but not limited to, certain sales of assets, certain insurance proceeds, certain debt issuances and certain sales of equity. Any outstanding balance under the credit facility will be due on the maturity date of August 18, 2020. We believe that cash flows from operations will be sufficient to meet our debt service requirements for interest and scheduled payments of principal under the credit facility. 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. We cannot be sure that we would be able to effect any such transactions on favorable terms, if at all.

Our Debt Covenants Restrict our Financial and Operational Flexibility

Our credit facility contains a number of financial covenants 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. Our ability to meet these financial ratios can be affected by operating performance or other events beyond our control, and we cannot assure you that we will meet those ratios. Certain events of default under our credit facility could allow the lenders to declare all amounts outstanding to be immediately due and payable and, therefore, could have a material adverse effect on our business. 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.

We Depend on Key Personnel

Our business is partially dependent upon the performance of certain key individuals, particularly Edward K. Christian, our President and CEO. Although we have entered into employment and non-competition agreements with Mr. Christian, which terminate on March 31, 2021, and certain other key personnel, including on-air personalities, we cannot be sure that such key personnel will remain with us. We do not maintain key man life insurance on Mr. Christian’s life. We can give no assurance that all or any of these employees will remain with us or will retain their audiences. Many of our key employees are at-will employees who are under no legal obligation to remain with us. Our competitors may choose to extend offers to any of these individuals on terms which we may be unwilling to meet. In addition, any or all of our key employees may decide to leave for a variety of personal or other reasons beyond our control. Furthermore, the popularity and audience loyalty of our key on-air personalities is highly sensitive to rapidly changing public tastes. A loss of such popularity or audience loyalty is beyond our control and could limit our ability to generate revenues.

We Depend on Key Stations

Historically our top six markets when combined represented 44%, 43% and 44% of our net operating revenue for the years ended December 31, 2015, 2014 and 2013, respectively. Accordingly, we may have greater exposure to adverse events or conditions that affect the economy in any of these markets, which could have a material adverse effect on our revenue, results of operations and financial condition.

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Local and National Economic Conditions May Affect our Advertising Revenue

Our financial results are dependent primarily on our ability to generate advertising revenue through rates charged to advertisers. The advertising rates a station is able to charge are affected by many factors, including the general strength of the local and national economies. Generally, advertising declines during periods of economic recession or downturns in the economy. Our revenue has been and is likely to be adversely affected during such periods, whether they occur on a national level or in the geographic markets in which we operate. During such periods we may also be required to reduce our advertising rates in order to attract available advertisers. Such a decline in advertising rates could also have a material adverse effect on our revenue, results of operations and financial condition.

Our Stations Must Compete for Advertising Revenues in Their Respective Markets

Both radio and television broadcasting are highly competitive businesses. Our stations compete for listeners/viewers and advertising revenues within their respective markets directly with other radio and/or television stations, as well as with other media, such as broadcast television and/or radio (as applicable), cable television and/or radio, satellite television and/or satellite radio systems, newspapers, magazines, direct mail, the Internet, coupons and billboard advertising. Audience ratings and market shares are subject to change, and any change in a particular market could have a material adverse effect on the revenue of our stations located in that market. While we already compete in some of our markets with other stations with similar programming formats, if another radio station in a market were to convert its programming format to a format similar to one of our stations, if a new station were to adopt a comparable format or if an existing competitor were to strengthen its operations, our stations could experience a reduction in ratings and/or advertising revenue and could incur increased promotional and other expenses. Other radio or television broadcasting companies may enter into the markets in which we operate or may operate in the future. These companies may be larger and have more financial resources than we have. We cannot assure you that any of our stations will be able to maintain or increase their current audience ratings and advertising revenues.

Our Success Depends on our Ability to Identify, Consummate and Integrate Acquired Stations

As part of our strategy, we have pursued and may continue to pursue acquisitions of additional radio and television stations, subject to the terms of our credit facility. Broadcasting is a rapidly consolidating industry, with many companies seeking to consummate acquisitions and increase their market share. In this environment, we compete and will continue to compete with many other buyers for the acquisition of radio and television stations. Some of those competitors may be able to outbid us for acquisitions because they have greater financial resources. As a result of these and other factors, our ability to identify and consummate future acquisitions is uncertain.

Our consummation of all future acquisitions is subject to various conditions, including FCC and other regulatory approvals. The FCC must approve any transfer of control or assignment of broadcast licenses. In addition, acquisitions may encounter intense scrutiny under federal and state antitrust laws. Our future acquisitions may be subject to notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and to a waiting period and possible review by the Department of Justice and the Federal Trade Commission. Any delays, injunctions, conditions or modifications by any of these federal agencies could have a negative effect on us and result in the abandonment of all or part of attractive acquisition opportunities. We cannot predict whether we will be successful in identifying future acquisition opportunities or what the consequences will be of any acquisitions.

Certain of our acquisitions may prove unprofitable and fail to generate anticipated cash flows. In addition, the success of any completed acquisition will depend on our ability to effectively integrate the acquired stations. The process of integrating acquired stations may involve numerous risks, including difficulties in the assimilation of operations, the diversion of management’s attention from other business concerns, risk of entering new markets, and the potential loss of key employees of the acquired stations.

Future Impairment of our FCC Broadcasting Licenses Could Affect our Operating Results

As of December 31, 2015, our FCC broadcasting licenses represented 43.1% of our total assets. We are required to test our FCC broadcasting licenses for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that our FCC broadcasting licenses might be impaired which may result in future impairment losses. For further discussion, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates included with this Form 10-K.

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Our Business is Subject to Extensive Federal Regulation

The broadcasting industry is subject to extensive federal regulation which, among other things, requires approval by the FCC of transfers, assignments and renewals of broadcasting licenses, limits the number of broadcasting properties that may be acquired within a specific market, and regulates programming and operations. For a detailed description of the material regulations applicable to our business, see “Federal Regulation of Radio and Television Broadcasting” and “Other FCC Requirements” in Item 1 of this Form 10-K. Failure to comply with these regulations could, under certain circumstances and among other things, result in the denial or revocation of FCC licenses, shortened license renewal terms, monetary fines or other penalties which would adversely affect our profitability. Changes in ownership requirements could limit our ability to own or acquire stations in certain markets.

New Federal Regulations or Fees Could Affect our Broadcasting Operations

There has been proposed legislation in the past and there could be again in the future that requires radio broadcasters to pay additional fees such as a spectrum fee for the use of the spectrum or a royalty fee to record labels and performing artists for use of their recorded music. Currently, we pay royalties to song composers, publishers, and performers indirectly through third parties. Any proposed legislation that is adopted into law could add an additional layer of royalties to be paid directly to the record labels and artists. While this proposed legislation did not become law, it has been the subject of considerable debate and activity by the broadcast industry and other parties affected by the legislation. It is currently unknown what impact any potential required royalty payments would have on our results of operations, cash flows or financial position.

The FCC May Decide to Terminate “Grandfathered” Time Brokerage Agreements

The FCC attributes time brokerage agreements and local marketing agreements to the programmer under its ownership limits if the programmer provides more than 15% of a station’s weekly broadcast programming. However, TBAs entered into prior to November 5, 1996 are exempt from attribution for now.

The FCC will review these “grandfathered” TBAs in the future. During this review, the FCC may determine to terminate the “grandfathered” period and make all TBAs fully attributable to the programmer. If the FCC does so, we and Surtsey will be required to terminate the TBAs for station KVCT-TV unless the FCC simultaneously change its duopoly rules to allow ownership of two stations in the applicable markets.

FCC Regulations May Restrict our Ability to Create Duopolies under Joint Service Agreements, which Could Harm our Existing Operations

In our Joplin market, we have created a duopoly by entering into a joint sales agreement (“JSA”). The FCC is required to review its media ownership rules every four years and eliminate those rules it finds no longer serve the “public interest, convenience and necessity.” In March 2014, the FCC initiated its 2014 quadrennial review with the adoption of a Further Notice of Proposed Rulemaking (FNPRM). Concurrent with its adoption of the FNPRM, the FCC adopted a rule making television JSAs attributable ownership interests to the seller of advertising time in certain circumstances. Under this rule, where a party owns a full-power television station in a market and sells more than 15% of the weekly advertising time for another, non-owned station in the same market under a JSA, that party will be deemed to have an attributable ownership interest in the latter station for purposes of the local television ownership rule. Parties to existing JSAs that do not comply with the newly adopted rule were given two years from the effective date of this new rule to modify or terminate their JSAs to come into compliance. This rule became effective on June 19, 2014. However, as a result of action by the U.S. Congress in 2015, stations that have a television JSA signed before the release of FNPRM will have until October 1, 2025, to ensure that the agreement complies with the Commission’s media ownership rules or to come into compliance with the media ownership results by another means. Although the FCC will consider waivers of the new JSA attribution rule, the FCC thus far has not granted such a waiver and has provided little guidance on what factors must be present for a waiver to be granted. This new rule may require us to amend or terminate our existing JSA with Surtsey for periods following October 1, 2025. For further details on the quadrennial review see “Federal Regulation of Radio and Television Broadcasting” in Item 1 of this Form 10-K

The FCC’s Vigorous Enforcement of Indecency Rules Could Affect our Broadcasting Operations

Federal law regulates the broadcast of obscene, indecent or profane material. The FCC has increased its enforcement efforts relating to the regulation of indecency violations, and Congress has increased the penalties for broadcasting obscene, indecent or profane programming, and these penalties may potentially subject broadcasters to license revocation, renewal or qualification proceedings in the event that they broadcast such material. In addition, the FCC’s heightened focus on the indecency regulations against the broadcast industry may encourage third parties to oppose our license renewal applications or applications for consent to acquire broadcast stations. Because the FCC may investigate indecency complaints prior to notifying a licensee of the existence of a complaint, a licensee may not have knowledge of a complaint unless and until the complaint results in the issuance of a formal FCC letter of inquiry or notice of apparent liability for forfeiture. We may in the future become subject to inquiries or proceedings related to our stations’ broadcast of obscene, indecent or profane material. To the extent that any inquiries or other proceedings result in the imposition of fines, a settlement with the FCC, revocation of any of our station licenses or denials of license renewal applications, our result of operations and business could be materially adversely affected.

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New Technologies May Affect our Broadcasting Operations

The FCC has and is considering ways to introduce new technologies to the broadcasting industry, including satellite and terrestrial delivery of digital audio broadcasting and the standardization of available technologies which significantly enhance the sound quality of AM broadcasters. We are unable to predict the effect such technologies may have on our broadcasting operations. The capital expenditures necessary to implement such technologies could be substantial. Moreover, the FCC may impose additional public service obligations on television broadcasters in return for their use of the digital television spectrum. This could add to our operational costs. One issue yet to be resolved is the extent to which cable systems will be required to carry broadcasters’ new digital channels. Our television stations are highly dependent on their carriage by cable systems in the areas they serve. FCC rules that impose no or limited obligations on cable systems to carry the digital television signals of television broadcast stations in their local markets could adversely affect our television operations.

New Laws or Regulations that Eliminate or Limit the Scope of our Cable Coverage Rights or Affect How We Negotiate Our Agreements, Could Have a Material Adverse Impact on our Television Operations

We no longer rely on “must carry” to obtain the retransmission of our full-power television stations on MVPDs. New laws or regulations could affect retransmission consent rights and the negotiation process between broadcasters and MVPDs and this may affect our negotiating strategies and the economic results we achieve in such negotiations.

Our low-power television stations do not have MVPD “must carry” rights. Some of our low-power television stations are carried on cable systems as they provide broadcast programming the cable systems desires and are part of the retransmission consent agreements we are party to. Where MVPDs are not contractually required to carry out low-power stations, we may face future uncertainty with respect to the availability of MVPD carriage for our low-power stations.

Retransmission Consent Agreements May be Terminated or Not Extended Following Their Current Termination Dates

We are also dependent, in significant part, on our retransmission consent agreements. Our current retransmission consent agreements expire at various times over the next several years. No assurances can be provided that we will be able to renegotiate all of such agreements on favorable terms, on a timely basis, or at all. The failure to negotiate future retransmission consent agreements could have a material adverse effect on our business and results of operations.

Our ability to successfully negotiate future retransmission consent agreements may be hindered by potential legislative or regulatory charges to the framework under which these agreements are negotiated.

Retransmission Consent Revenue May Not Continue to Grow at Recent Rages and are Subject to Reverse Network Compensation

While we expect the amount of revenues generated from our retransmission consent agreements to continue to grow in the near-term and beyond, the rate of growth of such revenue may not continue at recent and current rates and may be detrimentally affected by network program suppliers seeking increased reverse network compensation and growing concentration in the cable television industry that may result in the amounts that cable operators are willing to pay for programming.

The Company is Controlled by our President, Chief Executive Officer and Chairman

As of March 3, 2016, Edward K. Christian, our President, Chief Executive Officer and Chairman, holds approximately 63% of the combined voting power of our Common Stock (not including options to acquire Class B Common Stock and based on Class B shares generally entitled to ten votes per share). As a result, Mr. Christian generally is able to control the vote on most matters submitted to the vote of stockholders and, therefore, is able to direct our management and policies, except with respect to (i) the election of the two Class A directors, (ii) those matters where the shares of our Class B Common Stock are only entitled to one vote per share, and (iii) other matters requiring a class vote under the provisions of our certificate of incorporation, bylaws or applicable law. For a description of the voting rights of our Common Stock, see Note 11 of the Notes to Consolidated Financial Statements included with this Form 10-K. Without the approval of Mr. Christian, we will be unable to consummate transactions involving an actual or potential change of control, including transactions in which stockholders might otherwise receive a premium for their shares over then-current market prices.

We May Experience Volatility in the Market Price of our Common Stock

The market price of our common stock has fluctuated in the past and may continue to be volatile. In addition to stock market fluctuations due to economic or other factors, the volatility of our shares may be influenced by lower trading volume and concentrated ownership relative to many of our publicly-held competitors. Because several of our shareholders own significant portions of our outstanding shares, our stock is relatively less liquid and therefore more susceptible to price fluctuations than many other companies’ shares. If these shareholders were to sell all or a portion of their holdings of our common stock, then the market price of our common stock could be negatively affected. Investors should be aware that they could experience short-term volatility in our stock if such shareholders decide to sell all or a portion of their holdings of our common stock at once or within a short period of time.

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Information technology failures or data security breaches could harm our business

Any internal technology error or failure impacting systems hosted internally or externally, or any large scale external interruption in technology infrastructure we depend on, such as power, telecommunications or the Internet, may disrupt our technology network. Any individual, sustained or repeated failure of technology could impact our customer service and result in increased costs or reduced revenues. Our technology systems and related data also may be vulnerable to a variety of sources of interruption due to events beyond our control, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues. While we have in place, and continue to invest in, technology security initiatives and disaster recovery plans, these measures may not be adequate or implemented properly to prevent a business disruption and its adverse financial and consequences to our business' reputation.

In addition, as a part of our ordinary business operations, we may collect and store sensitive data, including personal information of our clients, listeners and employees. The secure operation of the networks and systems on which this type of information is stored, processed and maintained is critical to our business operations and strategy. Any compromise of our technology systems resulting from attacks by hackers or breaches due to employee error or malfeasance could result in the loss, disclosure, misappropriation of or access to clients’, listeners’, employees’ or business partners’ information. Any such loss, disclosure, misappropriation or access could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations and damage our reputation, any or all of which could adversely affect our business.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters is located in Grosse Pointe Farms, Michigan. The types of properties required to support each of our stations include offices, studios, and transmitter and antenna sites. A station’s studios are generally housed with its offices in business districts. The transmitter sites and antenna sites are generally located so as to provide maximum market coverage for our stations’ broadcast signals.

As of December 31, 2015 the studios and offices of 26 of our 28 operating locations, including our corporate headquarters in Michigan, are located in facilities we own. The remaining studios and offices are located in leased facilities with lease terms that expire in 8 months to 9 years. We own or lease our transmitter and antenna sites, with lease terms that expire in 3 months to 74 years. We do not anticipate any difficulties in renewing those leases that expire within the next five years or in leasing other space, if required.

No one property is material to our overall operations. We believe that our properties are in good condition and suitable for our operations.

We own substantially all of the equipment used in our broadcasting business.

Item 3. Legal Proceedings

The Company is subject to various outstanding claims which arise in the ordinary course of business and to other legal proceedings. Management anticipates that any potential liability of the Company, which may arise out of or with respect to these matters, will not materially affect the Company’s financial statements.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

On January 16, 2013 the Company consummated a four-for-three stock split of its Class A and Class B Common Stock, resulting in an increase of issued and outstanding shares of approximately 1,219,000 and 199,000, respectively, for holders of record as of the close of business on December 28, 2012.

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The Company’s Class A Common Stock trades on the NYSE MKT under the ticker symbol SGA. There is no public trading market for the Company’s Class B Common Stock. The following table sets forth the high and low sales prices of the Class A Common Stock as reported by the NYSE MKT for the calendar quarters indicated (prices for periods prior to the four-for-three stock split are adjusted for such split) :

Year |  | High |  |  | Low |
2014: |  |  |  |  |  |  |  |
First Quarter |  | $ | 55.00 |  |  | $ | 42.28 |
Second Quarter |  | $ | 50.93 |  |  | $ | 36.76 |
Third Quarter |  | $ | 43.92 |  |  | $ | 33.58 |
Fourth Quarter |  | $ | 45.49 |  |  | $ | 34.57 |
2015: |  |  |  |  |  |  |  |
First Quarter |  | $ | 45.61 |  |  | $ | 38.75 |
Second Quarter |  | $ | 43.15 |  |  | $ | 37.51 |
Third Quarter |  | $ | 40.80 |  |  | $ | 33.53 |
Fourth Quarter |  | $ | 48.09 |  |  | $ | 33.57 |

The closing price for the Company’s Class A Common Stock on March 3, 2016 as reported by the NYSE MKT was $39.92. As of March 3, 2015, there were approximately 180 holders of record of the Company’s Class A Common Stock, and one holder of the Company’s Class B Common Stock.

Dividends

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 shares. 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 17, 2015 to shareholders of record on April 6, 2015.

On December 3, 2014 the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per share and a special cash dividend of $1.20 per share on its Classes A and B Common Stock. This dividend totaling $8.2 million was paid on December 29, 2014 to shareholders of record on December 15, 2014.

On September 23, 2014 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 $1.1 million was paid on October 17, 2014 to shareholders of record on October 3, 2014.

On June 30, 2014 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 $1.1 million was paid on July 25, 2014 to shareholders of record on July 11, 2014.

On November 21, 2013 the Company’s Board of Directors declared a special cash dividend of $1.80 per share on its Classes A and B Common Stock. This dividend totaling $10.3 million was paid on December 12, 2013 to shareholders of record on December 2, 2013.

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Securities Authorized for Issuance Under Equity Compensation Plan Information

The following table sets forth as of December 31, 2015, the number of securities outstanding under our equity compensation plans, the weighted average exercise price of such securities and the number of securities available for grant under these plans:

|  | (a) |  |  | (b) |  |  | (c) |
|  |  |  |  |  |  |  | Number of Securities |
|  |  |  |  |  |  |  | Remaining Available for |
|  | Number of Shares to |  |  |  |  |  | Future Issuance |
|  | be Issued Upon |  |  | Weighted-Average |  |  | Under Equity |
|  | Exercise of Outstanding |  |  | Exercise Price of Outstanding Options, |  |  | Compensation Plans |
Plan Category |  | Options Warrants, and Rights |  |  | Warrants and Rights |  |  | (Excluding Column (a)) |
Equity Compensation Plans Approved by Stockholders: |  |  |  |  |  |  |  |  |  |  |  |
Employees’ 401(k) Savings and Investment Plan |  |  | — |  |  | $ | — |  |  |  | 421,376 |
2003 Stock Option Plan |  |  | — |  |  | $ | — |  |  |  | — |
2005 Incentive Compensation Plan |  |  | 135,824 | (1) |  | $ | 28.47 | (2) |  |  | 464,565 |
Equity Compensation Plans Not Approved by Stockholders: |  |  |  |  |  |  |  |  |  |  |  |
None |  |  | — |  |  |  |  |  |  |  | — |
Total |  |  | 135,824 |  |  |  |  |  |  |  | 885,941 |

| (1) | Includes 106,789 shares of restricted stock.

| (2) | Weighted-Average Exercise Price of Outstanding Options.

Recent Sales of Unregistered Securities

Not applicable.

