SAGA COMMUNICATIONS INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the Quarterly Period ended September 30, 2004

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from 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 incorporation or organization)		(I.R.S. Employer Identification No.)

73 Kercheval Avenue Grosse Pointe Farms, Michigan		48236
(Address of principal executive offices)		(Zip Code)

(313) 886-7070

(Registrant’s telephone number, including area code)

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 o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

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 November 1, 2004 were 18,319,895 and 2,360,370, respectively.

INDEX


		Page

PART I.	FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)
	Condensed consolidated balance sheets—September 30, 2004 and December 31, 2003		2
	Condensed consolidated statements of income—Three and nine months ended September 30, 2004 and 2003		3
	Condensed consolidated statements of cash flows—Nine months ended September 30, 2004 and 2003		4
	Notes to unaudited condensed consolidated financial statements		5
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3	Quantitative and Qualitative Disclosures about Market Risk		28
Item 4	Controls and Procedures		28
PART II	OTHER INFORMATION
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 6	Exhibits		29
Signatures			30
EX-31.1 SECTION 302 CERTIFICATION OF C.E.O.
EX-31.2 SECTION 302 CERTIFICATION OF C.F.O.
EX-32 SECTION 906 CERTIFICATIONS OF CEO & CFO

PART I — FINANCIAL INFORMATION


Item 1.	*Financial Statements*

SAGA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


		September 30,			December 31,
		2004			2003

		(Unaudited)

		(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents	$	8,187		$	11,766
	Accounts receivable, net		22,390			22,733
	Prepaid expenses and other current assets		5,009			4,363

Total current assets			35,586			38,862
Property and equipment			131,546			126,558
	Less accumulated depreciation		(66,142	)		(64,189	)

Net property and equipment			65,404			62,369
Other assets:
	Broadcast licenses, net		130,110			123,657
	Goodwill, net		37,129			30,839
	Other intangibles, deferred costs and investments, net		7,618			6,616

Total other assets			174,857			161,112

		$	275,847		$	262,343


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	1,405		$	1,817
	Payroll and payroll taxes		6,428			6,459
	Barter transactions		1,884			1,489
	Other current liabilities		5,444			3,699
	Current portion of long-term debt		—			45

Total current liabilities			15,161			13,509
Deferred income taxes			20,837			18,414
Long-term debt			121,160			121,160
Other			2,777			2,016
Stockholders’ equity:
	Common stock		210			210
	Additional paid-in capital		48,359			47,207
	Retained earnings		73,987			62,277
	Accumulated other comprehensive income		42			29
	Treasury stock		(6,686	)		(2,479	)

Total stockholders’ equity			115,912			107,244

		$	275,847		$	262,343

Note: The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

See notes to unaudited condensed consolidated financial statements.

SAGA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME



		Three Months Ended				Nine months Ended
		September 30,				September 30,

		2004		2003		2004		2003


		(In thousands, except per share information)

				Unaudited
Net operating revenue		$	34,262	$	30,433	$	98,562	$	88,364
Station operating expenses			24,006		20,470		69,924		63,281
Corporate general and administrative			1,927		1,844		