Issuer Purchases of Equity Securities

The following table summarizes our repurchases of our Class A Common Stock during the three months ended December 31, 2015. All shares repurchased during the quarter were from the retention of shares for the payment of withholding taxes related to the vesting of restricted stock.

|  |  |  |  |  |  |  |  |  |  | Approximate |
|  |  |  |  |  |  |  | Total Number |  |  | Dollar |
|  |  |  |  |  |  |  | of |  |  | Value of |
|  |  |  |  |  |  |  | Shares |  |  | Shares |
|  |  |  |  |  |  |  | Purchased |  |  | that May Yet |
|  |  |  |  | Average |  |  | as Part of |  |  | be |
|  | Total Number |  |  | Price |  |  | Publicly |  |  | Purchased |
|  | of Shares |  |  | Paid per |  |  | Announced |  |  | Under the |
Period |  | Purchased |  |  | Share |  |  | Program |  |  | Program(a) |
October 1 - October 31, 2015 |  |  | - |  |  | $ | - |  |  |  | - |  |  | $ | 25,447,212 |
November 1 – November 30, 2015 |  |  | 12,280 |  |  | $ | 42.55 |  |  |  | 522,514 |  |  | $ | 24,924,698 |
December 1 – December 31, 2015 |  |  | - |  |  | $ | - |  |  |  | - |  |  | $ | 24,924,698 |
Total |  |  | 12,280 |  |  | $ | 42.55 |  |  |  | 522,514 |  |  | $ | 24,924,698 |

| (a) | We have a Stock Buy-Back Program which allows us to purchase our Class A Common Stock. In February 2013, our Board of Directors authorized an increase in the amount committed to the Buy-Back Program from $60 million to approximately $75.8 million.

| 28 |

Performance Graph

COMMON STOCK PERFORMANCE

Set forth below is a line graph comparing the cumulative total stockholder return for the years ended December 31, 2011, 2012, 2013, 2014 and 2015 of our Class A Common Stock against the cumulative total return of the NYSE MKT Stock Market (US Companies) and a New Peer Group selected by us consisting of the following radio and/or television broadcast companies: Beasley Broadcast Group, Inc., CBS Corp., CC Media Holdings, Inc., Cumulus Media Inc., Emmis Communications Corp., Entercom Communications Corp., Entravision Communications Corp., The E.W. Scripps Company, The Nielsen Company, Radio One Inc., Saga Communications, Inc., Salem Communications Corp., Sirius XM Radio Inc., Spanish Broadcasting System, Inc., and Townsquare Media, Inc. The Old Peer Group consisted of the following radio and/or television broadcast companies: Beasley Broadcast Group, Inc., CBS Corp., CC Media Holdings, Inc., Cumulus Media Inc., Emmis Communications Corp., Entercom Communications Corp., Entravision Communications Corp., Journal Communications, Inc., The Nielsen Company, Radio One Inc., Saga Communications, Inc., Salem Communications Corp., Sirius XM Radio Inc. and Spanish Broadcasting System, Inc. The change to the New Peer Group in 2015 was due to providing a more comparable and similarly aligned Peer Group going forward given mergers and acquisitions within the industry. The graph and table assume that $100 was invested on December 31, 2010, in each of our Class A Common Stock, the NYSE MKT Stock Market (US Companies) and the Peer Group and that all dividends were reinvested. The information contained in this graph shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.

Legend

Symbol |  | Total Return For: |  | 12/10 |  | 12/11 |  |  | 12/12 |  |  | 12/13 |  |  | 12/14 |  |  | 12/15 |
|  | Saga Communications Inc. |  | 100.00 |  |  | 143.79 |  |  |  | 186.14 |  |  |  | 277.80 |  |  |  | 251.01 |  |  |  | 228.23 |
|  | NYSE MKT Stock Market (US Companies) |  | 100.00 |  |  | 91.23 |  |  |  | 100.21 |  |  |  | 110.47 |  |  |  | 116.09 |  |  |  | 90.28 |
|  | New Peer Group |  | 100.00 |  |  | 125.53 |  |  |  | 166.60 |  |  |  | 256.56 |  |  |  | 239.30 |  |  |  | 234.50 |
|  | Old Peer Group |  | 100.00 |  |  | 114.85 |  |  |  | 152.35 |  |  |  | 233.94 |  |  |  | 218.27 |  |  |  | 215.04 |

The comparisons in the above table are required by the SEC. This table is not intended to forecast or to be indicative of any future return of our Class A Common Stock.

| 29 |

Item 6. Selected Financial Data

|  | Years Ended December 31, |
|  | 2015(5) |  |  | 2014(3)(4) |  |  | 2013 (1)(2) |  |  | 2012 (1)(2) |  |  | 2011 (1)(2) |
|  | (In thousands except per share amounts) |
OPERATING DATA: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net Operating Revenue |  | $ | 132,856 |  |  | $ | 133,998 |  |  | $ | 129,478 |  |  | $ | 130,259 |  |  | $ | 125,273 |
Station Operating Expense |  |  | 97,268 |  |  |  | 98,424 |  |  |  | 92,977 |  |  |  | 90,288 |  |  |  | 90,929 |
Corporate General and Administrative |  |  | 10,091 |  |  |  | 8,901 |  |  |  | 8,172 |  |  |  | 7,960 |  |  |  | 7,590 |
Other operating (income) expense |  |  | 541 |  |  |  | (1,210 | ) |  |  | — |  |  |  | — |  |  |  | — |
Impairment of Intangible Assets |  |  | 874 |  |  |  | 1,936 |  |  |  | 2,033 |  |  |  | — |  |  |  | — |
Operating Income From Continuing Operations |  | $ | 24,082 |  |  | $ | 25,947 |  |  | $ | 26,296 |  |  | $ | 32,011 |  |  | $ | 26,754 |
Interest Expense |  | $ | 888 |  |  | $ | 1,064 |  |  | $ | 1,305 |  |  | $ | 1,733 |  |  | $ | 3,420 |
Net Income (Loss): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
From Continuing Operations |  | $ | 13,414 |  |  | $ | 14,904 |  |  | $ | 15,050 |  |  | $ | 18,060 |  |  | $ | 12,885 |
From Discontinued Operations |  |  | — |  |  |  | — |  |  |  | 223 |  |  |  | (135 | ) |  |  | (254 | )
Net Income (Loss) |  | $ | 13,414 |  |  | $ | 14,904 |  |  | $ | 15,273 |  |  | $ | 17,925 |  |  | $ | 12,631 |
Basic Earnings (Loss) Per Share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
From Continuing Operations |  | $ | 2.31 |  |  | $ | 2.57 |  |  | $ | 2.62 |  |  | $ | 3.19 |  |  | $ | 2.28 |
From Discontinued Operations |  |  | — |  |  |  | — |  |  |  | 0.04 |  |  |  | (0.02 | ) |  |  | (0.04 | )
Earnings (Loss) Per Share |  | $ | 2.31 |  |  | $ | 2.57 |  |  | $ | 2.66 |  |  | $ | 3.17 |  |  | $ | 2.24 |
Weighted Average Common Shares |  |  | 5,706 |  |  |  | 5,700 |  |  |  | 5,681 |  |  |  | 5,659 |  |  |  | 5,651 |
Diluted Earnings (Loss) Per Share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
From Continuing Operations |  | $ | 2.29 |  |  | $ | 2.55 |  |  | $ | 2.60 |  |  | $ | 3.18 |  |  | $ | 2.28 |
From Discontinued Operations |  |  | — |  |  |  | — |  |  |  | 0.04 |  |  |  | (0.02 | ) |  |  | (0.05 | )
Earnings (Loss) Per Share |  | $ | 2.29 |  |  | $ | 2.55 |  |  | $ | 2.64 |  |  | $ | 3.16 |  |  | $ | 2.23 |
Weighted Average Common and Common Equivalent Shares |  |  | 5,740 |  |  |  | 5,753 |  |  |  | 5,745 |  |  |  | 5,672 |  |  |  | 5,656 |
Cash Dividends Declared Per Common Share |  | $ | 1.10 |  |  |  | 1.80 |  |  |  | 1.80 |  |  |  | 1.24 |  |  |  | — |

|  | December 31, |
|  | 2015 |  |  | 2014 |  |  | 2013 |  |  | 2012 |  |  | 2011 |
|  | (In thousands) |
BALANCE SHEET DATA: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Working Capital |  | $ | 33,557 |  |  | $ | 30,554 |  |  | $ | 28,079 |  |  | $ | 27,066 |  |  | $ | 16,322 |
Net Property and Equipment |  | $ | 58,131 |  |  | $ | 55,187 |  |  | $ | 56,337 |  |  | $ | 58,462 |  |  | $ | 60,622 |
Net Intangible and Other Assets |  | $ | 98,545 |  |  | $ | 93,270 |  |  | $ | 94,806 |  |  | $ | 98,434 |  |  | $ | 98,752 |
Total Assets |  | $ | 204,571 |  |  | $ | 192,044 |  |  | $ | 193,224 |  |  | $ | 197,330 |  |  | $ | 190,334 |
Long-term Debt Including Current Portion |  | $ | 36,365 |  |  | $ | 36,078 |  |  | $ | 46,078 |  |  | $ | 58,828 |  |  | $ | 69,078 |
Stockholders’ Equity |  | $ | 122,816 |  |  | $ | 115,245 |  |  | $ | 109,701 |  |  | $ | 104,209 |  |  | $ | 92,975 |

| (1) | In January 2013, the Company consummated a four-for-three stock split of its Class A and Class B Common Stock. All share and per share information prior to the split has been adjusted to reflect the retroactive equivalent change in the weighted average shares.

| (2) | In January 2013, the Company sold WXVT-TV in Greenville, Mississippi. The operating results of WXVT-TV have been reported as discontinued operations for all periods presented.

| (3) | In December 2014, the Company sold the Michigan Radio Network, the Michigan Farm Network, the Minnesota News Network, the Minnesota Farm Network.

| (4) | Reflects the results of WFIZ-FM, acquired in January 2014.

| (5) | Reflects the results of WSVA-AM, WHBG-AM, WQPO-FM, WWRE-FM, and WMQR-FM acquired in August 2015 and WSIG-FM acquired in September 2015. In December 2015 the Company disposed of the Illinois Radio Network.

| 30 |

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, Item 6. Selected Financial Data and the consolidated financial statements and notes thereto of Saga Communications, Inc. and its subsidiaries contained elsewhere herein. The following discussion is presented on both a consolidated and segment basis. Corporate general and administrative expenses, interest expense, write-off debt issuance costs, other (income) expense, and income tax provision are managed on a consolidated basis and are reflected only in our discussion of consolidated results.

For purposes of business segment reporting, we have aligned operations with similar characteristics into two business segments: Radio and Television. The Radio segment includes twenty-four markets, which includes all ninety-nine of our radio stations and one Radio News Network that we disposed of on December 31, 2015. The Television segment includes two markets and consists of four television stations and five low power television (“LPTV”) stations. The discussion of our operating performance focuses on segment operating income because we manage our segments primarily on 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 broadcast company primarily engaged in acquiring, developing and operating broadcast properties. We actively seek and explore opportunities for expansion through the acquisition of additional broadcast properties. We review acquisition opportunities on an ongoing basis.

Radio Segment

Our radio segment’s 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 markets’ sales staff. For the years ended December 31, 2015, 2014 and 2013, approximately 89%, 88% and 88%, respectively, of our radio segment’s 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 significantly decreased in 2013 and 2015 as they were non-election years. In 2014 we had significant increases in revenue due the number of congressional, senatorial, gubernatorial and local elections in most of our markets.

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.

| 31 |

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.

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, 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 are continuing to expand our digital initiative to provide a seamless experience across numerous platforms allowing our listeners and viewers to connect with our products where and when they want. We continue to create opportunities through targeted digital advertising and an array of digital services that include online promotions, mobile messaging, and email marketing.

In addition, we continue the rollout of HD radio™. HD radio™ utilizes digital technology that provides improved sound quality over standard analog broadcasts and also allows for the delivery of additional channels of diversified programming or data streaming in each radio market.

| 32 |

During the years ended December 31, 2015, 2014 and 2013, our Columbus, Ohio; Des Moines, Iowa; Manchester, New Hampshire; Milwaukee, Wisconsin and Norfolk, Virginia markets, when combined, represented approximately 34%, 34%, and 34%, 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, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
Market: |  |  |  |  |  |  |  |  |  |  |  |
Columbus, Ohio |  |  | 7 | % |  |  | 7 | % |  |  | 7 | %
Des Moines, Iowa |  |  | 7 | % |  |  | 6 | % |  |  | 7 | %
Manchester, New Hampshire |  |  | 5 | % |  |  | 5 | % |  |  | 5 | %
Milwaukee, Wisconsin |  |  | 10 | % |  |  | 11 | % |  |  | 10 | %
Norfolk, Virginia |  |  | 5 | % |  |  | 5 | % |  |  | 5 | %

During the years ended December 31, 2015, 2014 and 2013, the radio stations in our five largest markets when combined, represented approximately 36%, 32% and 39%, 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, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
Market: |  |  |  |  |  |  |  |  |  |  |  |
Columbus, Ohio |  |  | 8 | % |  |  | 7 | % |  |  | 8 | %
Des Moines, Iowa |  |  | 6 | % |  |  | 5 | % |  |  | 5 | %
Manchester, New Hampshire |  |  | 7 | % |  |  | 7 | % |  |  | 8 | %
Milwaukee, Wisconsin |  |  | 11 | % |  |  | 10 | % |  |  | 11 | %
Norfolk, Virginia |  |  | 4 | % |  |  | 3 | % |  |  | 7 | %

| (*) | Operating income plus corporate general and administrative expenses, depreciation and amortization, other operating (income) expenses, and impairment of intangible assets.

| 33 |

Television Segment

Our television segment’s primary source of revenue is from the sale of advertising for broadcast on our stations. The number of advertisements available for broadcast on our television stations is limited by network affiliation and syndicated programming agreements and, with respect to children’s programs, federal regulation. Our television stations’ local market managers determine the number of advertisements to be broadcast in locally produced programs only, which are primarily news programming and occasionally local sports or information shows.

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, available television advertising revenue in that particular market, and the popularity of programming being broadcast.

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, as measured principally by periodic reports by independent national rating services. 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 through locally produced news, sports and weather and as a result of syndication and network affiliation agreements, local market competition, the ability of television broadcasting to reach a mass appeal market compared to other advertising media, and signal strength including cable/satellite coverage, and government regulation and policies.

Our stations strive to maximize revenue by constantly adjusting prices for our commercial spots based upon local market conditions, advertising demands and ratings. While there may be shifts from time to time in the number of advertisements broadcast during a particular time of day, the total number of advertisements broadcast on a 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 pricing adjustments, which are made to ensure that the station efficiently utilizes available inventory.

Because audience ratings in the local market are crucial to a station’s financial success, we endeavor to develop strong viewer loyalty by providing locally produced news, weather and sports programming. We believe that this emphasis on the local market provides us with the viewer loyalty we are trying to achieve.

Most of our revenue is generated from local advertising, which is sold primarily by each television markets’ sales staff. For the years ended December 31, 2015, 2014 and 2013, approximately 85%, 83% and 82%, respectively, of our television segment’s gross revenue was from local advertising. To generate national advertising sales, we engage independent advertising sales representatives that specialize in national sales for each of our television 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 significantly decreased in 2013 and 2015 as they were non-election years. In 2014 we had significant increases in revenue due the number of congressional, senatorial, gubernatorial and local elections in most of our markets.

The primary operating expenses involved in owning and operating television stations are employee salaries, sales commissions, programming expenses, including news production and the cost of acquiring certain syndicated programming, depreciation, and advertising and promotion expenses.

Our television market in Joplin, Missouri represented approximately 10%, 10% and 9% of our net operating revenues, and approximately 13%, 13% and 12% of our consolidated station operating income (operating income plus corporate general and administrative expenses, depreciation and amortization, other operating (income) expenses, and impairment of intangible assets) for the years ended December 31, 2015, 2014 and 2013, respectively.

| 34 |

Results of Operations

The following tables summarize our results of operations for the three years ended December 31, 2015, 2014 and 2013.

Consolidated Results of Operations

|  |  |  |  |  |  |  |  |  |  | 2015 vs. 2014 |  |  | 2014 vs. 2013 |
|  | Years Ended December 31, |  |  | $ Increase |  |  | % Increase |  |  | $ Increase |  |  | % Increase |
|  | 2015 |  |  | 2014 |  |  | 2013 |  |  | (Decrease) |  |  | (Decrease) |  |  | (Decrease) |  |  | (Decrease) |
|  | (In thousands, except %’s and per share information) |
Net operating revenue |  | $ | 132,856 |  |  | $ | 133,998 |  |  | $ | 129,478 |  |  | $ | (1,142 | ) |  |  | (0.9 | )% |  | $ | 4,520 |  |  |  | 3.5 | %
Station operating expense |  |  | 97,268 |  |  |  | 98,424 |  |  |  | 92,977 |  |  |  | (1,156 | ) |  |  | (1.2 | )% |  |  | 5,447 |  |  |  | 5.9 | %
Corporate G&A |  |  | 10,091 |  |  |  | 8,901 |  |  |  | 8,172 |  |  |  | 1,190 |  |  |  | 13.4 | % |  |  | 729 |  |  |  | 8.9 | %
Other operating expense (income), net |  |  | 541 |  |  |  | (1,210 | ) |  |  | — |  |  |  | 1,751 |  |  |  | N/M |  |  |  | (1,210 | ) |  |  | N/M |
Impairment of intangible assets |  |  | 874 |  |  |  | 1,936 |  |  |  | 2,033 |  |  |  | (1,062 | ) |  |  | (54.9 | )% |  |  | (97 | ) |  |  | (4.8 | )%
Operating income from continuing operations |  |  | 24,082 |  |  |  | 25,947 |  |  |  | 26,296 |  |  |  | (1,865 | ) |  |  | (7.2 | )% |  |  | (349 | ) |  |  | (1.3 | )%
Interest expense |  |  | 888 |  |  |  | 1,064 |  |  |  | 1,305 |  |  |  | (176 | ) |  |  | (16.5 | )% |  |  | (241 | ) |  |  | (18.5 | )%
Write-off debt issuance costs |  |  | 557 |  |  |  | — |  |  |  | 55 |  |  |  | 557 |  |  |  | N/M |  |  |  | (55 | ) |  |  | N/M |
Other income |  |  | (417 | ) |  |  | (71 | ) |  |  | (106 | ) |  |  | (346 | ) |  |  | N/M |  |  |  | 35 |  |  |  | 33.0 | %
Income from continuing operations before income tax |  |  | 23,054 |  |  |  | 24,954 |  |  |  | 25,042 |  |  |  | (1,900 | ) |  |  | (7.6 | )% |  |  | (88 | ) |  |  | (0.4 | )%
Income tax provision |  |  | 9,640 |  |  |  | 10,050 |  |  |  | 9,992 |  |  |  | (410 | ) |  |  | (4.1 | )% |  |  | 58 |  |  |  | 0.6 | %
Income from continuing operations, net of income tax |  |  | 13,414 |  |  |  | 14,904 |  |  |  | 15,050 |  |  |  | (1,490 | ) |  |  | (10.0 | )% |  |  | (146 | ) |  |  | (1.0 | )%
Income (loss) from discontinued operations, net of income tax |  |  | — |  |  |  | — |  |  |  | 223 |  |  |  | — |  |  |  | — |  |  |  | (223 | ) |  |  | N/M |
Net income |  | $ | 13,414 |  |  | $ | 14,904 |  |  | $ | 15,273 |  |  | $ | (1,490 | ) |  |  | (10.0 | )% |  | $ | (369 | ) |  |  | (2.4 | )%
Earnings (loss) per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
From continuing operations |  | $ | 2.29 |  |  | $ | 2.55 |  |  | $ | 2.60 |  |  | $ | (0.26 | ) |  |  | (10.2 | )% |  | $ | (0.05 | ) |  |  | (1.9 | )%
From discontinued operations |  |  | — |  |  |  | — |  |  |  | 0.04 |  |  |  | — |  |  |  | — |  |  |  | (0.04 | ) |  |  | N/M |
Earnings per share (fully diluted) |  | $ | 2.29 |  |  | $ | 2.55 |  |  | $ | 2.64 |  |  | $ | (0.26 | ) |  |  | (10.2 | )% |  | $ | (0.09 | ) |  |  | (3.4 | )%

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Radio Broadcasting Segment

|  |  |  |  |  |  |  |  |  |  | 2015 vs. 2014 |  |  | 2014 vs. 2013 |
|  | Years Ended December 31, |  |  | $ Increase |  |  | % Increase |  |  | $ Increase |  |  | % Increase |
|  | 2015 |  |  | 2014 |  |  | 2013 |  |  | (Decrease) |  |  | (Decrease) |  |  | (Decrease) |  |  | (Decrease) |
|  | (In thousands, except %’s) |
Net operating revenue |  | $ | 111,792 |  |  | $ | 113,627 |  |  | $ | 109,818 |  |  | $ | (1,835 | ) |  |  | (1.6 | )% |  | $ | 3,809 |  |  |  | 3.5 | %
Station operating expense |  |  | 83,188 |  |  |  | 85,167 |  |  |  | 79,933 |  |  |  | (1,979 | ) |  |  | (2.3 | )% |  |  | 5,234 |  |  |  | 6.5 | %
Other operating expense (income), net |  |  | 499 |  |  |  | (1,210 | ) |  |  | — |  |  |  | 1,709 |  |  |  | N/M |  |  |  | (1,210 | ) |  |  | N/M |
Impairment of intangible assets |  |  | 874 |  |  |  | 1,936 |  |  |  | 2,033 |  |  |  | (1,062 | ) |  |  | (54.9 | )% |  |  | (97 | ) |  |  | (4.8 | )%
Operating income |  | $ | 27,231 |  |  | $ | 27,734 |  |  | $ | 27,852 |  |  | $ | (503 | ) |  |  | (1.8 | )% |  | $ | (118 | ) |  |  | (0.4 | )%

Television Broadcasting Segment

|  |  |  |  |  |  |  |  |  |  | 2014 vs. 2013 |  |  | 2014 vs. 2013 |
|  | Years Ended December 31, |  |  | $ Increase |  |  | % Increase |  |  | $ Increase |  |  | % Increase |
|  | 2015 |  |  | 2014 |  |  | 2013 |  |  | (Decrease) |  |  | (Decrease) |  |  | (Decrease) |  |  | (Decrease) |
|  | (In thousands, except %’s) |
Net operating revenue |  | $ | 21,064 |  |  | $ | 20,371 |  |  | $ | 19,660 |  |  | $ | 693 |  |  |  | 3.4 | % |  | $ | 711 |  |  |  | 3.6 | %
Station operating expense |  |  | 14,080 |  |  |  | 13,257 |  |  |  | 13,044 |  |  |  | 823 |  |  |  | 6.2 | % |  |  | 213 |  |  |  | 1.6 | %
Other operating expense |  |  | 32 |  |  |  | — |  |  |  | — |  |  |  | 32 |  |  |  | N/M |  |  |  | — |  |  |  | N/M |
Operating income |  | $ | 6,952 |  |  | $ | 7,114 |  |  | $ | 6,616 |  |  | $ | (162 | ) |  |  | (2.3 | )% |  | $ | 498 |  |  |  | 7.5 | %

N/M=Not meaningful

| 36 |

Reconciliation of segment operating income to consolidated operating income from continuing operations:

|  |  |  |  |  |  |  | Corporate |  |  |  |
Year Ended December 31, 2015: |  | Radio |  |  | Television |  |  | and Other |  |  | Consolidated |
|  | (In thousands) |
Net operating revenue |  | $ | 111,792 |  |  | $ | 21,064 |  |  | $ | — |  |  | $ | 132,856 |
Station operating expense |  |  | 83,188 |  |  |  | 14,080 |  |  |  | — |  |  |  | 97,268 |
Corporate general and administrative |  |  | — |  |  |  | — |  |  |  | 10,091 |  |  |  | 10,091 |
Other operating expense |  |  | 499 |  |  |  | 32 |  |  |  | 10 |  |  |  | 541 |
Impairment of intangible assets |  |  | 874 |  |  |  | — |  |  |  | — |  |  |  | 874 |
Operating income (loss) from continuing operations |  | $ | 27,231 |  |  | $ | 6,952 |  |  | $ | (10,101 | ) |  | $ | 24,082 |

|  |  |  |  |  |  |  | Corporate |  |  |  |
Year Ended December 31, 2014: |  | Radio |  |  | Television |  |  | and Other |  |  | Consolidated |
|  | (In thousands) |
Net operating revenue |  | $ | 113,627 |  |  | $ | 20,371 |  |  | $ | — |  |  | $ | 133,998 |
Station operating expense |  |  | 85,167 |  |  |  | 13,257 |  |  |  | — |  |  |  | 98,424 |
Corporate general and administrative |  |  | — |  |  |  | — |  |  |  | 8,901 |  |  |  | 8,901 |
Other operating (income) expense |  |  | (1,210 | ) |  |  | — |  |  |  | — |  |  |  | (1,210 | )
Impairment of intangible assets |  |  | 1,936 |  |  |  | — |  |  |  | — |  |  |  | 1,936 |
Operating income (loss) from continuing operations |  | $ | 27,734 |  |  | $ | 7,114 |  |  | $ | (8,901 | ) |  | $ | 25,947 |

|  |  |  |  |  |  |  | Corporate |  |  |  |
Year Ended December 31, 2013: |  | Radio |  |  | Television |  |  | and Other |  |  | Consolidated |
|  | (In thousands) |
Net operating revenue |  | $ | 109,818 |  |  | $ | 19,660 |  |  | $ | — |  |  | $ | 129,478 |
Station operating expense |  |  | 79,933 |  |  |  | 13,044 |  |  |  | — |  |  |  | 92,977 |
Corporate general and administrative |  |  | — |  |  |  | — |  |  |  | 8,172 |  |  |  | 8,172 |
Impairment of intangible assets |  |  | 2,033 |  |  |  | — |  |  |  | — |  |  |  | 2,033 |
Operating income (loss) from continuing operations |  | $ | 27,852 |  |  | $ | 6,616 |  |  | $ | (8,172 | ) |  | $ | 26,296 |

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Consolidated

For the year ended December 31, 2015, consolidated net operating revenue was $132,856,000 compared with $133,998,000 for year ended December 31, 2014, a decrease of $1,142,000 or less than 1%. We had a decrease of approximately $666,000 generated by stations we owned or operated for the comparable period in 2014 (“same station”), and a decrease in net operating revenue of approximately $476,000 attributable to stations that we did not own or operate for the entire comparable period. The decrease in same station revenue was due to decreases in gross political revenue, and gross national revenue of $3,140,000, and $1,219,000, respectively, from 2014. The decrease in gross political revenue was due to a lower number of congressional, senatorial, gubernatorial and local elections in most of our markets. The decrease in gross national revenue was primarily attributable to declines in our Illinois Radio Network, Manchester, New Hampshire, Milwaukee, Wisconsin, and Victoria, Texas markets. These decreases to revenue were partially offset by increases in gross retransmission revenue, gross interactive revenue, gross non-spot revenue, and gross local revenue of $1,616,000, $615,000, $389,000 and $362,000, respectively and a decrease in agency commission of $733,000 from 2014. The increase in gross retransmission revenue was due to increases in both of our television markets during 2015. Gross interactive revenue increased primarily due to increased targeted display advertising sales in most of our radio markets. We had increases in gross non-spot revenue at our Manchester, New Hampshire and Milwaukee, Wisconsin markets. Gross local revenue increased 0.3%. Of the decrease in revenue attributable to stations we did not own or operate for the entire comparable period $2,398,000 was attributable to the radio information networks which we sold in 2014 and therefore had no revenue in 2015, offset by a $1,922,000 increase in revenue attributable to stations we acquired in 2015.

Station operating expense was $97,268,000 for the year ended December 31, 2015, compared with $98,424,000 for the year ended December 31, 2014, a decrease of $1,156,000 or 1.2%. The overall decrease was attributable to a decrease in station operating expenses of $661,000 for those stations we owned and operated for the entire comparable period and a decrease of $495,000 attributable to stations that we did not own or operate for the entire comparable period. The decrease in same station is primarily a result of a decrease in licensing agreements of $1,434,000 partially offset by increases in sales commissions of $309,000, computer software fees of $293,000 and compensation related expenses of $184,000. Of the decrease in station operating expense attributable to stations we did not own or operate for the entire comparable period $2,258,000 was attributable to the radio information networks which we sold in 2014 and therefore had no expenses in 2015, offset by a $1,763,000 increase in station operating expense attributable to stations we acquired in 2015.

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Operating income from continuing operations for the year ended December 31, 2015 was $24,082,000 compared to $25,947,000 for the year ended December 31, 2014, a decrease of $1,865,000, or 7.2%. The decrease was a result of the decrease in net operating revenue offset by the decrease in station operating expense, described above, combined with a $1,190,000, or 13.4% increase in corporate general and administrative expense, and an increase in other operating expense of $1,751,000. Operating income for 2015 and 2014 also included a non-cash impairment charge of $874,000 and $1,936,000, respectively in connection with our review of broadcast licenses during the fourth quarter of each year (see Note 2 in the accompanying notes to the consolidated financial statements). The increase in corporate expenses is due to an increase in non-cash compensation related to the amortization of restricted stock grants of $829,000 and an increase in consulting fees of $293,000. Other operating expenses during 2015 included the loss of $400,000 incurred from the donation of WBOP-FM to Liberty University, Inc., as discussed in Note 9 of the financial statements. During 2014, other operating income of $1,210,000 related to the gain on the sale of four of our information networks (Michigan Radio Network, Michigan Farm Network, Minnesota News Network and Minnesota Farm Network), as discussed in Note 9 of the financial statements.

We generated net income of $13,414,000 ($2.29 per share on a fully diluted basis) for the year ended December 31, 2015, compared with $14,904,000 ($2.55 per share on a fully diluted basis) for the year ended December 31, 2014, a decrease of $1,490,000 or 10%. In 2015 we had a decrease in operating income from continuing operations of $1,865,000, as described above, and $557,000 related to the write-off of debt issuance costs during 2015. These were partially offset by a decrease in income tax expense of $410,000, a decrease in interest expense of $176,000 driven by a decrease in average debt outstanding and an increase in other income of $346,000 primarily attributable to a gain recognized from insurance proceeds related to lightning damage to two of our transmitters.

Radio Segment

For the year ended December 31, 2015, net operating revenue of the radio segment was $111,792,000 compared with $113,627,000 for the year ended December 31, 2014, a decrease of $1,835,000 or 1.6%. During 2015, we had a decline in net revenue generated by radio stations that we owned or operated for the comparable period in 2014 of $1,359,000 and a decrease in net operating revenue of approximately $476,000 attributable to stations that we did not own or operate for the entire comparable period. The decrease in same station revenue was primarily attributable to the decrease in gross political revenue of $1,731,000, partially offset by an increase in gross interactive revenue of $621,000 and an increase in gross non-spot revenue of $389,000. The decrease in gross political revenue was due to a lower number of congressional, senatorial, gubernatorial and local elections in most of our markets during 2015. Gross interactive revenue increased primarily due to increased targeted display advertising sales in most of our radio markets. We had increases in gross non-spot revenue at our Manchester, New Hampshire and Milwaukee, Wisconsin markets. Of the decrease in revenue attributable to stations we did not own or operate for the entire comparable period $2,398,000 was attributable to the radio information networks which we sold in 2014 and therefore had no revenue in 2015, offset by a $1,922,000 increase in revenue attributable to stations we acquired in 2015.

Station operating expense for the radio segment was $83,188,000 for the year ended December 31, 2015, compared with $85,167,000 for the year ended December 31, 2014, a decrease of $1,979,000 or 2.3%. The overall decrease was attributable to a decrease of $1,484,000 for those stations we owned or operated for the entire comparable period and a decrease of $495,000 attributable to stations that we did not own or operate for the entire comparable period. The decrease in same station is primarily a result of a decrease in licensing agreements of $1,434,000. Of the decrease in station operating expense attributable to stations we did not own or operate for the entire comparable period $2,258,000 was attributable to the radio information networks which we sold in 2014 and therefore had no expenses in 2015, offset by a $1,763,000 increase in station operating expense attributable to stations we acquired in 2015.

Operating income for the radio segment decreased $503,000 or 1.8% to $27,231,000 for the year ended December 31, 2015, from $27,734,000 for the year ended December 31, 2014. The decrease was a result of the decrease in net operating revenue offset by the decrease in station operating expense, described above, combined with an increase in other operating expense of $1,709,000. Operating income for 2015 and 2014 also included a non-cash impairment charge of $874,000 and $1,936,000, respectively in connection with our review of broadcast licenses during the fourth quarter of each year (see Note 2 in the accompanying notes to the consolidated financial statements). Other operating expenses during 2015 included the loss of $400,000 incurred from the donation of WBOP-FM to Liberty University, Inc., as discussed in Note 9 of the financial statements. During 2014, other operating income of $1,210,000 related to the gain on the sale of four of our information networks (Michigan Radio Network, Michigan Farm Network, Minnesota News Network and Minnesota Farm Network), as discussed in Note 9 of the financial statements.

Television Segment

For the year ended December 31, 2015, net operating revenue of our television segment was $21,064,000 compared with $20,371,000 for the year ended December 31, 2014, an increase of $693,000 or 3.4%. The increase in net operating revenue was due to increases in gross retransmission revenue and gross local revenue of $1,616,000 and $377,000, respectively and a decrease in agency commission of $198,000 from 2014. The increase in gross retransmission revenue was due to increases in both of our television markets during 2015. Gross local revenue increased due to an increase at our Victoria, Texas market. These improvements to revenue were offset by decreases in gross political revenue, and gross national revenue of $1,144,000, and $361,000, respectively, from 2014. The decrease in gross political revenue was due to a lower number of congressional, senatorial, gubernatorial and local elections in both of our markets. The decrease in gross national revenue was primarily attributable to declines in our Victoria, Texas market.

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Station operating expense in the television segment for the year ended December 31, 2015 was $14,080,000, compared with $13,257,000 for the year ended December 31, 2014, an increase of $823,000 or 6.2%. The increase in station operating expense was due to increased retransmission fees of $257,000, an increase in compensation related expenses of $267,000 and an increase in advertising and promotion expenses of $68,000. The retransmission cost increases are a direct result of increased revenue in 2015.

Operating income in the television segment for the year ended December 31, 2015 was $6,952,000 compared with $7,114,000 for the year ended December 31, 2015, a decrease of $162,000 or 2.3%. The decrease was a result of the increase in station operating expenses, partially offset by an increase in net operating revenue, described in detail above, combined with an increase in other operating expenses of $32,000 related to the loss on the disposal of fixed assets.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Consolidated

For the year ended December 31, 2014, consolidated net operating revenue was $133,998,000 compared with $129,478,000 for year ended December 31, 2013, an increase of $4,520,000 or 3.5%. Gross political revenue, and gross local revenue increased $3,896,000, and $948,000, respectively, from 2013. The increase in gross political revenue was due to a number of congressional, senatorial, gubernatorial and local elections in most of our markets. The increase in local revenue was primarily attributable to improvements in our Asheville, NC, Bellingham, WA, Ithaca, NY and Milwaukee, WI markets, partially offset by a decline in gross local revenue in our Manchester, NH market. Gross interactive revenue decreased $427,000 for the year ended December 31, 2014 as compared to 2013, primarily in our Milwaukee, WI market.

Station operating expense was $98,424,000 for the year ended December 31, 2014, compared with $92,977,000 for the year ended December 31, 2013, an increase of $5,447,000 or 6%. The increase was primarily attributable to license agreements entered into during the 3 rd and 4 th quarter of 2014 to license historic Nielsen data in selected markets. Additionally in 2014, we had increases in health insurance, sales commissions, programming salaries and property and casualty insurance of $510,000, $346,000, $288,000 and $153,000, respectively.

Operating income from continuing operations for the year ended December 31, 2014 was $25,947,000 compared to $26,296,000 for the year ended December 31, 2013, a decrease of $349,000, or 1.3%. The decrease was primarily a result of the increase in station operating expense, described above, combined with a $729,000, or 9% increase in corporate general and administrative expense, offset by an increase in net operating revenue, described above and other operating income of $1,210,000 in 2014 related to the gain on the sale of four of our information networks (Michigan Radio Network, Michigan Farm Network, Minnesota News Network and Minnesota Farm Network). Operating income for 2014 and 2013 also included a non-cash impairment charge of $1,936,000 and $2,033,000, respectively in connection with our review of broadcast licenses during the fourth quarter of each year (see Note 2 in the accompanying notes to the consolidated financial statements).

We recognized income from discontinued operations of $223,000 net of tax from the sale of our Greenville, Mississippi TV station in January 2013. Please refer to Note 3 – Discontinued Operations, in the accompanying notes to the consolidated financial statements for more information on our discontinued operations.

We generated net income of $14,904,000 ($2.55 per share on a fully diluted basis) for the year ended December 31, 2014, compared with $15,273,000 ($2.64 per share on a fully diluted basis) for the year ended December 31, 2013, a decrease of $369,000 or 2%. In 2014 we had a decrease in operating income from continuing operations of $349,000, as described above, and an increase in our tax expense of $58,000 for 2014. These were partially offset by a decrease in interest expense of $241,000 and increase in other income of $35,000. The decrease in interest expense was attributable to a decrease in average debt outstanding.

Radio Segment

For the year ended December 31, 2014, net operating revenue of the radio segment was $113,627,000 compared with $109,818,000 for the year ended December 31, 2013, an increase of $3,809,000 or 4%. Gross political revenue, and gross local revenue increased $2,967,000, and $1,220,000, respectively, from 2013. The increase in gross political revenue was due to a number of congressional, senatorial, gubernatorial and local elections in most of our markets during 2014. The increase in local revenue was primarily attributable to improvements in our Asheville, NC, Bellingham, WA, Ithaca, NY and Milwaukee, WI markets, partially offset by a decline in gross local revenue in our Manchester, NH market. Gross interactive revenue decreased $427,000 for the year ended December 31, 2014 as compared to 2013, primarily in our Milwaukee, WI market.

Station operating expense for the radio segment was $85,167,000 for the year ended December 31, 2014, compared with $79,933,000 for the year ended December 31, 2013, an increase of $5,234,000 or 7%. The increase was primarily attributable to license agreements entered into during the 3 rd and 4 th quarter of 2014 to license historic Nielsen data in selected markets. Additionally in 2014, we had increases in health insurance, sales commissions, programming salaries and property and casualty insurance of $402,000, $310,000, $289,000 and $127,000, respectively.

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Operating income for the radio segment decreased $118,000 or less than 1% to $27,734,000 for the year ended December 31, 2014, from $27,852,000 for the year ended December 31, 2013. The decrease was primarily a result of the increase in station operating expense partially offset by the increase in net operating revenue, described above and other operating income of $1,210,000 in 2014 related to the gain on the sale of four of our information networks (Michigan Radio Network, Michigan Farm Network, Minnesota News Network and Minnesota Farm Network). Operating income for 2014 and 2013 also included a non-cash impairment charge of $1,936,000 and $2,033,000, respectively in connection with our review of broadcast licenses during the fourth quarter of each year (see Note 2 in the accompanying notes to the consolidated financial statements).

Television Segment

For the year ended December 31, 2014, net operating revenue of our television segment was $20,371,000 compared with $19,660,000 for the year ended December 31, 2013, an increase of $711,000 or 4%. The increase is primarily attributable to increases of $929,000 in gross political revenue and $238,000 in gross retransmission revenue partially offset by decreases in gross local revenue of $272,000 and $99,000 in gross national revenue. The increase in gross political revenue was due to a number of congressional, senatorial, gubernatorial and local elections in most of our markets during 2014. The decrease in gross local revenue was primarily attributable to our Victoria, TX market. The decrease in gross national revenue was due to a decrease in our Joplin, MO market offset by an increase in our Victoria, TX market.

Station operating expense in the television segment for the year ended December 31, 2014 was $13,257,000, compared with $13,044,000 for the year ended December 31, 2013, an increase of $213,000 or 2%. The increase in station operating expense was due to increased retransmission fees of $140,000 and an increase in health insurance of $108,000. The retransmission cost increases are a direct result of increased revenue in 2014.

Operating income in the television segment for the year ended December 31, 2014 was $7,114,000 compared with $6,616,000 for the year ended December 31, 2013, an increase of $498,000 or 8%. The increase was a result of the improvement in net operating revenue partially offset by an increase in station operating expense, described in detail above.

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Liquidity and Capital Resources

Debt Arrangements and Debt Service Requirements

On August 18, 2015, we entered into a new credit facility (the “Credit Facility”) with a group of banks. In connection with the execution of the Credit Facility, the credit agreement in place at June 30, 2015 (the “Old Credit Agreement”) was terminated, and all outstanding amounts were paid in full. The Credit Facility consists of a $100 million five-year revolving facility (the “Revolving Credit Facility”) and matures on August 18, 2020.

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.

The proceeds from the Credit Facility were used to repay all amounts outstanding on our Old Credit Agreement and pay transactional fees. The unused portion of the Revolving Credit Facility is available for general corporate purposes, including working capital, capital expenditures, permitted acquisitions and related transaction expenses and permitted stock buybacks. We wrote-off unamortized debt issuance costs relating to the Old Credit Agreement of approximately $557 thousand, pre-tax, due to entering into this new credit facility during the quarter ended September 30, 2015.

Approximately $266 thousand of debt issuance costs related to the Credit Facility were capitalized and are being amortized over the life of the Credit Facility. These deferred debt costs are included in other assets, net in the condensed consolidated balance sheets.

Interest rates under the Credit Facility are payable, at our option, at alternatives equal to LIBOR (0.25% at December 31, 2015), plus 1% to 2% or the base rate plus 0% to 1%. The spread over LIBOR and the base rate vary from time to time, depending upon our financial leverage. Letter of credit issued under the Credit Facility will be subject to a participation fee (which is equal to the interest rates 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. We also pay quarterly commitment fees of 0.2% to 0.3% per annum on the unused portion of the Revolving Credit Facility.

The Credit Facility contains a number of financial covenants (all of which we were in compliance with at December 31, 2015) 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 approximately $65 million of unused borrowing capacity under the Revolving Credit Facility at December 31, 2015.

Our Old Credit Agreement consisted of a $30 million term loan and a $90 million revolving loan originally scheduled to mature on May 31, 2018. Our indebtedness under the Old Credit Agreement was secured by a first priority lien on substantially all of our assets and of our subsidiaries, by a pledge of our subsidiaries’ stock and by a guarantee of our subsidiaries. The Old Credit Agreement was used for general corporate purposes, including working capital, capital expenditures, permitted acquisitions and related transaction expenses and permitted stock buybacks.

Interest rates under the Old Credit Agreement were payable, at our option, at alternatives equal to LIBOR (0.16925% at December 31, 2014), plus 1.25% to 2.25% or the base rate plus 0.25% to 1.25%. The spread over LIBOR and the base rate varied from time to time, depending upon our financial leverage. We also paid quarterly commitment fees of 0.25% to 0.35% per annum on the unused portion of the Revolving Credit Facility under the Old Credit Agreement.

In 2003, we entered into an agreement of understanding with Surtsey Media, LLC (“Surtsey Media”), a wholly-owned subsidiary of Surtsey Productions, Inc., whereby we have guaranteed up to $1,250,000 of the debt incurred in closing the acquisition of a construction permit for KFJX-TV station in Pittsburg, Kansas, a full power Fox affiliate serving Joplin, Missouri. At December 31, 2015, there was $1,078,000 of debt outstanding under this agreement. The loan agreement was amended in April, 2014 to extend the due date of the loan for three years to mature on May 1, 2017. We do not have any recourse provision in connection with our guarantee that would enable us to recover any amounts paid under the guarantee. As a result, at December 31, 2015, we have recorded $1,078,000 in debt and $1,000,000 in intangible assets, primarily broadcast licenses. In consideration for the guarantee, Surtsey Media entered into various agreements with us relating to the stations.

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Sources and Uses of Cash

During the years ended December 31, 2015, 2014 and 2013, we had net cash flows from operating activities of $28,535,000, $25,416,000 and $26,712,000, respectively. We believe that cash flow from operations will be sufficient to meet quarterly debt service requirements for interest and scheduled payments of principal under the Credit Facility. 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 March 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 its inception in 1998 through December 31, 2015, we have repurchased two million shares of our Class A Common Stock for $50.8 million. During the year ended December 31, 2015, approximately 13,000 shares were retained for payment of withholding taxes for $563,000 related to the vesting of restricted stock and approximately 116,000 shares were purchased in connection with the exercise of stock options of $4,163,000.

Our capital expenditures, exclusive of acquisitions, for the year ended December 31, 2015 were $5,543,000 ($5,524,000 in 2014). We anticipate capital expenditures in 2016 to be approximately $5.0 million to $5.5 million, which we expect to finance through funds generated from operations.

On March 25, 2015, the Company’s Board of Directors declared a regular 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 17, 2015 to shareholders of record on April 6, 2015 and funded by cash on the Company’s balance sheet.

On June 10, 2015, the Company’s Board of Directors declared a regular 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 and fund by cash on the Company’s balance sheet.

On September 2, 2015, the Company’s Board of Directors declared a regular 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 and funded by cash on the Company’s balance sheet.

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 March 2, 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 approximately $1.5 million, will be paid on April 15, 2016 to shareholders of record on March 28, 2016.

On August 1, 2015, we acquired two AM and three FM stations and one FM translator (WSVA-AM, WHBG-AM, WQPO-FM, WWRE-FM, WMQR-FM and WQPO-HD3) from M. Belmont VerStandig, Inc., serving the Harrisonburg, Virginia market for approximately $10,131,000, which included $128,000 in transactional costs. Cash was utilized to fund the acquisition.

On September 1, 2015, we acquired two FM stations (WSIG-FM and WBOP-FM) from Gamma Broadcasting, LLC, serving the Harrisonburg, Virginia market for approximately $1,558,000, which included $92,000 in transactional costs. Cash was utilized to fund the acquisition. FCC multiple ownership rules prohibit us from owning both of these stations. In order to satisfy the multiple ownership requirements and receive FCC approval for this acquisition, we simultaneously donated WBOP-FM to Liberty University, Inc, a charitable organization. In exchange for donating WBOP-FM, including the Station, the FCC License and the Assets, we received an FM Translator W267BA, the FM Translator Assets, and the FM Translator FCC license.

On November 2, 2015, we entered into an agreement to acquire an FM radio station (WLVQ) from Wilks Broadcast - Columbus, LLC, serving the Columbus, Ohio market for $13,000,000. We completed this acquisition on February 3, 2016. We operated this station under a LMA from November 16, 2015 through our completion of the acquisition. This acquisition was financed through funds generated from operations in 2016.

We continue to actively seek and explore opportunities for expansion through the acquisitions of additional broadcast properties.

We anticipate that any future acquisitions of radio and television 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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Summary Disclosures About Contractual Obligations

We have future cash obligations under various types of contracts, including the terms of our Credit Facility, operating leases, programming contracts, employment agreements, and other operating contracts. The following table reflects a summary of our contractual cash obligations and other commercial commitments as of December 31, 2015:

|  | Payments Due By Period |
|  |  |  |  | Less Than |  |  |  |  |  |  |  |  | More Than |
Contractual Obligations: |  | Total |  |  | 1 Year |  |  | 1 to 3 Years |  |  | 4 to 5 Years |  |  | 5 Years |
|  | (In thousands) |
Long-Term Debt Obligations(1) |  | $ | 36,365 |  |  | $ | — |  |  | $ | 1,078 |  |  | $ | 35,287 |  |  | $ | — |
Interest Payments on Long-Term Debt(2) |  |  | 3,258 |  |  |  | 728 |  |  |  | 1,398 |  |  |  | 1,132 |  |  |  | — |
Operating Leases |  |  | 8,286 |  |  |  | 1,327 |  |  |  | 2,160 |  |  |  | 1,327 |  |  |  | 3,472 |
Purchase Obligations(3) |  |  | 53,112 |  |  |  | 28,340 |  |  |  | 15,967 |  |  |  | 7,089 |  |  |  | 1,716 |
Other Long-Term Liabilities |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Contractual Cash Obligations |  | $ | 101,021 |  |  | $ | 30,395 |  |  | $ | 20,603 |  |  | $ | 44,835 |  |  | $ | 5,188 |

| (1) | Under our Credit Facility, the maturity on outstanding debt of $36.4 million could be accelerated if we do not maintain certain covenants. Long-Term Debt Obligations include the guarantee of debt of a related party of $1,078,000. (See Notes 4 and 10 of the Notes to Consolidated Financial Statements).
| (2) | Interest payments on the long-term debt are based on scheduled debt maturities and the interest rates are held constant over the remaining terms.
| (3) | Includes $19,486,000 in obligations under employment agreements and contracts with on-air personalities, other employees, and our President, CEO, and Chairman, Edward K. Christian, $21,275,000 in purchase obligations under general operating agreements and contracts including but not limited to syndicated programming contracts; sports programming rights; software rights; ratings services; television advertising; and other operating expenses and $12,351,000 in obligations under asset purchase agreements to acquire broadcast properties.

We anticipate that the above contractual cash obligations will be financed through funds generated from operations or additional borrowings under our Credit Facility, or a combination thereof.

| 43 |

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:

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 .

Carrying Value of Accounts Receivable and Related Allowance for Doubtful Accounts: We evaluate the collectability of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us (e.g., bankruptcy filings, credit history, etc.), we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize reserves for bad debts based on past loss history and the length of time the receivables are past due, ranging from 50% for amounts 90 days outstanding to 100% for amounts over 120 days outstanding. If our evaluations of the collectability of our accounts receivable differ from actual results, additional bad debt expense and allowances may be required. Our historical estimates have been a reliable method to estimate future allowances and our reserves have averaged approximately 2-3% of our outstanding receivables. The effect of an increase in our allowance of 1% of our outstanding receivables as of December 31, 2015, from 3.0% to 4.0% or from $664,000 to $883,000 would result in a decrease in net income of $131,400, net of taxes for the year ended December 31, 2015.

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, 2015, we have recorded approximately $88,106,000 in broadcast licenses and $2,874,000 in goodwill, which represents 44.5% 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 perform an annual impairment test on October 1 of each year.

During the fourth quarter of 2015, we recognized a $874,000 impairment charge for broadcast licenses in certain of our radio markets primarily due to declines in available market revenue, market revenue share, profit margins and estimated long-term growth rates in our Columbus, Ohio market. There were no impairment indicators for goodwill. Please refer to Note 2 — Broadcast Licenses, Goodwill and Other Intangible Assets, in the accompanying notes to the consolidated financial statements for a discussion of several key assumptions used in the fair value estimate of our broadcast licenses during our fourth quarter annual impairment test.

During the fourth quarter of 2014, we recognized a $1,936,000 impairment charge for broadcast licenses in certain of our radio markets primarily due to declines in available market revenue, market revenue share, profit margins and estimated long-term growth rates in our Columbus, Ohio market. There were no impairment indicators for goodwill. Please refer to Note 2 — Broadcast Licenses, Goodwill and Other Intangible Assets, in the accompanying notes to the consolidated financial statements for a discussion of several key assumptions used in the fair value estimate of our broadcast licenses during our fourth quarter annual impairment test.

During the fourth quarter of 2013, we recognized a $2,033,000 impairment charge for broadcast licenses in certain of our radio markets primarily due to declines in available market revenue, market revenue share, profit margins, and estimated long-term growth rates, combined with an increase in technical equipment costs in three of our markets, Asheville, North Carolina; Keene, New Hampshire/Brattleboro, Vermont; and Mitchell, South Dakota. Please refer to Note 2 — Broadcast Licenses, Goodwill and Other Intangible Assets, in the accompanying notes to the consolidated financial statements for a discussion of several key assumptions used in the fair value estimate of our broadcast licenses during our fourth quarter annual impairment test.

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 and television 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, had the fair values of each of our broadcasting licenses been lower by 10% as of December 31, 2015, the Company would have recorded an additional broadcast license impairment of approximately $1.5 million; had the fair values of each of our broadcasting licenses been lower by 20% as of December 31, 2015, the Company would have recorded an additional broadcast license impairment of approximately $4.0 million; and had the fair value of our broadcasting licenses been lower by 30% as of December 31, 2015, the Company would have recorded an additional broadcast license impairment of approximately $7.9 million.

| 44 |

Stock Based Compensation: We use a Black-Scholes valuation model to estimate the fair value of stock option awards. Under the fair value method, stock based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the vesting period. Determining the fair value of share-based awards at grant date requires assumptions and judgments about expected volatility and forfeiture rates, among other factors. If actual results differ significantly from these assumptions, then stock based compensation expense may differ materially in the future from that previously recorded.

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.

Litigation and Contingencies: On an ongoing basis, we evaluate our exposure related to litigation and contingencies and record a liability when available information indicates that a liability is probable and estimable. We also disclose significant matters that are reasonably possible to result in a loss or are probable but not estimable.

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 market interest rates averaged 1% more in 2015 than they did during 2015, our interest expense would increase, and income before taxes would decrease by $351,000. These amounts are determined by considering the impact of the hypothetical interest rates on our borrowing cost. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our financial structure.

Inflation

The impact of inflation on our operations has not been significant to date. 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

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. The Company is currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

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. ASU 2015-17 is effective for fiscal years and interim periods beginning after December 15, 2016. The Company is currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, “Business Combinations (Topic 805), Simplifying the Accounting for Measurement Period Adjustments”, (“ASU 2015-16”), which eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment, including the effect on earnings of any amounts it would have recorded in previous periods if the accounting had been completed at the acquisition date. ASU 2015-16 is effective for fiscal years and interim periods beginning after December 15, 2015, with early adoption permitted and are not expected to have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement ” (“ASU 2015-05”), with new guidance on whether a cloud computing arrangement includes a software license and the accounting for such an arrangement. If a cloud computing arrangement includes a software license, then the software license element of the arrangement should be accounted for consistently with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the agreement should be accounted for as a service contract. ASU 2015-05 is effective for fiscal years and interim periods beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

| 45 |

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs ” (“ASU 2015-03”), and in August 2015 the FAS issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. These ASUs require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt consistent with debt discounts. The presentation and subsequent measurement of debt issuance costs associated with line of credit, may be presented as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether there are outstanding borrowings on the arrangement. We currently present deferred financing costs related to our line of credit within Other assets. ASU 2015-03 and ASU 2015-15 are effective for fiscal years and interim periods beginning after December 15, 2015, with early adoption permitted and are not expected to have a material impact on the Company’s consolidated financial statements.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, “Consolidation (Topic 810), Amendments to the Consolidation Analysis ” (“ASU 2015-02”) , which amends the consolidation requirements in ASC 810, primarily related to limited partnerships and VIEs. ASU 2015-02 is effective for fiscal years beginning after December 15, 2016. The Company is currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

In January 2015, the FASB issued Accounting Standards Update No. 2015-01, “Income Statement-Extraordinary and Unusual Items ” (“ASU 2015-01”), which simplifies income statement presentation by eliminating the need to determine whether to classify an item as an extraordinary item. ASU 2015-01 is effective for the first interim period within annual reporting periods beginning after December 15, 2015 and is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern ” (“ASU 2014-15”), which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern and provide related disclosures. ASU 2014-15 is effective for the first interim period within annual reporting periods beginning after December 15, 2016 and is not expected to have a material impact on the Company’s consolidated financial statements.

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. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date" (“ASU 2015-14”), which delayed the effective date by one year. As a result, the standard is effective for us for fiscal and interim periods beginning January 1, 2018 and allows for full retrospective or modified retrospective methods of adoption. The Company is currently evaluating the impact of the provisions of this standard on our consolidated 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.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures over financial reporting were effective to ensure that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act to be recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework as set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2015. Our internal control over financial reporting as of December 31, 2015 has been audited by UHY LLP, an independent registered public accounting firm, as stated in its report which appears below.

| 47 |

Report of Independent Registered Public Accounting Firm

To the Board of Directors and
Shareholders of Saga Communications, Inc.

We have audited Saga Communications, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Saga Communications, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Saga Communications, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Saga Communications, Inc., as of December 31, 2015, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year ended December 31, 2015 of Saga Communications, Inc. and our report dated March 14, 2016 expressed an unqualified opinion thereon.

/s/ UHY LLP

Farmington Hills, Michigan

March 14, 2016

| 48 |

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated by reference to the information contained in our Proxy Statement for the 2016 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the Company’s fiscal year. See also Item 1. Business — Executive Officers.

Item 11. Executive Compensation

The information required by this item is incorporated by reference to the information contained in our Proxy Statement for the 2016 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the Company’s fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to the information contained in our Proxy Statement for the 2016 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the Company’s fiscal year. In addition, the information contained in the “Securities Authorized for Issuance Under Equity Compensation Plan Information” subheading under Item 5 of this report is incorporated by reference herein.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference to the information contained in our Proxy Statement for the 2016 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the Company’s fiscal year.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the information contained in our Proxy Statement for the 2016 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the Company’s fiscal year.

| 49 |

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) | 1. Financial Statements

The following consolidated financial statements attached hereto are filed as part of this annual report:

Reports of Independent Registered Public Accounting Firms |  | 51
Consolidated Financial Statements: |  |
— Consolidated Balance Sheets as of December 31, 2015 and 2014 |  | 53
— Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013 |  | 54
— Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2015, 2014 and 2013 |  | 55
— Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 |  | 56
Notes to Consolidated Financial Statements |  | 57

2. | Financial Statement Schedules

Schedule II Valuation and qualifying accounts is disclosed in Note 1 to the Consolidated Financial Statements attached hereto and filed as part of this annual report. All other schedules for which provision are made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

3. | Exhibits

The Exhibits filed in response to Item 601 of Regulation S-K are listed in the Exhibit Index, which is incorporated herein by reference.

| 50 |

Report of Independent Registered Public Accounting Firm

To the Board of Directors and
Shareholders of Saga Communications, Inc.

We have audited the accompanying consolidated balance sheet of Saga Communications, Inc. (the “Company”) as of December 31, 2015, and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Saga Communications, Inc. at December 31, 2015, and the consolidated results of its operations and its cash flows for the year ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Saga Communications, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 14, 2016 expressed an unqualified opinion thereon.

/s/ UHY LLP

Farmington Hills, Michigan

March 14, 2016

| 51 |

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Saga Communications, Inc.

We have audited the accompanying consolidated balance sheet of Saga Communications, Inc. (the “Company”) as of December 31, 2014, and the related consolidated statements of income, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Saga Communications, Inc. at December 31, 2014, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the company elected to adopt an amendment to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, effective October 1, 2014. Our opinion is not modified with respect to this matter.

/s/ Ernst & Young LLP

Detroit, Michigan

March 13, 2015

| 52 |

Saga Communications, Inc.

Consolidated Balance Sheets

(In thousands, except par value)

|  | December 31, |
|  | 2015 |  |  | 2014 |
ASSETS |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 21,614 |  |  | $ | 17,907 |
Accounts receivable, less allowance of $664 ($395 in 2014) |  |  | 21,300 |  |  |  | 20,661 |
Prepaid expenses and other current assets |  |  | 2,608 |  |  |  | 2,957 |
Barter transactions |  |  | 1,266 |  |  |  | 1,217 |
Deferred income taxes |  |  | 1,107 |  |  |  | 845 |
Total current assets |  |  | 47,895 |  |  |  | 43,587 |
Net property and equipment |  |  | 58,131 |  |  |  | 55,187 |
Other assets: |  |  |  |  |  |  |  |
Broadcast licenses, net |  |  | 88,106 |  |  |  | 86,762 |
Goodwill |  |  | 2,874 |  |  |  | 326 |
Other intangibles, deferred costs and investments, net of accumulated amortization of $11,336 ($11,796 in 2014) |  |  | 7,565 |  |  |  | 6,182 |
|  | $ | 204,571 |  |  | $ | 192,044 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 2,799 |  |  | $ | 2,133 |
Accrued expenses: |  |  |  |  |  |  |  |
Payroll and payroll taxes |  |  | 7,401 |  |  |  | 6,788 |
Other |  |  | 2,792 |  |  |  | 2,756 |
Barter transactions |  |  | 1,346 |  |  |  | 1,356 |
Total current liabilities |  |  | 14,338 |  |  |  | 13,033 |
Deferred income taxes |  |  | 27,688 |  |  |  | 23,786 |
Long-term debt |  |  | 36,365 |  |  |  | 36,078 |
Broadcast program rights |  |  | 780 |  |  |  | 805 |
Other liabilities |  |  | 2,584 |  |  |  | 3,097 |
Total liabilities |  |  | 81,755 |  |  |  | 76,799 |
Commitments and contingencies |  |  |  |  |  |  |  |
Stockholders’ equity: |  |  |  |  |  |  |  |
Preferred stock, 1,500 shares authorized, none issued and outstanding |  |  | — |  |  |  | — |
Common stock: |  |  |  |  |  |  |  |
Class A common stock, $.01 par value, 35,000 shares authorized, 6,603 issued (6,446 in 2014) |  |  | 66 |  |  |  | 64 |
Class B common stock, $.01 par value, 3,500 shares authorized, 865 issued and outstanding (843 in 2014) |  |  | 8 |  |  |  | 8 |
Additional paid-in capital |  |  | 57,510 |  |  |  | 52,496 |
Retained earnings |  |  | 98,180 |  |  |  | 91,178 |
Treasury stock (1,612 shares in 2015 and 1,489 in 2014, at cost) |  |  | (32,948 | ) |  |  | (28,501 | )
Total stockholders’ equity |  |  | 122,816 |  |  |  | 115,245 |
|  | $ | 204,571 |  |  | $ | 192,044 |

See accompanying notes.

| 53 |

Saga Communications, Inc.

Consolidated Statements of Income

|  | Years Ended December 31, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
|  | (In thousands, except per share data) |
Net operating revenue |  | $ | 132,856 |  |  | $ | 133,998 |  |  | $ | 129,478 |
Operating expenses (income): |  |  |  |  |  |  |  |  |  |  |  |
Station operating expense |  |  | 97,268 |  |  |  | 98,424 |  |  |  | 92,977 |
Corporate general and administrative |  |  | 10,091 |  |  |  | 8,901 |  |  |  | 8,172 |
Other operating expense (income), net |  |  | 541 |  |  |  | (1,210 | ) |  |  | — |
Impairment of intangible assets |  |  | 874 |  |  |  | 1,936 |  |  |  | 2,033 |
|  |  | 108,774 |  |  |  | 108,051 |  |  |  | 103,182 |
Operating income from continuing operations |  |  | 24,082 |  |  |  | 25,947 |  |  |  | 26,296 |
Other (income) expenses: |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | 888 |  |  |  | 1,064 |  |  |  | 1,305 |
Write-off debt issuance costs |  |  | 557 |  |  |  | — |  |  |  | 55 |
Other income |  |  | (417 | ) |  |  | (71 | ) |  |  | (106 | )
Income from continuing operations before income tax |  |  | 23,054 |  |  |  | 24,954 |  |  |  | 25,042 |
Income tax provision: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 6,000 |  |  |  | 6,665 |  |  |  | 7,187 |
Deferred |  |  | 3,640 |  |  |  | 3,385 |  |  |  | 2,805 |
|  |  | 9,640 |  |  |  | 10,050 |  |  |  | 9,992 |
Income from continuing operations, net of income tax |  |  | 13,414 |  |  |  | 14,904 |  |  |  | 15,050 |
Income from discontinued operations, net of income tax |  |  | — |  |  |  | — |  |  |  | 223 |
Net income |  | $ | 13,414 |  |  | $ | 14,904 |  |  | $ | 15,273 |
Basic earnings per share |  |  |  |  |  |  |  |  |  |  |  |
From continuing operations |  | $ | 2.31 |  |  | $ | 2.57 |  |  | $ | 2.62 |
From discontinued operations |  |  | — |  |  |  | — |  |  |  | .04 |
Basic earnings per share |  | $ | 2.31 |  |  | $ | 2.57 |  |  | $ | 2.66 |
Weighted average common shares |  |  | 5,706 |  |  |  | 5,700 |  |  |  | 5,681 |
Diluted earnings per share |  |  |  |  |  |  |  |  |  |  |  |
From continuing operations |  | $ | 2.29 |  |  | $ | 2.55 |  |  | $ | 2.60 |
From discontinued operations |  |  | — |  |  |  | — |  |  |  | .04 |
Diluted earnings per share |  | $ | 2.29 |  |  | $ | 2.55 |  |  | $ | 2.64 |
Weighted average common and common equivalent shares |  |  | 5,740 |  |  |  | 5,753 |  |  |  | 5,745 |
Dividends declared per share |  | $ | 1.10 |  |  | $ | 1.80 |  |  | $ | 1.80 |

See accompanying notes.

| 54 |

Saga Communications, Inc.

Consolidated Statements of Stockholders’ Equity

Years ended December 31, 2015, 2014 and 2013

|  | Class A |  |  | Class B |  |  | Additional |  |  |  |  |  |  |  |  |  |
|  | Common Stock |  |  | Common Stock |  |  | Paid-In |  |  | Retained |  |  | Treasury |  |  | Stockholders’ |
|  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  | Capital |  |  | Earnings |  |  | Stock |  |  | Equity |
|  | (In thousands) |
Balance at January 1, 2013 |  |  | 6,369 |  |  | $ | 64 |  |  |  | 797 |  |  | $ | 8 |  |  | $ | 51,061 |  |  | $ | 81,746 |  |  | $ | (28,670 | ) |  | $ | 104,209 |
Net income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 15,273 |  |  |  |  |  |  |  | 15,273 |
Conversion of shares from Class B to Class A |  |  | 1 |  |  |  |  |  |  |  | (1 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |
Issuance of restricted stock |  |  | 30 |  |  |  |  |  |  |  | 20 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |
Net proceeds from exercised options |  |  | 9 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 275 |  |  |  |  |  |  |  |  |  |  |  | 275 |
Dividends declared per common share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (10,326 | ) |  |  |  |  |  |  | (10,326 | )
Compensation expense related to restricted stock awards |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 135 |  |  |  |  |  |  |  |  |  |  |  | 135 |
Purchase of shares held in treasury |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (95 | ) |  |  | (95 | )
401(k) plan contribution |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (15 | ) |  |  |  |  |  |  | 245 |  |  |  | 230 |
Balance at December 31, 2013 |  |  | 6,409 |  |  | $ | 64 |  |  |  | 816 |  |  | $ | 8 |  |  | $ | 51,456 |  |  | $ | 86,693 |  |  | $ | (28,520 | ) |  | $ | 109,701 |
Net income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 14,904 |  |  |  |  |  |  |  | 14,904 |
Conversion of shares from Class B to Class A |  |  | 3 |  |  |  |  |  |  |  | (3 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |
Issuance of restricted stock |  |  | 27 |  |  |  |  |  |  |  | 30 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |
Net proceeds from exercised options |  |  | 7 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 244 |  |  |  |  |  |  |  |  |  |  |  | 244 |
Dividends declared per common share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (10,419 | ) |  |  |  |  |  |  | (10,419 | )
Compensation expense related to restricted stock awards |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 826 |  |  |  |  |  |  |  |  |  |  |  | 826 |
Purchase of shares held in treasury |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (254 | ) |  |  | (254 | )
401(k) plan contribution |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (30 | ) |  |  |  |  |  |  | 273 |  |  |  | 243 |
Balance at December 31, 2014 |  |  | 6,446 |  |  | $ | 64 |  |  |  | 843 |  |  | $ | 8 |  |  | $ | 52,496 |  |  | $ | 91,178 |  |  | $ | (28,501 | ) |  | $ | 115,245 |
Net income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 13,414 |  |  |  |  |  |  |  | 13,414 |
Conversion of shares from Class B to Class A |  |  | 40 |  |  |  | 1 |  |  |  | (40 | ) |  |  | (1 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |
Issuance of restricted stock |  |  | 26 |  |  |  |  |  |  |  | 30 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |
Forfeiture of restricted stock |  |  | (2 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |
Net proceeds from exercised options |  |  | 93 |  |  |  | 1 |  |  |  | 32 |  |  |  | 1 |  |  |  | 3,393 |  |  |  |  |  |  |  | (4,162 | ) |  |  | (767 | )
Dividends declared per common share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (6,412 | ) |  |  |  |  |  |  | (6,412 | )
Compensation expense related to restricted stock awards |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,655 |  |  |  |  |  |  |  |  |  |  |  | 1,655 |
Purchase of shares held in treasury |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (563 | ) |  |  | (563 | )
401(k) plan contribution |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (34 | ) |  |  |  |  |  |  | 278 |  |  |  | 244 |
Balance at December 31, 2015 |  |  | 6,603 |  |  | $ | 66 |  |  |  | 865 |  |  | $ | 8 |  |  | $ | 57,510 |  |  | $ | 98,180 |  |  | $ | (32,948 | ) |  | $ | 122,816 |

See accompanying notes.

| 55 |

Saga Communications, Inc.

Consolidated Statements of Cash Flows

|  | Years Ended December 31, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
|  | (In thousands) |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 13,414 |  |  | $ | 14,904 |  |  | $ | 15,273 |
Income (loss) from discontinued operations, net of tax |  |  | — |  |  |  | — |  |  |  | 223 |
Income from continuing operations |  |  | 13,414 |  |  |  | 14,904 |  |  |  | 15,050 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 6,824 |  |  |  | 6,702 |  |  |  | 6,768 |
Deferred income taxes |  |  | 3,640 |  |  |  | 3,385 |  |  |  | 2,805 |
Impairment of intangible assets |  |  | 874 |  |  |  | 1,936 |  |  |  | 2,033 |
Broadcast program rights amortization |  |  | 637 |  |  |  | 637 |  |  |  | 637 |
Amortization of deferred costs |  |  | 131 |  |  |  | 187 |  |  |  | 204 |
Compensation expense related to restricted stock awards |  |  | 1,655 |  |  |  | 826 |  |  |  | 135 |
(Gain) loss on sale of assets |  |  | 541 |  |  |  | (1,281 | ) |  |  | (126 | )
Other (gains) losses, net |  |  | — |  |  |  | — |  |  |  | 20 |
Gain on insurance claim |  |  | (417 | ) |  |  | — |  |  |  | — |
Barter revenue, net |  |  | (113 | ) |  |  | (208 | ) |  |  | (11 | )
Deferred and other compensation |  |  | (41 | ) |  |  | (129 | ) |  |  | 19 |
Write-off of debt issuance costs |  |  | 557 |  |  |  | — |  |  |  | 55 |
Income tax expense (benefit) on exercise of options |  |  | — |  |  |  | 10 |  |  |  | (13 | )
Changes in assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Decrease (increase) in receivables and prepaid expenses |  |  | 233 |  |  |  | (1,521 | ) |  |  | 160 |
Payments for broadcast program rights |  |  | (635 | ) |  |  | (627 | ) |  |  | (628 | )
(Decrease) increase in accounts payable, accrued expenses, and other liabilities |  |  | 1,235 |  |  |  | 595 |  |  |  | (396 | )
Total adjustments |  |  | 15,121 |  |  |  | 10,512 |  |  |  | 11,662 |
Net cash provided by operating activities |  |  | 28,535 |  |  |  | 25,416 |  |  |  | 26,712 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |
Acquisition of property and equipment |  |  | (5,543 | ) |  |  | (5,524 | ) |  |  | (5,152 | )
Proceeds from sale and disposal of assets |  |  | 168 |  |  |  | 90 |  |  |  | 792 |
Proceeds from insurance claim |  |  | 777 |  |  |  | — |  |  |  | — |
Proceeds from sale of networks |  |  | — |  |  |  | 1,640 |  |  |  | — |
Proceeds from sale of television station |  |  | — |  |  |  | — |  |  |  | 2,960 |
Acquisition of broadcast properties |  |  | (11,842 | ) |  |  | (903 | ) |  |  | — |
Other investing activities |  |  | (666 | ) |  |  | (11 | ) |  |  | (410 | )
Net cash used in investing activities |  |  | (17,106 | ) |  |  | (4,708 | ) |  |  | (1,810 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Payments on long-term debt |  |  | (35,000 | ) |  |  | (10,000 | ) |  |  | (12,750 | )
Proceeds from long-term debt |  |  | 35,287 |  |  |  | — |  |  |  | — |
Cash dividends paid |  |  | (6,412 | ) |  |  | (10,419 | ) |  |  | (10,326 | )
Payments for debt issuance costs |  |  | (266 | ) |  |  | — |  |  |  | (289 | )
Other financing activities |  |  | (1,331 | ) |  |  | (10 | ) |  |  | 176 |
Net cash used in financing activities |  |  | (7,722 | ) |  |  | (20,429 | ) |  |  | (23,189 | )
Net increase in cash and cash equivalents |  |  | 3,707 |  |  |  | 279 |  |  |  | 1,713 |
Cash and cash equivalents, beginning of year |  |  | 17,907 |  |  |  | 17,628 |  |  |  | 15,915 |
Cash and cash equivalents, end of year |  | $ | 21,614 |  |  | $ | 17,907 |  |  | $ | 17,628 |

See accompanying notes.

| 56 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements

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, 2015 we owned or operated ninety-nine radio stations, four television stations, and five low-power television stations serving twenty-six 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 4,879,186 and 796,672 shares, respectively.

All share and per share information in the accompanying financial statements for periods prior to the split have been restated retroactively to reflect the stock split. The common stock and additional paid-in capital accounts 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%, 43% and 44% of our net operating revenue for the years ended December 31, 2015, 2014 and 2013, 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, 2015 and 2014.

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, 2015.

| 57 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

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, 2015, 2014 and 2013 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, 2015 |  | $ | 395 |  |  | $ | 339 |  |  | $ | 99 |  |  | $ | (169 | ) |  | $ | 664 |
December 31, 2014 |  | $ | 578 |  |  | $ | 139 |  |  | $ | — |  |  | $ | (322 | ) |  | $ | 395 |
December 31, 2013 |  | $ | 577 |  |  | $ | 293 |  |  | $ | — |  |  | $ | (292 | ) |  | $ | 578 |

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 2015, 2014 and 2013.

Property and equipment consisted of the following:

|  | Estimated |  |  | December 31, |
|  | Useful Life |  |  | 2015 |  |  | 2014 |
|  |  |  |  | (In thousands) |
Land and land improvements |  |  | — |  |  | $ | 13,207 |  |  | $ | 11,026 |
Buildings |  |  | 31.5 years |  |  |  | 34,543 |  |  |  | 33,275 |
Towers and antennae |  |  | 7-15 years |  |  |  | 27,616 |  |  |  | 26,191 |
Equipment |  |  | 3-15 years |  |  |  | 79,624 |  |  |  | 79,216 |
Furniture, fixtures and leasehold improvements |  |  | 7-20 years |  |  |  | 8,263 |  |  |  | 8,104 |
Vehicles |  |  | 5 years |  |  |  | 3,821 |  |  |  | 3,790 |
|  |  |  |  |  |  | 167,074 |  |  |  | 161,602 |
Accumulated depreciation |  |  |  |  |  |  | (108,943 | ) |  |  | (106,415 | )
Net property and equipment |  |  |  |  |  | $ | 58,131 |  |  | $ | 55,187 |

Depreciation expense for the years ended December 31, 2015, 2014 and 2013 was $6,593,000, $6,648,000 and $6,716,000, respectively.

| 58 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

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 107 broadcast licenses serving 26 markets, some of which are currently under renewal, while others require renewal over the period of 2016-2023. 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 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, 2015, 2014 and 2013, we recognized interest expense related to the amortization of debt issuance costs of $131,000, $187,000 and $204,000, respectively. In 2015 we wrote-off unamortized debt issuance costs of $557,000, pre-tax, in connection with our new credit facility. In 2013 we also wrote-off unamortized debt issuance costs of $55,000, pre-tax, in connection with an amendment to our credit facility. See Note 4 – Long-Term Debt.

At December 31, 2015 and 2014 the net book value of debt issuance costs was $244,000, and $636,000, respectively, and was presented in Other intangibles, deferred costs and investments in our Consolidated Balance Sheets.

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 terms of the syndication agreements and estimated usage in future years.

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, 2015, we had remaining authorization of $24.9 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 2015, 2014 and 2013, we acquired 129,384 shares at an average price of $36.53 per share, 6,165 shares at an average price of $41.15 per share and 2,179 shares at an average price of $43.98 per share, respectively.

| 59 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

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. Assets and liabilities related to the TBA’s/LMA’s are included in the accompanying Consolidated Balance Sheets.

Advertising and Promotion Costs

Advertising and promotion costs are expensed as incurred. Such costs amounted to $2,804,000, $3,056,000 and $3,225,000 for the years ended December 31, 2015, 2014 and 2013, 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 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.

On December 3, 2014 the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per share and a special cash dividend of $1.20 per share on its Classes A and B Common Stock. This dividend totaling $8.2 million was paid on December 29, 2014 to shareholders of record on December 15, 2014.

On September 23, 2014 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 $1.1 million was paid on October 17, 2014 to shareholders of record on October 3, 2014.

On June 30, 2014 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 $1.1 million was paid on July 25, 2014 to shareholders of record on July 11, 2014.

On November 21, 2013 the Company’s Board of Directors declared a special cash dividend of $1.80 per share on its Classes A and B Common Stock. This dividend totaling $10.3 million was paid on December 12, 2013 to shareholders of record on December 2, 2013.

| 60 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

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, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
|  | (In thousands, except per share data) |
Numerator: |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 13,414 |  |  | $ | 14,904 |  |  | $ | 15,273 |
Less: Net income allocated to unvested participating securities |  |  | 250 |  |  |  | 234 |  |  |  | 135 |
Net income available to common stockholders |  | $ | 13,164 |  |  | $ | 14,670 |  |  | $ | 15,138 |
Denominator: |  |  |  |  |  |  |  |  |  |  |  |
Denominator for basic earnings per share-weighted average shares |  |  | 5,706 |  |  |  | 5,700 |  |  |  | 5,681 |
Effect of dilutive securities: |  |  |  |  |  |  |  |  |  |  |  |
Stock options |  |  | 34 |  |  |  | 53 |  |  |  | 64 |
Denominator for diluted earnings per share — adjusted weighted-average shares and assumed conversions |  |  | 5,740 |  |  |  | 5,753 |  |  |  | 5,745 |
Basic earnings per share |  | $ | 2.31 |  |  | $ | 2.57 |  |  | $ | 2.66 |
Diluted earnings per share |  | $ | 2.29 |  |  | $ | 2.55 |  |  | $ | 2.64 |

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, 45,000 and 13,000 for the years ended December 31, 2015, 2014, and 2013, 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.

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Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

Recent Accounting Pronouncements

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. The Company is currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

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. ASU 2015-17 is effective for fiscal years and interim periods beginning after December 15, 2016. The Company is currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, “Business Combinations (Topic 805), Simplifying the Accounting for Measurement Period Adjustments”, (“ASU 2015-16”), which eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment, including the effect on earnings of any amounts it would have recorded in previous periods if the accounting had been completed at the acquisition date. ASU 2015-16 is effective for fiscal years and interim periods beginning after December 15, 2015, with early adoption permitted and are not expected to have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”), with new guidance on whether a cloud computing arrangement includes a software license and the accounting for such an arrangement. If a cloud computing arrangement includes a software license, then the software license element of the arrangement should be accounted for consistently with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the agreement should be accounted for as a service contract. ASU 2015-05 is effective for fiscal years and interim periods beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Cost” (“ASU 2015-03”), and in August 2015 the FAS issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. These ASUs require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt consistent with debt discounts. The presentation and subsequent measurement of debt issuance costs associated with line of credit, may be presented as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether there are outstanding borrowings on the arrangement. We currently present deferred financing costs related to our line of credit within Other assets. ASU 2015-03 and ASU 2015-15 are effective for fiscal years and interim periods beginning after December 15, 2015, with early adoption permitted and are not expected to have a material impact on the Company’s consolidated financial statements.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, “Consolidation (Topic 810), Amendments to the Consolidation Analysis” (“ASU 2015-02”), which amends the consolidation requirements in ASC 810, primarily related to limited partnerships and VIEs. ASU 2015-02 is effective for fiscal years beginning after December 15, 2016. The Company is currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

In January 2015, the FASB issued Accounting Standards Update No. 2015-01, “Income Statement-Extraordinary and Unusual Items” (“ASU 2015-01”), which simplifies income statement presentation by eliminating the need to determine whether to classify an item as an extraordinary item. ASU 2015-01 is effective for the first interim period within annual reporting periods beginning after December 15, 2015 and is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”), which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern and provide related disclosures. ASU 2014-15 is effective for the first interim period within annual reporting periods beginning after December 15, 2016 and is not expected to have a material impact on the Company’s consolidated financial statements.

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Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

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. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date" (“ASU 2015-14”), which delayed the effective date by one year. As a result, the standard is effective for us for fiscal and interim periods beginning January 1, 2018 and allows for full retrospective or modified retrospective methods of adoption. The Company is currently evaluating the impact of the provisions of this standard on our consolidated financial statements.

2. | Broadcast Licenses, Goodwill and Other Intangible Assets

We evaluate our FCC licenses for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. We operate our broadcast licenses in each market as a single asset and determine the fair value by relying on a discounted cash flow approach assuming a start-up scenario in which the only assets held by an investor are broadcast licenses. The fair value calculation contains assumptions incorporating variables that are based on past experiences and judgments about future operating performance using industry normalized information for an average station within a market. These variables include, but are not limited to: (1) the forecasted growth rate of each radio or television market, including population, household income, retail sales and other expenditures that would influence advertising expenditures; (2) the estimated available advertising revenue within the market and the related 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. If the carrying amount of FCC licenses is greater than their estimated fair value in a given market, the carrying amount of FCC licenses in that market is reduced to its estimated fair value.

We also evaluate goodwill in each of its reporting units (reportable segment) for impairment annually, or more frequently if certain circumstances are present. If the carrying amount of goodwill in a reporting unit is greater than the implied value of goodwill determined by completing a hypothetical purchase price allocation using estimated fair value of the reporting unit, the carrying amount of goodwill in that reporting unit is reduced to its implied value.

We utilize independent appraisals in testing FCC licenses and goodwill for impairment when indicators of impairment are present.

We evaluate amortizable intangible assets for recoverability when circumstances indicate impairment may have occurred, using an undiscounted cash flow methodology. If the future undiscounted cash flows for the intangible asset are less than net book value, then the net book value is reduced to the estimated fair value. Amortizable intangible assets are included in Other intangibles, deferred costs and investments in the Consolidated Balance Sheets.

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Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

Broadcast Licenses

We have recorded the changes to broadcast licenses for the years ended December 31, 2015 and 2014 as follows:

|  | Radio |  |  | Television |  |  | Total |
|  | (In thousands) |
Balance at January 1, 2014 |  | $ | 78,872 |  |  | $ | 9,588 |  |  | $ | 88,460 |
Acquisitions |  |  | 219 |  |  |  | 19 |  |  |  | 238 |
Impairment charge |  |  | (1,936 | ) |  |  | — |  |  |  | (1,936 | )
Balance at December 31, 2014 |  | $ | 77,155 |  |  | $ | 9,607 |  |  | $ | 86,762 |
Acquisitions |  |  | 2,218 |  |  |  | — |  |  |  | 2,218 |
Impairment charge |  |  | (874 | ) |  |  | — |  |  |  | (874 | )
Balance at December 31, 2015 |  | $ | 78,499 |  |  | $ | 9,607 |  |  | $ | 88,106 |

2015 Impairment Test

We completed our annual impairment test of broadcast licenses during the fourth quarter of 2015 and determined that the fair value of the broadcast licenses were less than the amount reflected in the balance sheet for one of the Company’s radio markets, Columbus, Ohio, and recorded non-cash impairment charge of $874,000 to reduce the carrying value of these assets to the estimated fair market value. The reasons for the impairment to the broadcasting licenses recognized in the fourth quarter of 2015 were primarily due to declines in available market revenue, market revenue share, profit margins and estimated long-term growth rates in our Columbus, OH market.

The following table reflects certain key estimates and assumptions used in the impairment test in the fourth quarter of 2015. The ranges for operating profit margin and market long-term revenue growth rates vary by market. In general, when comparing between 2015 and 2014: (1) the market specific operating profit margin range remained relatively consistent; (2) the market long-term revenue growth rates were relatively consistent; (3) the discount rate remained relatively consistent; and (4) current year revenues were 0.9 % lower than previously projected for 2015.

|  | Fourth |  | Fourth |
|  | Quarter |  | Quarter |
|  | 2015 |  | 2014 |
Discount rates |  | 12.2% - 12.4% |  | 12.3% - 12.4% |
Operating profit margin ranges |  | 19.5% - 36.4% |  | 20.8% - 36.4% |
Market long-term revenue growth rates |  | 1.3 % - 3.1% |  | 1.2 % - 4.1% |

If actual market conditions are less favorable than those estimated by us or if events occur or circumstances change that would reduce the fair value of our broadcast licenses below the carrying value, we may be required to recognize additional impairment charges in future periods. Such a charge could have a material effect on our consolidated financial statements.

2014 Impairment Test

We completed our annual impairment test of broadcast licenses during the fourth quarter of 2014 and determined that the fair value of the broadcast licenses were less than the amount reflected in the balance sheet for one of the Company’s radio markets, Columbus, Ohio, and recorded non-cash impairment charge of $1,936,000 to reduce the carrying value of these assets to the estimated fair market value. The reasons for the impairment to the broadcasting licenses recognized in the fourth quarter of 2014 were primarily due to declines in available market revenue, market revenue share, profit margins and estimated long-term growth rates in our Columbus, OH market.

The following table reflects certain key estimates and assumptions used in the impairment test in the fourth quarter of 2014. The ranges for operating profit margin and market long-term revenue growth rates vary by market. In general, when comparing between 2014 and 2013: (1) the market specific operating profit margin range remained relatively consistent; (2) the market long-term revenue growth rates were relatively consistent; (3) the discount rate remained relatively consistent; and (4) current year revenues were 1.6 % lower than previously projected for 2014.

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Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

|  | Fourth |  | Fourth |
|  | Quarter |  | Quarter |
|  | 2014 |  | 2013 |
Discount rates |  | 12.3% - 12.4% |  | 12.2% - 12.4% |
Operating profit margin ranges |  | 20.8% - 36.4% |  | 19.9% - 35.8% |
Market long-term revenue growth rates |  | 1.2 % - 4.1% |  | 1.9 % - 3.3% |

If actual market conditions are less favorable than those estimated by us or if events occur or circumstances change that would reduce the fair value of our broadcast licenses below the carrying value, we may be required to recognize additional impairment charges in future periods. Such a charge could have a material effect on our consolidated financial statements.

2013 Impairment Test

We completed our annual impairment test of broadcast licenses during the fourth quarter of 2013 and determined that the fair value of the broadcast licenses were less than the amount reflected in the balance sheet for three of the Company’s radio markets, Asheville, North Carolina; Keene, New Hampshire/Brattleboro, Vermont; and Mitchell, South Dakota, and recorded non-cash impairment charge of $2,033,000 to reduce the carrying value of these assets to the estimated fair market value. The reasons for the impairment to the broadcasting licenses recognized in the fourth quarter of 2013 were primarily due to declines in available market revenue, market revenue share, profit margins, and estimated long-term growth rates, combined with an increase in technical equipment costs in three of our markets.

The following table reflects certain key estimates and assumptions used in the impairment test in the fourth quarter of 2013. The ranges for operating profit margin and market long-term revenue growth rates vary based on our specific markets. In general, when comparing between 2013 and 2012: (1) the market specific operating profit margin range remained relatively consistent; (2) the market long-term revenue growth rates were relatively consistent; (3) the discount rate remained relatively consistent; and (4) current year revenues were 2.3% lower than previously projected for 2013.

|  | Fourth |  | Fourth |
|  | Quarter |  | Quarter |
|  | 2013 |  | 2012 |
Discount rates |  | 12.2% - 12.4% |  | 12.0% - 12.2% |
Operating profit margin ranges |  | 19.9% - 35.8% |  | 17.4% - 35.8% |
Market long-term revenue growth rates |  | 1.9 % - 3.3% |  | 1.75 % - 3.1% |

Goodwill

During the fourth quarter of 2015, the Company performed its annual impairment test of its goodwill in accordance with ASC 350 and determined under the first step that the fair value of the Radio reporting unit was in excess of its carrying value (each segment is a reporting unit), and therefore, no impairment was indicated. For the years presented there was no goodwill related to the television reporting unit.

We have recorded the changes to goodwill for each of the years ended December 31, 2015 and 2014 as follows:

|  | Radio |  |  | Television |  |  | Total |
|  | (In thousands) |
Balance at January 1, 2014 |  | $ | — |  |  | $ | — |  |  | $ | — |
Acquisitions |  |  | 326 |  |  |  | — |  |  |  | 326 |
Balance at December 31, 2014 |  | $ | 326 |  |  | $ | — |  |  | $ | 326 |
Acquisitions |  |  | 2,548 |  |  |  | — |  |  |  | 2,548 |
Balance at December 31, 2015 |  | $ | 2,874 |  |  | $ | — |  |  | $ | 2,874 |

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Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

Other Intangible Assets

We have recorded amortizable intangible assets at December 31, 2015 as follows:

|  | Gross |  |  |  |  |  |  |
|  | Carrying |  |  | Accumulated |  |  | Net |
|  | Amount |  |  | Amortization |  |  | Amount |
|  | (In thousands) |
Non-competition agreements |  | $ | 3,861 |  |  | $ | 3,861 |  |  | $ | — |
Favorable lease agreements |  |  | 5,990 |  |  |  | 5,638 |  |  |  | 352 |
Customer relationships |  |  | 1,346 |  |  |  | 177 |  |  |  | 1,169 |
Other intangibles |  |  | 1,920 |  |  |  | 1,638 |  |  |  | 282 |
Total amortizable intangible assets |  | $ | 13,117 |  |  | $ | 11,314 |  |  | $ | 1,803 |

We have recorded amortizable intangible assets at December 31, 2014 as follows:

|  | Gross |  |  |  |  |  |  |
|  | Carrying |  |  | Accumulated |  |  | Net |
|  | Amount |  |  | Amortization |  |  | Amount |
|  | (In thousands) |
Non-competition agreements |  | $ | 3,861 |  |  | $ | 3,861 |  |  | $ | — |
Favorable lease agreements |  |  | 5,862 |  |  |  | 5,613 |  |  |  | 249 |
Other intangibles |  |  | 1,766 |  |  |  | 1,609 |  |  |  | 157 |
Total amortizable intangible assets |  | $ | 11,489 |  |  | $ | 11,083 |  |  | $ | 406 |

Aggregate amortization expense for these intangible assets for the years ended December 31, 2015, 2014 and 2013, was $231,000, $54,000 and $52,000, respectively. Our estimated annual amortization expense for the years ending December 31, 2016, 2017, 2018, 2019 and 2020 is $520,000, $520,000, $343,000, $71,000 and $67,000, respectively.

3. | Discontinued Operations

On April 3, 2012 we entered into a definitive agreement to sell our Greenville, Mississippi TV station (“WXVT”) for $3 million, subject to certain adjustments, to H3 Communications, LLC (“H3”). This transaction was completed on January 31, 2013 and we recognized a gain of approximately $223,000, net of tax, on the sale of WXVT during the first quarter of 2013, included within income from discontinued operations.

In accordance with authoritative guidance we have reported the results of operations of WXVT as discontinued operations in the accompanying consolidated financial statements. For all previously reported periods, certain amounts in the consolidated financial statements have been reclassified. The assets and liabilities of WXVT have been classified as held for sale and the net results of operations have been reclassified from continuing operations to discontinued operations. WXVT was previously included in the Company’s television segment.

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Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

4. | Long-Term Debt

Long-term debt consisted of the following:

|  | December 31, |  |  | December 31, |
|  | 2015 |  |  | 2014 |
|  | (In thousands) |
Credit Facility: |  |  |  |  |  |  |  |
Revolving Credit Facility |  | $ | 35,287 |  |  | $ | - |
Old Credit Agreement: |  |  |  |  |  |  |  |
Term Loan |  |  | - |  |  |  | 30,000 |
Revolving credit |  |  | - |  |  |  | 5,000 |
Secured debt of affiliate |  |  | 1,078 |  |  |  | 1,078 |
|  |  | 36,365 |  |  |  | 36,078 |
Amounts payable within one year |  |  | - |  |  |  | - |
|  | $ | 36,365 |  |  | $ | 36,078 |

Future maturities of long-term debt are as follows:

Year Ending December 31, |  | (In thousands) |
2016 |  | $ | — |
2017 |  |  | 1,078 |
2018 |  |  | — |
2019 |  |  | — |
2020 |  |  | 35,287 |
Thereafter |  |  | — |
|  | $ | 36,365 |

On August 18, 2015, we entered into a new credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A., The Huntington National Bank, Citizens Bank, National Association and J.P. Morgan Securities LLC. In connection with the execution of the Credit Facility, the credit agreement in place at June 30, 2015 (the “Old Credit Agreement”) was terminated, and all outstanding amounts were paid in full. The Credit Facility consists of a $100 million five-year revolving facility (the “Revolving Credit Facility”) and matures on August 18, 2020.

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.

The proceeds from the Credit Facility were used to repay all amounts outstanding on our Old Credit Agreement and pay transactional fees. The unused portion of the Revolving Credit Facility is available for general corporate purposes, including working capital, capital expenditures, permitted acquisitions and related transaction expenses and permitted stock buybacks. We wrote-off unamortized debt issuance costs relating to the Old Credit Agreement of approximately $557,000, pre-tax, due to entering into this new agreement during the year ended December 31, 2015.

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. Those debt issuance costs are included in other assets, net in the condensed consolidated balance sheets.

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Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

Interest rates under the Credit Facility are payable, at our option, at alternatives equal to LIBOR (0.25% at December 31, 2015), plus 1% to 2% or the base rate plus 0% to 1%. The spread over LIBOR and the base rate vary from time to time, depending upon our financial leverage. Letter 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. We also pay quarterly commitment fees of 0.2% to 0.3% per annum on the unused portion of the Revolving Credit Facility.

The Credit Facility contains a number of financial covenants (all of which we were in compliance with at December 31, 2015) 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 approximately $65 million of unused borrowing capacity under the Revolving Credit Facility at December 31, 2015.

Our Old Credit Agreement consisted of a $30 million term loan and a $90 million revolving loan originally scheduled to mature on May 31, 2018. Our indebtedness under the Old Credit Agreement was secured by a first priority lien on substantially all of our assets and of our subsidiaries, by a pledge of our subsidiaries’ stock and by a guarantee of our subsidiaries. The Old Credit Agreement was used for general corporate purposes, including working capital, capital expenditures, permitted acquisitions and related transaction expenses and permitted stock buybacks.

Interest rates under the Old Credit Agreement were payable, at our option, at alternatives equal to LIBOR (0.16925% at December 31, 2014), plus 1.25% to 2.25% or the base rate plus 0.25% to 1.25%. The spread over LIBOR and the base rate varied from time to time, depending upon our financial leverage. We also paid quarterly commitment fees of 0.25% to 0.35% per annum on the unused portion of the Revolving Credit Facility under the Old Credit Agreement.

The loan agreement of approximately $1.1 million of secured debt of affiliate was amended in April, 2014 to extend the due date of the loan for three years to mature on May 1, 2017.

5. | Supplemental Cash Flow Information

|  | Years Ended December 31, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
|  | (In thousands) |
Cash paid during the period for: |  |  |  |  |  |  |  |  |  |  |  |
Interest |  | $ | 751 |  |  | $ | 874 |  |  | $ | 1,103 |
Income taxes |  | $ | 6,164 |  |  | $ | 7,319 |  |  | $ | 7,134 |
Non-cash transactions: |  |  |  |  |  |  |  |  |  |  |  |
Barter revenue |  | $ | 3,863 |  |  | $ | 3,844 |  |  | $ | 3,855 |
Barter expense |  | $ | 3,750 |  |  | $ | 3,636 |  |  | $ | 3,844 |
Purchase of treasury shares in connection with exercise of stock options |  | $ | 3,294 |  |  | $ | — |  |  | $ | — |
Acquisition of property and equipment |  | $ | 48 |  |  | $ | 91 |  |  | $ | 104 |
Acquisition of broadcast properties |  | $ | 50 |  |  | $ | — |  |  | $ | — |

On May 31, 2013, we amended the Old Credit Agreement to, among other things, change the allocation between the term loan and the revolving credit facility to $30 million and $90 million, respectively. This change in allocation was a non-cash transaction resulting in an increase of $27,750,000 on the revolving credit facility outstanding and a decrease in the term loan outstanding of $27,750,000.

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Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

6. | Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets are as follows:

|  | December 31, |
|  | 2015 |  |  | 2014 |
|  | (In thousands) |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Property and equipment |  | $ | 7,093 |  |  | $ | 7,727 |
Intangible assets |  |  | 21,668 |  |  |  | 18,134 |
Prepaid expenses |  |  | 374 |  |  |  | 621 |
Total deferred tax liabilities |  |  | 29,135 |  |  |  | 26,482 |
Deferred tax assets: |  |  |  |  |  |  |  |
Allowance for doubtful accounts |  |  | 226 |  |  |  | 158 |
Compensation |  |  | 2,210 |  |  |  | 3,264 |
Other accrued liabilities |  |  | 118 |  |  |  | 119 |
|  |  | 2,554 |  |  |  | 3,541 |
Less: valuation allowance |  |  | — |  |  |  | — |
Total net deferred tax assets |  |  | 2,554 |  |  |  | 3,541 |
Net deferred tax liabilities |  | $ | 26,581 |  |  | $ | 22,941 |
Current portion of deferred tax assets |  | $ | 1,107 |  |  | $ | 845 |
Non-current portion of deferred tax liabilities |  |  | (27,688 | ) |  |  | (23,786 | )
Net deferred tax liabilities |  | $ | (26,581 | ) |  | $ | (22,941 | )

Deferred tax assets are required to be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. At December 31, 2015 and December 31, 2014, we do not have a valuation allowance for net deferred tax assets.

At December 31, 2015 and 2014, net deferred tax liabilities include a deferred tax asset of $1,074,000 and $2,082,000, respectively, relating to deferred compensation and stock-based compensation expense. Full realization of the tax asset related to stock based compensation requires stock options to be exercised at a price equaling or exceeding the sum of the grant price plus the fair value of the option at the grant date and restricted stock to vest at a price equaling or exceeding the fair market value at the grant date. Accounting guidance, however, does not allow a valuation allowance to be recorded unless the company’s future taxable income is expected to be insufficient to recover the asset. Accordingly, there can be no assurance that the price of the Company’s common stock will increase to levels sufficient to realize the entire tax benefit currently reflected in the balance sheets at December 31, 2015 and 2014. See Note 7 — Stock-Based Compensation for further discussion of stock-based compensation expense. During the year ended December 31, 2015, approximately 59,000 stock options expired of which approximately $893,000 had been previously recognized as stock compensation resulting in approximately $360,000 in tax expense. There were no stock option expirations in 2014 or 2013 that resulted in tax expense.

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Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

The significant components of the provision for income taxes are as follows:

|  | Years Ended December 31, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
|  | (In thousands) |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 4,850 |  |  | $ | 5,540 |  |  | $ | 6,210 |
State |  |  | 1,150 |  |  |  | 1,125 |  |  |  | 1,125 |
Total current |  |  | 6,000 |  |  |  | 6,665 |  |  |  | 7,335 |
Total deferred |  |  | 3,640 |  |  |  | 3,385 |  |  |  | 2,805 |
|  | $ | 9,640 |  |  | $ | 10,050 |  |  | $ | 10,140 |
Taxes are allocated as follows: |  |  |  |  |  |  |  |  |  |  |  |
Continuing operations |  | $ | 9,640 |  |  | $ | 10,050 |  |  | $ | 9,992 |
Discontinued operations |  |  | — |  |  |  | — |  |  |  | 148 |
|  | $ | 9,640 |  |  | $ | 10,050 |  |  | $ | 10,140 |

In addition, we recognized a tax expense of $230,000, $10,000 and a tax benefit of $9,200 as a result of stock option exercises for the difference between compensation expense for financial statement and income tax purposes for the years ended December 31, 2015, 2014 and 2013, respectively.

The reconciliation of income tax at the U.S. federal statutory tax rates to income tax expense (benefit) is as follows:

|  | Years Ended December 31, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
|  | (In thousands) |
Tax expense at U.S. statutory rates |  | $ | 7,922 |  |  | $ | 8,630 |  |  | $ | 8,894 |
State tax expense, net of federal benefit |  |  | 1,115 |  |  |  | 1,249 |  |  |  | 1,192 |
Other, net |  |  | 603 |  |  |  | 178 |  |  |  | 105 |
Change in valuation allowance on loss carry forwards |  |  | — |  |  |  | (7 | ) |  |  | (51 | )
|  | $ | 9,640 |  |  | $ | 10,050 |  |  | $ | 10,140 |
Discontinued operations |  |  | — |  |  |  | — |  |  |  | 148 |
|  | $ | 9,640 |  |  | $ | 10,050 |  |  | $ | 9,992 |

The Company files income taxes in the U.S. federal jurisdiction, and in various state and local jurisdictions. The Company is no longer subject to U.S. federal examinations by the Internal Revenue Service (IRS) for years prior to 2014. During the first quarter of 2015, the IRS commenced an examination of the Company’s 2013 U.S. federal income tax return which was completed in the first quarter of 2016 and resulted in no changes to the return. The Company is subject to examination for income and non-income tax filings in various states.

As of December 31, 2015 and 2014 there were no accrued balances recorded related to uncertain tax positions.

We classify income tax-related interest and penalties as interest expense and corporate general and administrative expense, respectively. For the years ended December 31, 2015 and 2014, we had no tax-related interest or penalties and had $0 accrued at December 31, 2015 and 2014.

| 70 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

7. | Stock-Based Compensation

2005 Incentive Compensation Plan

On October 16, 2013 our stockholders approved the Second Amended and Restated Saga Communications, Inc. 2005 Incentive Compensation Plan (the “Second Restated 2005 Plan”). The 2005 Incentive Compensation Plan was first approved by stockholders in 2005 and replaced our 2003 Stock Option Plan (the “2003 Plan”), subsequently this plan was re-approved by stockholders in 2010. The changes in the Second Restated 2005 Plan (i) increased the number of authorized shares by 233,334 shares of Common Stock, (ii) extended the date for making awards to September 6, 2018, (iii) includes directors as participants, (iv) targets awards according to groupings of participants based on ranges of base salary of employees and/or retainers of directors, (v) requires participants to retain 50 % of their net annual restricted stock awards during their employment or service as a director, and (vi) includes a clawback provision. The Second Restated 2005 plan allows for the granting of restricted stock, restricted stock units, incentive stock options, nonqualified stock options, and performance awards to eligible employees and non-employee directors.

The number of shares of Common Stock that may be issued under the Second Restated 2005 Plan may not exceed 280,000 shares of Class B Common Stock, 900,000 shares of Class A Common Stock of which up to 620,000 shares of Class A Common Stock may be issued pursuant to incentive stock options and 280,000 Class A Common Stock issuable upon conversion of Class B Common Stock. Awards denominated in Class A Common Stock may be granted to any employee or director under the Second Restated 2005 Plan. However, awards denominated in Class B Common Stock may only be granted to Edward K. Christian, President, Chief Executive Officer, Chairman of the Board of Directors, and the holder of 100% of the outstanding Class B Common Stock of the Company. Stock options granted under the Second Restated 2005 Plan may be for terms not exceeding ten years from the date of grant and may not be exercised at a price which is less than 100% of the fair market value of shares at the date of grant.

Stock-Based Compensation

The Company’s stock-based compensation expense is measured and recognized for all stock-based awards to employees using the estimated fair value of the award. Compensation expense is recognized over the period during which an employee is required to provide service in exchange for the award. For these awards, we have recognized compensation expense using a straight-line amortization method. Accounting guidance requires that stock-based compensation expense be based on awards that are ultimately expected to vest; therefore stock-based compensation has been adjusted for estimated forfeitures. When estimating forfeitures, we consider voluntary termination behaviors as well as trends of actual option forfeitures. All stock options were fully expensed at December 31, 2012, therefore there was no compensation expense related to stock options for the years ended December 31, 2015, 2014 and 2013.

| 71 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

We calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The estimated expected volatility, expected term of options and estimated annual forfeiture rate were determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant.

The following summarizes the stock option transactions for the Second Restated 2005 Plan, and the 2003 Plan for the year ended December 31:

|  |  |  |  |  |  |  | Weighted |  |  |  |
|  |  |  |  |  |  |  | Average |  |  |  |
|  |  |  |  | Weighted |  |  | Remaining |  |  | Aggregate |
|  | Number of |  |  | Average |  |  | Contractual |  |  | Intrinsic |
|  | Options |  |  | Exercise Price |  |  | Term (Years) |  |  | Value |
Outstanding at January 1, 2013 |  |  | 260,660 |  |  | $ | 34.69 |  |  |  | 3.0 |  |  | $ | 1,253,039 |
Granted |  |  | — |  |  |  | — |  |  |  |  |  |  |  |  |
Exercised |  |  | (8,910 | ) |  |  | 29.41 |  |  |  |  |  |  |  |  |
Forfeited/canceled/expired |  |  | (17,963 | ) |  |  | 54.35 |  |  |  |  |  |  |  |  |
Outstanding at December 31, 2013 |  |  | 233,787 |  |  | $ | 33.38 |  |  |  | 2.1 |  |  | $ | 4,058,035 |
Granted |  |  | — |  |  |  | — |  |  |  |  |  |  |  |  |
Exercised |  |  | (7,294 | ) |  |  | 34.80 |  |  |  |  |  |  |  |  |
Forfeited/canceled/expired |  |  | (13,323 | ) |  |  | 57.93 |  |  |  |  |  |  |  |  |
Outstanding at December 31, 2014 |  |  | 213,170 |  |  | $ | 31.79 |  |  |  | 1.2 |  |  | $ | 2,519,147 |
Granted |  |  | — |  |  |  | — |  |  |  |  |  |  |  |  |
Exercised |  |  | (125,354 | ) |  |  | 27.09 |  |  |  |  |  |  |  |  |
Forfeited/canceled/expired |  |  | (58,781 | ) |  |  | 43.47 |  |  |  |  |  |  |  |  |
Outstanding at December 31, 2015 |  |  | 29,035 |  |  | $ | 28.47 |  |  |  | 1.4 |  |  | $ | 289,769 |
Vested and Exercisable at December 31, 2015 |  |  | 29,035 |  |  | $ | 28.47 |  |  |  | 1.4 |  |  | $ | 289,769 |

The total intrinsic value of stock options exercised during the years ended December 31, 2015, 2014 and 2013 was $1,120,153, $100,300, and $155,500, respectively. Cash received from stock options exercised during the years ended December 31, 2015, 2014 and 2013 was $101,200, $291,600 and $311,500, respectively.

There were no options granted during 2015, 2014 and 2013 and all stock options outstanding as of December 31, 2015 are fully vested.

| 72 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

The following summarizes the restricted stock transactions for the year ended December 31:

|  |  |  |  | Weighted |
|  |  |  |  | Average |
|  |  |  |  | Grant Date |
|  | Shares |  |  | Fair Value |
Outstanding at January 1, 2013 |  |  | 5,531 |  |  | $ | 17.97 |
Granted |  |  | 50,062 |  |  |  | 46.51 |
Vested |  |  | (5,531 | ) |  |  | 17.97 |
Forfeited/canceled/expired |  |  | — |  |  |  | — |
Outstanding at December 31, 2013 |  |  | 50,062 |  |  | $ | 46.51 |
Granted |  |  | 56,756 |  |  |  | 38.11 |
Vested |  |  | (16,529 | ) |  |  | 46.51 |
Forfeited/canceled/expired |  |  | (457 | ) |  |  | 46.51 |
Outstanding at December 31, 2013 |  |  | 89,832 |  |  | $ | 41.20 |
Granted |  |  | 55,081 |  |  |  | 40.09 |
Vested |  |  | (36,142 | ) |  |  | 42.11 |
Forfeited/canceled/expired |  |  | (1,982 | ) |  |  | 43.62 |
Non-vested and outstanding at December 31, 2015 |  |  | 106,789 |  |  | $ | 40.28 |
Weighted average remaining contractual life (in years) |  |  | 4.7 |  |  |  |  |

The weighted average grant date fair value of restricted stock that vested during 2015, 2014 and 2013 was $1,522,000, $769,000 and $99,000, respectively. The net value of unrecognized compensation cost related to unvested restricted stock awards aggregated $3,993,000, $3,526,000 and $2,210,000 at December 31, 2015, 2014 and 2013, respectively.

For the years ended December 31, 2015, 2014 and 2013 we had $1,655,000, $826,000 and $135,000, respectively, of total compensation expense related to restricted stock-based arrangements. The expense is included in corporate general and administrative expenses in our results of operations. The associated tax benefit recognized for the years ended December 31, 2015, 2014 and 2013 was $662,000, $330,000 and $53,000, respectively.

8. | Employee Benefit Plans

401(k) Plan

We have a defined contribution pension plan (“401(k) Plan”) that covers substantially all employees. Employees can elect to have a portion of their wages withheld and contributed to the plan. The 401(k) Plan also allows us to make a discretionary contribution. Total administrative expense under the 401(k) Plan was $2,300, $7,000 and $5,000 in 2015, 2014 and 2013, respectively. The Company’s discretionary contribution to the plan was approximately $250,000 $260,000 and $240,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

| 73 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

Deferred Compensation Plan

In 1999 we established a Nonqualified Deferred Compensation Plan which allows officers and certain management employees to annually elect to defer a portion of their compensation, on a pre-tax basis, until their retirement. The retirement benefit to be provided is based on the amount of compensation deferred and any earnings thereon. Deferred compensation expense for the years ended December 31, 2015, 2014 and 2013 was $138,000, $123,000 and $193,000, respectively. We invest in company-owned life insurance policies to assist in funding these programs. The cash surrender values of these policies are in a rabbi trust and are recorded as our assets.

Split Dollar Officer Life Insurance

The Company provides split dollar insurance benefits to certain executive officers and records an asset equal to the cumulative premiums paid on the related policies, as the Company will fully recover these premiums under the terms of the plan. The Company retains a collateral assignment of the cash surrender values and policy death benefits payable to insure recovery of these premiums.

9. | 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.

Pending Acquisition

On November 2, 2015, we entered into an agreement to acquire an FM radio station (WLVQ) from Wilks Broadcast - Columbus, LLC, serving the Columbus, Ohio market for $13,000,000. We completed this acquisition in the on February 3, 2016. We operated this station under a LMA from November 16, 2015 through our completion of the acquisition. This acquisition was financed through funds generated from operations in 2016.

2015 Acquisitions and Disposition

On July 13, 2015 we acquired an FM translator serving the Manchester, New Hampshire market for approximately $45,000.

On August 1, 2015 we acquired two AM and three FM stations and one FM translator (WSVA-AM, WHBG-AM, WQPO-FM, WMQR-FM, WWRE-FM and WQPO-HD3) from M. Belmont VerStandig, Inc., serving the Harrisonburg, Virginia market for approximately $10,131,000, which included $128,000 in transactional costs. Cash was utilized to fund the acquisition. Management attributes the goodwill recognized in the acquisition to the power of the existing brands in the Harrisonburg, Virginia market as well as the synergies and growth opportunities expected through the combination with the Company’s existing stations.

On August 26, 2015 we acquired an FM translator serving the Asheville, North Carolina market for approximately $125,000.

| 74 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

On September 1, 2015 we acquired two FM stations (WSIG-FM and WBOP-FM) from Gamma Broadcasting, LLC, serving the Harrisonburg, Virginia market for approximately $1,558,000, which included $92,000 in transactional costs. Cash was utilized to fund the acquisition. FCC multiple ownership rules prohibit us from owning both of these stations. In order to satisfy the multiple ownership requirements and receive FCC approval for this acquisition, we simultaneously donated WBOP-FM to Liberty University, Inc, a charitable organization. In exchange for donating WBOP-FM, including the Station, the FCC License and the Assets, we received an FM Translator W267BA, the FM Translator Assets, and the FM Translator FCC license, valued at approximately $50,000. We incurred a pre-tax loss of $400,000 as a result of this donation. This loss is recorded in other operating (income), expense, net on the Company’s Condensed Consolidated Statements of Income and reported in cash flows from operating activities on the Condensed Consolidated Statement of Cash Flows. Management attributes the goodwill recognized in the acquisition to the power of the existing brands in the Harrisonburg, Virginia market as well as the synergies and growth opportunities expected through the combination with the Company’s existing stations.

On October 23, 2015 we acquired an FM translator serving the Charlottesville, Virginia market for approximately $30,000.

On November 12, 2015 we acquired an FM translator serving the Bucyrus, Ohio market for approximately $30,000.

On November 23, 2015 we acquired an FM translator serving the Charlottesville, Virginia market for approximately $150,000.

On December 31, 2015 we donated the Illinois Radio Network (“the network”) to the Illinois Policy Institute. The net book value of the network was approximately $7,000.

2014 Acquisitions and Dispositions

On January 31, 2014 we acquired one FM station (WFIZ-FM) and three FM Translators serving the Ithaca, New York market for approximately $720,000.

On February 28, 2014 we acquired an FM translator serving the Jonesboro, Arkansas market for approximately $35,000.

On May 9, 2014 we acquired an FM translator serving the Clarksville, Tennessee market for approximately $30,000.

On May 14, 2014 we acquired an FM translator serving the Portland, Maine market for approximately $44,750.

On May 16, 2014 we acquired two FM translators serving the Asheville, North Carolina market for approximately $100,000.

On June 16, 2014 we acquired an FM translator serving the Des Moines, Iowa market for approximately $87,500.

On November 4, 2014 we acquired an LPTV servicing the Victoria, Texas market for approximately $18,500.

On December 2, 2014 we sold the Michigan Radio Network, the Michigan Farm Network, the Minnesota News Network and the Minnesota Farm Network, for approximately $1,640,000. The net assets of these networks approximated $430,000, and as such recognized a gain of approximately $1,210,000 that is included in Other operating (income) expense in our 2014 Consolidated Statements of Income. The proforma results of operations for the sale of these networks is not material to our financial statements and as such are not presented. These radio networks have historically been presented within our radio segment. The radio networks did not meet the criteria of discontinued operations.

| 75 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

Condensed Consolidated Balance Sheet of 2015 and 2014 Acquisitions:

The following condensed balance sheets represent the estimated fair value assigned to the related assets and liabilities of the 2015 and 2014 acquisitions at their respective acquisition dates. The allocation of the purchase price for the 2015 acquisitions is preliminary at December 31, 2015.

Condensed Consolidated Balance Sheet of 2015 and 2014 Acquisitions

|  | Acquisitions in |
|  | 2015 |  |  | 2014 |
|  | (In thousands) |
Assets Acquired: |  |  |  |  |  |  |  |
Current assets |  | $ | 977 |  |  | $ | 45 |
Property and equipment |  |  | 4,614 |  |  |  | 424 |
Other assets: |  |  |  |  |  |  |  |
Broadcast licenses-Radio segment |  |  | 2,218 |  |  |  | 219 |
Broadcast licenses-Television segment |  |  | — |  |  |  | 19 |
Goodwill-Radio segment |  |  | 2,548 |  |  |  | 326 |
Goodwill-Television segment |  |  | — |  |  |  | — |
Other intangibles, deferred costs and investments |  |  | 1,623 |  |  |  | 3 |
Total other assets |  |  | 6,389 |  |  |  | 567 |
Total assets acquired |  |  | 11,980 |  |  |  | 1,036 |
Liabilities Assumed: |  |  |  |  |  |  |  |
Current liabilities |  |  | 82 |  |  |  | — |
Total liabilities assumed |  |  | 82 |  |  |  | — |
Net assets acquired |  | $ | 11,898 |  |  | $ | 1,036 |

Pro Forma Results of Operations for Acquisitions (Unaudited)

The following unaudited pro forma results of our operations for the years ended December 31, 2015 and 2014 assume the 2015 acquisitions occurred as of January 1, 2014. 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.

| 76 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

|  | Years Ended December 31, |
|  | 2015 |  |  | 2014 |
|  | (In thousands, except per share data) |
Pro forma Consolidated Results of Operations |  |  |  |  |  |
Net operating revenue |  | $ | 139,458 |  |  | $ | 143,238 |
Station operating expense |  |  | 102,226 |  |  |  | 104,912 |
Corporate general and administrative |  |  | 10,091 |  |  |  | 8,901 |
Other operating expenses (income), net |  |  | 541 |  |  |  | (1,210 | )
Impairment of intangible assets |  |  | 874 |  |  |  | 1,936 |
Operating income |  |  | 25,726 |  |  |  | 28,699 |
Interest expense |  |  | 888 |  |  |  | 1,064 |
Write-off of debt issuance costs |  |  | 557 |  |  |  | — |
Other income |  |  | (417 | ) |  |  | (71 | )
Income taxes |  |  | 10,314 |  |  |  | 11,179 |
Net income |  | $ | 14,384 |  |  | $ | 16,527 |
Basic earnings per share |  | $ | 2.52 |  |  | $ | 2.90 |
Diluted earnings per share |  | $ | 2.51 |  |  | $ | 2.87 |

|  | Years Ended December 31, |
|  | 2015 |  |  | 2014 |
|  | (In thousands) |
Radio Broadcasting Segment |  |  |  |  |  |  |  |
Net operating revenue |  | $ | 118,394 |  |  | $ | 122,867 |
Station operating expense |  |  | 88,146 |  |  |  | 91,655 |
Other operating expenses (income), net |  |  | 499 |  |  |  | (1,210 | )
Impairment of intangible assets |  |  | 874 |  |  |  | 1,936 |
Operating income |  | $ | 28,875 |  |  | $ | 30,486 |

|  | Years Ended December 31, |
|  | 2015 |  |  | 2014 |
|  | (In thousands) |
Television Broadcasting Segment |  |  |  |  |  |  |  |
Net operating revenue |  | $ | 21,064 |  |  | $ | 20,371 |
Station operating expense |  |  | 14,080 |  |  |  | 13,257 |
Other operating expenses |  |  | 32 |  |  |  | — |
Operating income |  | $ | 6,952 |  |  | $ | 7,114 |

| 77 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

Reconciliation of pro forma segment operating income to pro forma consolidated operating income:

|  | Radio |  |  | Television |  |  | Corporate and Other |  |  | Consolidated |
|  | (In thousands) |
Year Ended December 31, 2015: |  |  |  |  |  |  |  |  |  |  |  |
Net operating revenue |  | $ | 118,394 |  |  | $ | 21,064 |  |  | $ | — |  |  | $ | 139,458 |
Station operating expense |  |  | 88,146 |  |  |  | 14,080 |  |  |  | — |  |  |  | 102,226 |
Corporate general and administrative |  |  | — |  |  |  | — |  |  |  | 10,091 |  |  |  | 10,091 |
Other operating expenses |  |  | 499 |  |  |  | 32 |  |  |  | 10 |  |  |  | 541 |
Impairment of intangible assets |  |  | 874 |  |  |  | — |  |  |  | — |  |  |  | 874 |
Operating income (loss) |  | $ | 28,875 |  |  | $ | 6,952 |  |  | $ | (10,101 | ) |  | $ | 25,726 |

|  | Radio |  |  | Television |  |  | Corporate and Other |  |  | Consolidated |
|  | (In thousands) |
Year Ended December 31, 2014: |  |  |  |  |  |  |  |  |  |  |  |
Net operating revenue |  | $ | 122,867 |  |  | $ | 20,371 |  |  | $ | — |  |  | $ | 143,238 |
Station operating expense |  |  | 91,655 |  |  |  | 13,257 |  |  |  | — |  |  |  | 104,912 |
Corporate general and administrative |  |  | — |  |  |  | — |  |  |  | 8,901 |  |  |  | 8,901 |
Other operating income |  |  | (1,210 | ) |  |  | — |  |  |  | — |  |  |  | (1,210 | )
Impairment of intangible assets |  |  | 1,936 |  |  |  | — |  |  |  | — |  |  |  | 1,936 |
Operating income (loss) |  | $ | 30,486 |  |  | $ | 7,114 |  |  | $ | (8,901 | ) |  | $ | 28,699 |

| 78 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

10. | Related Party Transactions

Principal Stockholder Employment Agreement

In June 2011, we entered into a new employment agreement with Edward K. Christian, Chairman, President and CEO, which became effective as of June 1, 2011, and replaces and supersedes his prior employment agreement. On February 12, 2016 we entered into an amendment to the agreement. The amendment extends the term of the employment agreement to March 31, 2021. The amendment also states that on each anniversary of the effective date of the employment agreement, the Company’s Compensation committee shall determine in its discretion the amount of any annual increases (which shall not be less than the greater of 4 % or a defined cost of living increase). Mr. Christian may defer any or all of his annual salary.

Under the agreement, Mr. Christian is eligible for discretionary and performance bonuses, stock options and/or stock grants in amounts determined by the Compensation Committee and will continue to participate in the Company’s benefit plans. The Company will maintain insurance policies, will furnish an automobile, will pay for an executive medical plan and will maintain an office for Mr. Christian at its principal executive offices and in Sarasota County, Florida. The amendment adds that the Company is authorized to pay for Mr. Christian’s tax preparation services on an annual basis and that this amount will be subject to income tax as additional compensation. The agreement provides certain payments to Mr. Christian in the event of his disability, death or a change in control. Upon a change in control, Mr. Christian may terminate his employment. The agreement also provides generally that, upon a change in control, the Company will pay Mr. Christian an amount equal to 2.99 times the average of his total annual salary and bonuses for each of the three immediately preceding periods of twelve consecutive months, plus an additional amount for tax liabilities, related to the payment. For the three years ended December 31, 2015 Mr. Christian’s average annual compensation, as defined by the employment agreement was approximately $1,463,000.

In addition, if Mr. Christian’s employment is terminated for any reason, other than for cause, the Company will continue to provide health insurance and medical reimbursement and maintain existing life insurance policies for a period of ten years, and the current split dollar life insurance policy shall be transferred to Mr. Christian and his wife, and the Company shall reimburse Mr. Christian for any tax consequences of such transfer. The agreement contains a covenant not to compete restricting Mr. Christian from competing with the Company in any of its markets if he voluntarily terminates his employment with the Company or is terminated for cause, for a three year period thereafter. The amendment also entitles Mr. Christian to receive severance pay equal to 100% of his then base salary for 24 months payable in equal monthly installments and after the date upon which notice of termination is given, any unvested or time-vested stock options previously granted to Mr. Christian by the Company shall become immediately one hundred percent (100%) vested to the extent permitted by law.

On December 16, 2013, Mr. Christian agreed to defer approximately $100,000 of his 2014 salary which was paid 100% on January 16, 2015. On December 2, 2014, Mr. Christian agreed to defer approximately $100,000 of his 2015 salary which was paid 100% on January 8, 2016. On December 21, 2015, Mr. Christian agreed to defer approximately $100,000 of his 2016 salary to be paid 100% on January 6, 2017.

Change in Control Agreements

In December 2007, Samuel D. Bush, Senior Vice President and Chief Financial Officer, Warren S. Lada, Chief Operating Officer, Marcia K. Lobaito, Senior Vice President, Corporate Secretary and Director of Business Affairs, and Catherine Bobinski, Senior Vice President/Finance, Chief Accounting Officer and Corporate Controller, entered into Change in Control Agreements. A change in control is defined to mean the occurrence of (a) any person or group becoming the beneficial owner, directly or indirectly, of more than 30% of the combined voting power of the Company’s then outstanding securities and Mr. Christian ceasing to be Chairman and CEO of the Company; (b) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which results in the voting securities of the Company outstanding immediately prior thereto continuing to represent more than 50% of the combined voting securities of the Company or such surviving entity; or (c) the approval of the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets.

| 79 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

If there is a change in control, the Company shall pay a lump sum payment within 45 days thereof of 1.5 times the average of the executive’s last three full calendar years of such executive’s base salary and any annual cash bonus paid. In the event that such payment constitutes a “parachute payment” within the meaning of Section 280G subject to an excise tax imposed by Section 4999 of the Internal Revenue Code, the Company shall pay the executive an additional amount so that the executive will receive the entire amount of the lump sum payment before deduction for federal, state and local income tax and payroll tax. In the event of a change in control (other than the approval of plan of liquidation), the Company or the surviving entity may require as a condition to receipt of payment that the executive continue in employment for a period of up to six months after consummation of the change in control. During such six months, executive will continue to earn his pre-existing salary and benefits. In such case, the executive shall be paid the lump sum payment upon completion of the continued employment. If, however, the executive fails to remain employed during this period of continued employment for any reason other than (a) termination without cause by the Company or the surviving entity, (b) death, (c) disability or (d) breach of the agreement by the Company or the surviving entity, then executive shall not be paid the lump sum payment. In addition, if the executive’s employment is terminated by the Company without cause within six months prior to the consummation of a change in control, then the executive shall be paid the lump sum payment within 45 days of such change in control.

Transactions with Affiliate and Other Related Party Transactions

Surtsey Media, LLC (“Surtsey Media”) owns the assets of television station KVCT in Victoria, Texas. Surtsey Media is a multi-media company 100%-owned by the daughter of Mr. Christian, our President, Chief Executive Officer and Chairman. We operate KVCT under a Time Brokerage Agreement (“TBA”) with Surtsey Media which we entered into in May 1999. Under the FCC’s ownership rules, we are prohibited from owning or having an attributable or cognizable interest in this station. In January 2012, the TBA was amended. Pursuant to the amendment, (i) the term was extended nine years commencing from June 1, 2013, with rights to extend for two additional eight year terms, (ii) we paid Surtsey Media an extension fee of $27,950 upon execution of the amendment, (iii) the monthly fees, payable to Surtsey Media were increased for each extension period, and (iv) we have an exclusive option, while the TBA is in effect, to purchase all of the assets of station KVCT, subject to certain conditions, based on a formula. Under the amended TBA, during 2015, 2014 and 2013 we paid Surtsey Media fees of approximately $3,800, $3,600 and $3,400 per month, respectively plus accounting fees and reimbursement of expenses actually incurred in operating the station.

In March 2003, we entered into an agreement of understanding with Surtsey Media whereby we have guaranteed up to $1,250,000 of the debt incurred, in closing the acquisition of a construction permit for KFJX-TV station in Pittsburg, Kansas, a full power Fox affiliate serving Joplin, Missouri. At December 31, 2015, there was $1,078,000 of debt outstanding under this agreement. We do not have any recourse provision in connection with our guarantee that would enable us to recover any amounts paid under the guarantee. As a result, at December 31, 2015, we have recorded $1,078,000 in debt and $1,000,000 in intangible assets, primarily broadcast licenses. In consideration for the guarantee, Surtsey Media entered into various agreements with us relating to the station, including a Shared Services Agreement, Technical Services Agreement, and Agreement for the Sale of Commercial Time and Broker Agreement (the “Station Agreements”). The station went on the air for the first time on October 18, 2003. Under the FCC’s ownership rules we are prohibited from owning or having an attributable or cognizable interest in this station. In January 2012, the Station Agreements were amended. Pursuant to the amendment, (i) the Broker Agreement and the Technical Services Agreement were terminated, (ii) the terms of the continuing Station Agreements were extended nine years commencing from June 1, 2013 , with rights to extend for two additional eight year terms, (iii) we paid Surtsey Media $37,050 upon execution of the amendment, (iv) the monthly fees payable to Surtsey Media were increased for each extension period, and (v) we have an exclusive option, while the Agreement for the Sale of Commercial Time and Shared Services Agreement are in effect, to purchase all of the assets of Station KFJX subject to certain conditions, based on a formula, together with a payment of $1.2 million. Under the amended Station Agreements, during 2015, 2014 and 2013 we paid fees of approximately $5,000, $4,800 and $4,500 per month, respectively, plus accounting fees and reimbursement of expenses actually incurred in operating the station. We generally prepay Surtsey quarterly for its estimated expenses.

| 80 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

Surtsey Productions, Inc., the parent company of Surtsey Media, leases office space in a building owned by us, and paid us rent of $6,000, $6,000, and $6,000 during the years ended December 31, 2015, 2014 and 2013, respectively.

In December 2013, we sold a used vehicle to the son of Mr. Christian. The vehicle was sold at its fair market value of $41,000.

11. | Common Stock

Dividends. Stockholders are entitled to receive such dividends as may be declared by our Board of Directors out of funds legally available for such purpose. However, no dividend may be declared or paid in cash or property on any share of any class of Common Stock unless simultaneously the same dividend is declared or paid on each share of the other class of common stock. In the case of any stock dividend, holders of Class A Common Stock are entitled to receive the same percentage dividend (payable in shares of Class A Common Stock) as the holders of Class B Common Stock receive (payable in shares of Class B Common Stock).

Voting Rights. Holders of shares of Common Stock vote as a single class on all matters submitted to a vote of the stockholders, with each share of Class A Common Stock entitled to one vote and each share of Class B Common Stock entitled to ten votes, except (i) in the election for directors, (ii) with respect to any “going private” transaction between the Company and the principal stockholder, and (iii) as otherwise provided by law.

In the election of directors, the holders of Class A Common Stock, voting as a separate class, are entitled to elect twenty-five percent, or two, of our directors. The holders of the Common Stock, voting as a single class with each share of Class A Common Stock entitled to one vote and each share of Class B Common Stock entitled to ten votes, are entitled to elect the remaining directors. The Board of Directors consisted of six members at December 31, 2015. Holders of Common Stock are not entitled to cumulative voting in the election of directors.

The holders of the Common Stock vote as a single class with respect to any proposed “going private” transaction with the principal stockholder or an affiliate of the principal stockholder, with each share of each class of Common Stock entitled to one vote per share.

Under Delaware law, the affirmative vote of the holders of a majority of the outstanding shares of any class of common stock is required to approve, among other things, a change in the designations, preferences and limitations of the shares of such class of common stock.

Liquidation Rights. Upon our liquidation, dissolution, or winding-up, the holders of Class A Common Stock are entitled to share ratably with the holders of Class B Common Stock in accordance with the number of shares held in all assets available for distribution after payment in full of creditors.

In any merger, consolidation, or business combination, the consideration to be received per share by the holders of Class A Common Stock and Class B Common Stock must be identical for each class of stock, except that in any such transaction in which shares of common stock are to be distributed, such shares may differ as to voting rights to the extent that voting rights now differ among the Class A Common Stock and the Class B Common Stock.

Other Provisions. Each share of Class B Common Stock is convertible, at the option of its holder, into one share of Class A Common Stock at any time. One share of Class B Common Stock converts automatically into one share of Class A Common Stock upon its sale or other transfer to a party unaffiliated with the principal stockholder or, in the event of a transfer to an affiliated party, upon the death of the transferor.

| 81 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

12. | Commitments and Contingencies

Leases

We lease certain land, buildings and equipment under noncancellable operating leases. Rent expense for the year ended December 31, 2015 was $1,477,000 ($1,503,000 and $1,394,000 for the years ended December 31, 2014 and 2013, respectively).

Minimum annual rental commitments under noncancellable operating leases consisted of the following at December 31, 2015 (in thousands):

2016 |  | $ | 1,327 |
2017 |  |  | 1,144 |
2018 |  |  | 1,016 |
2019 |  |  | 732 |
2020 |  |  | 595 |
Thereafter |  |  | 3,472 |
|  | $ | 8,286 |

Broadcast Program Rights

We have entered into contracts for broadcast program rights that expire at various dates during the next five years. The aggregate minimum payments relating to these commitments consisted of the following at December 31, 2015 (in thousands):

2016 |  | $ | 610 |
2017 |  |  | 477 |
2018 |  |  | 180 |
2019 |  |  | 37 |
2020 |  |  | 31 |
Thereafter |  |  | 55 |
|  | $ | 1,390 |
Amounts due within one year (included in accounts payable) |  |  | 610 |
|  | $ | 780 |

Contingencies

In 2003, in connection with our acquisition of one FM radio station, WJZK-FM serving the Columbus, Ohio market, we entered into an agreement whereby we would pay the seller up to an additional $1,000,000 if we obtain approval from the FCC for a city of license change.

| 82 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

13. | Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs in which there is little or no market data available, which requires management to develop its own assumptions in pricing the asset or liability.

We measure the fair value of time deposits based on quoted market prices of similar assets and other significant inputs derived from or corroborated by observable market data and are considered a level 2. Interest on the Credit Facility is at a variable rate, and as such the debt obligation outstanding approximates fair value and is considered a level 2.

Non-Recurring Fair Value Measurements

The Company has certain assets that are measured at fair value on a non-recurring basis under the circumstances and events described in Note 2 — Broadcast Licenses and Other Intangibles, and are adjusted to fair value only when the carrying values are more than the fair values.

During the fourth quarter of 2015, as a result of our annual impairment test, the Company wrote down broadcast licenses with a carrying value of $13,282,000 to their fair value of $12,408,000, resulting in a non-cash impairment charge of $874,000, which is included in net income for the year ended December 31, 2015. The categorization of the framework used to price the assets is considered a level 3, due to the subjective nature of the unobservable inputs used to determine the fair value. (See Note 2 for the disclosure of certain key assumptions used to develop the unobservable inputs.)

During the fourth quarter of 2014, as a result of our annual impairment test, the Company wrote down broadcast licenses with a carrying value of $15,218,000 to their fair value of $13,282,000, resulting in a non-cash impairment charge of $1,936,000, which is included in net income for the year ended December 31, 2014. The categorization of the framework used to price the assets is considered a level 3, due to the subjective nature of the unobservable inputs used to determine the fair value. (See Note 2 for the disclosure of certain key assumptions used to develop the unobservable inputs.)

During the fourth quarter of 2013, as a result of our annual impairment test, the Company wrote down broadcast licenses with a carrying value of $8,620,000 to their fair value of $6,587,000, resulting in a non-cash impairment charge of $2,033,000, which is included in net income for the year ended December 31, 2013. The categorization of the framework used to price the assets is considered a level 3, due to the subjective nature of the unobservable inputs used to determine the fair value. (See Note 2 for the disclosure of certain key assumptions used to develop the unobservable inputs.)

14. | Segment Information

We evaluate the operating performance of our markets individually. For purposes of business segment reporting, we have aligned operations with similar characteristics into two business segments: Radio and Television.

| 83 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

The Radio segment includes twenty-four markets, which includes all ninety-nine of our radio stations and one radio network in 2015 and five radio networks in 2014 and 2013. The Television segment includes two markets and consists of four television stations and five low power television (“LPTV”) stations. The Radio and Television segments derive their revenue from the sale of commercial broadcast inventory. The category “Corporate general and administrative” represents the income and expense not allocated to reportable segments.

|  |  |  |  |  |  |  | Corporate |  |  |  |
|  | Radio |  |  | Television |  |  | and Other |  |  | Consolidated |
|  | (In thousands) |
Year ended December 31, 2015: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net operating revenue |  | $ | 111,792 |  |  | $ | 21,064 |  |  | $ | — |  |  | $ | 132,856 |
Station operating expense |  |  | 83,188 |  |  |  | 14,080 |  |  |  | — |  |  |  | 97,268 |
Corporate general and administrative |  |  | — |  |  |  | — |  |  |  | 10,091 |  |  |  | 10,091 |
Other operating expense |  |  | 499 |  |  |  | 32 |  |  |  | 10 |  |  |  | 541 |
Impairment of intangible assets |  |  | 874 |  |  |  | — |  |  |  | — |  |  |  | 874 |
Operating income (loss) from continuing operations |  | $ | 27,231 |  |  |  | 6,952 |  |  |  | (10,101 | ) |  |  | 24,082 |
Depreciation and amortization |  | $ | 5,135 |  |  |  | 1,399 |  |  |  | 290 |  |  |  | 6,824 |
Capital additions |  | $ | 3,436 |  |  |  | 1,970 |  |  |  | 137 |  |  |  | 5,543 |
Broadcast licenses, net |  | $ | 78,499 |  |  |  | 9,607 |  |  |  | — |  |  |  | 88,106 |
Total assets at December 31, 2015 |  | $ | 150,855 |  |  |  | 23,091 |  |  |  | 30,625 |  |  |  | 204,571 |

|  |  |  |  |  |  |  | Corporate |  |  |  |
|  | Radio |  |  | Television |  |  | and Other |  |  | Consolidated |
|  | (In thousands) |
Year ended December 31, 2014: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net operating revenue |  | $ | 113,627 |  |  | $ | 20,371 |  |  | $ | — |  |  | $ | 133,998 |
Station operating expense |  |  | 85,167 |  |  |  | 13,257 |  |  |  | — |  |  |  | 98,424 |
Corporate general and administrative |  |  | — |  |  |  | — |  |  |  | 8,901 |  |  |  | 8,901 |
Other operating income |  |  | (1,210 | ) |  |  | — |  |  |  | — |  |  |  | (1,210 | )
Impairment of intangible assets |  |  | 1,936 |  |  |  | — |  |  |  | — |  |  |  | 1,936 |
Operating income (loss) from continuing operations |  | $ | 27,734 |  |  |  | 7,114 |  |  |  | (8,901 | ) |  |  | 25,947 |
Depreciation and amortization |  | $ | 5,023 |  |  |  | 1,411 |  |  |  | 268 |  |  |  | 6,702 |
Capital additions |  | $ | 3,856 |  |  |  | 929 |  |  |  | 739 |  |  |  | 5,524 |
Broadcast licenses, net |  | $ | 77,155 |  |  |  | 9,607 |  |  |  | — |  |  |  | 86,762 |
Total assets at December 31, 2014 |  | $ | 142,068 |  |  |  | 22,509 |  |  |  | 27,467 |  |  |  | 192,044 |

| 84 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

|  |  |  |  |  |  |  | Corporate |  |  |  |
|  | Radio |  |  | Television |  |  | and Other |  |  | Consolidated |
|  | (In thousands) |
Year ended December 31, 2013: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net operating revenue |  | $ | 109,818 |  |  | $ | 19,660 |  |  | $ | — |  |  | $ | 129,478 |
Station operating expense |  |  | 79,933 |  |  |  | 13,044 |  |  |  | — |  |  |  | 92,977 |
Corporate general and administrative |  |  | — |  |  |  | — |  |  |  | 8,172 |  |  |  | 8,172 |
Impairment of intangible assets |  |  | 2,033 |  |  |  | — |  |  |  | — |  |  |  | 2,033 |
Operating income (loss) from continuing operations |  | $ | 27,852 |  |  | $ | 6,616 |  |  | $ | (8,172 | ) |  | $ | 26,296 |
Depreciation and amortization |  | $ | 5,119 |  |  | $ | 1,421 |  |  | $ | 228 |  |  | $ | 6,768 |
Capital additions |  | $ | 3,884 |  |  | $ | 872 |  |  | $ | 396 |  |  | $ | 5,152 |

15. | Quarterly Results of Operations (Unaudited)

|  | March 31, |  |  | June 30, |  |  | September 30, |  |  | December 31, |
|  | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
|  | (In thousands, except per share data) |
Net operating revenue |  | $ | 29,061 |  |  | $ | 29,423 |  |  | $ | 34,358 |  |  | $ | 33,831 |  |  | $ | 33,831 |  |  | $ | 34,373 |  |  | $ | 35,606 |  |  | $ | 36,371 |
Station operating expenses |  |  | 22,765 |  |  |  | 22,947 |  |  |  | 24,311 |  |  |  | 23,499 |  |  |  | 24,324 |  |  |  | 26,366 |  |  |  | 25,868 |  |  |  | 25,612 |
Corporate G&A |  |  | 2,482 |  |  |  | 2,153 |  |  |  | 2,583 |  |  |  | 2,120 |  |  |  | 2,577 |  |  |  | 2,307 |  |  |  | 2,449 |  |  |  | 2,321 |
Other operating expense (income), net |  |  | — |  |  |  | — |  |  |  | 14 |  |  |  | — |  |  |  | 433 |  |  |  | — |  |  |  | 94 |  |  |  | (1,210 | )
Impairment of intangible assets |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 874 |  |  |  | 1,936 |
Operating income from continuing operations |  |  | 3,814 |  |  |  | 4,323 |  |  |  | 7,450 |  |  |  | 8,212 |  |  |  | 6,497 |  |  |  | 5,700 |  |  |  | 6,321 |  |  |  | 7,712 |
Other (income) expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | 241 |  |  |  | 272 |  |  |  | 244 |  |  |  | 272 |  |  |  | 229 |  |  |  | 268 |  |  |  | 174 |  |  |  | 252 |
Write-off of debt issuance costs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 557 |  |  |  |  |  |  |  |  |  |  |  |  |
Other (income) expenses |  |  | (8 | ) |  |  | (15 | ) |  |  | (409 | ) |  |  | (30 | ) |  |  | — |  |  |  | 7 |  |  |  | — |  |  |  | (33 | )
Income before income tax |  |  | 3,581 |  |  |  | 4,066 |  |  |  | 7,615 |  |  |  | 7,970 |  |  |  | 5,711 |  |  |  | 5,425 |  |  |  | 6,147 |  |  |  | 7,493 |
Income tax provision |  |  | 1,450 |  |  |  | 1,627 |  |  |  | 3,141 |  |  |  | 3,193 |  |  |  | 2,599 |  |  |  | 2,180 |  |  |  | 2,450 |  |  |  | 3,050 |
Net income |  | $ | 2,131 |  |  | $ | 2,439 |  |  | $ | 4,474 |  |  | $ | 4,777 |  |  | $ | 3,112 |  |  | $ | 3,245 |  |  | $ | 3,697 |  |  | $ | 4,443 |
Basic earnings per share |  | $ | .37 |  |  | $ | .43 |  |  | $ | .77 |  |  | $ | .83 |  |  | $ | .54 |  |  | $ | .56 |  |  | $ | .63 |  |  | $ | .77 |
Weighted average common shares |  |  | 5,710 |  |  |  | 5,690 |  |  |  | 5,712 |  |  |  | 5,699 |  |  |  | 5,724 |  |  |  | 5,699 |  |  |  | 5,732 |  |  |  | 5,709 |
Diluted earnings per share |  | $ | .36 |  |  | $ | .42 |  |  | $ | .77 |  |  | $ | .82 |  |  | $ | .53 |  |  | $ | .56 |  |  | $ | .63 |  |  | $ | .76 |
Weighted average common and common equivalent shares |  |  | 5,762 |  |  |  | 5,757 |  |  |  | 5,757 |  |  |  | 5,754 |  |  |  | 5,752 |  |  |  | 5,742 |  |  |  | 5,741 |  |  |  | 5,757 |

| 85 |

Saga Communications, Inc.

Notes to Consolidated Financial Statements — (Continued)

16. Litigation

The Company is subject to various outstanding claims which arise in the ordinary course of business and to other legal proceedings. Management anticipates that any potential liability of the Company, which may arise out of or with respect to these matters, will not materially affect the Company’s financial statements.

Nielsen Audio, Inc. (formerly Arbitron, Inc.) (“Nielsen”) filed suit against the Company and one of its subsidiaries, Lakefront Communications, LLC, in the United States District Court in Delaware alleging they have infringed certain of Nielsen’s copyrights. The case was dismissed on December 1, 2014 when we entered into agreements to license historic Nielsen data in selected markets, in conjunction with entering into licenses to receive Nielsen reports and services for future periods in those markets. The historic data that was licensed will allow us to make historic period comparisons as we utilize the Nielsen reports and services in the future, and the related license fee for the historic data was expensed in 2014.

17. Other Income

During the second quarter of 2015, two transmitters in our Victoria, Texas market were significantly damaged by lightning. The Company’s insurance policy provided coverage for the replacement cost of the transmitters. The insurance settlement was finalized during the second quarter and the Company received cash proceeds of $777,000, resulting in a $417,000 gain. The gain on insurance settlement represents the difference between the replacement cost and carrying value of the transmitters. The gain is recorded in other income, in the Company’s Consolidated Statements of Income.

18. Subsequent Events

On March 2, 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 approximately $1.5 million, will be paid on April 15, 2016 to shareholders of record on March 28, 2016.

| 86 |

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 14, 2016.

| SAGA COMMUNICATIONS, INC.
| By: | /s/ Edward K. Christian
|  | Edward K. Christian
|  | President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 14, 2016.

Signatures |  |
/s/ Edward K. Christian |  | President, Chief Executive Officer and
Edward K. Christian |  | Chairman of the Board
/s/ Samuel D. Bush |  | Senior Vice President,
Samuel D. Bush |  | Chief Financial Officer and Treasurer
/s/ Catherine A. Bobinski |  | Senior Vice President/Finance,
Catherine A. Bobinski |  | Chief Accounting Officer and
|  | Corporate Controller
/s/ Clarke R. Brown, Jr. |  | Director
Clarke R. Brown, Jr. |  |
/s/ Timothy J. Clarke |  | Director
Timothy J. Clarke |  |
/s/ Roy F. Coppedge III |  | Director
Roy F. Coppedge |  |
/s/ David B. Stephens |  | Director
David B. Stephens |  |
/s/ Gary G. Stevens |  | Director
Gary G. Stevens |  |

| 87 |

EXHIBIT INDEX

Exhibit No. |  |  |  | Description
3(a) |  | 3 |  | Second Restated Certificate of Incorporation, restated as of December 12, 2003.
3(b) |  | 6 |  | Certificate of Amendment to the Second Restated Certificate of Incorporation.
3(c) |  | 4 |  | Bylaws, as amended May 23, 2007.
10(a) |  | 1 |  | Summary of Executive Insured Medical Reimbursement Plan.
10(b) |  | 2 |  | Saga Communications, Inc. 2003 Employee Stock Option Plan.
10(c) |  | 7 |  | Chief Executive Officer Annual Incentive Plan.
10(d) |  | 9 |  | Second Amended and Restated Saga Communications, Inc. 2005 Incentive Compensation Plan
10(e) |  | 10 |  | Form of Stock Option Agreement under the Second Amended and Restated Saga Communications, Inc. 2005 Incentive Compensation Plan.
10(f) |  | 10 |  | Form of Restricted Stock Option Agreement under the Second Amended and Restated Saga Communications, Inc. 2005 Incentive Compensation Plan.
10(g) |  | 8 |  | Employment Agreement of Edward K. Christian dated as of June 17, 2011.
10(h) |  | 5 |  | Change in Control Agreement of Samuel D. Bush dated as of December 28, 2007.
10(i) |  | 5 |  | Change in Control Agreement of Warren S. Lada dated as of December 28, 2007.
10(j) |  | 5 |  | Change in Control Agreement of Marcia K. Lobaito dated as of December 28, 2007.
10(k) |  | * |  | Change in Control Agreement of Catherine A. Bobinski dated as of December 28, 2007
10(l) |  | 12 |  | Amendment to Employment Agreement of Edward K. Christian dated as of February 12, 2016.
10(m) |  | 11 |  | Credit Agreement dated August 18, 2015 entered into between the Company and JPMorgan Chase Bank, N.A., The Huntington National Bank and Citizens Bank.
21 |  | * |  | Subsidiaries.
23.1 |  | * |  | Consent of UHY LLP.
23.2 |  | * |  | Consent of Ernst & Young LLP.
31.1 |  | * |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 |  | * |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 |  | * |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Rule 13-14(b) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS |  | * |  | XBRL Instance Document
101.SCH |  | * |  | XBRL Taxonomy Extension Schema Document
101.CAL |  | * |  | XBRL Taxonomy Calculation Linkbase Document
101.DEF |  | * |  | XBRL Taxonomy Extension Definition Linkbase Document
101.LAB |  | * |  | XBRL Taxonomy Extension Label Linkbase Document
101.PRE |  | * |  | XBRL Taxonomy Extension Presentation Linkbase Document

| 88 |

* |  | Filed herewith.
1 |  | Exhibit filed with the Company’s Registration Statement on Form S-1 (File No. 33-47238) filed on December 10, 1992 and incorporated by reference herein.
2 |  | Exhibit filed with the Company’s Form 10-Q for the quarter ended June 30, 2003 and incorporated by reference herein.
3 |  | Exhibit filed with the Company’s Registration Statement on Form 8-A (File No. 001-11588) filed on January 6, 2004 and incorporated by reference herein.
4 |  | Exhibit filed with the Company’s Form 10-K for the year ended December 31, 2007 and incorporated by reference herein.
5 |  | Exhibit filed with the Company’s Form 8-K filed on January 4, 2008 and incorporated by reference herein.
6 |  | Exhibit filed with the Company’s Form 8-K filed on January 29, 2009 and incorporated by reference herein.
7 |  | Exhibit filed with the Company’s Proxy Statement for the 2010 Annual Meeting of Stockholders and incorporated by reference herein.
8 |  | Exhibit filed with the Company’s Form 10-Q for the quarter ended June 30, 2011 and incorporated by reference herein.
9 |  | Exhibit filed as Appendix A to the Company’s Consent Solicitation (File No. 001-11588) filed on September 17, 2013 and incorporated by reference herein.
10 |  | Exhibit filed with the Company’s Form 8-K filed on October 16, 2013 and incorporated by reference herein.
11 |  | Exhibit filed with the Company’s Form 8-K filed on August 18, 2015 and incorporated by reference herein.
12 |  | Exhibit filed with the Company’s Form 8-K filed on February 17, 2016 and incorporated by reference herein.

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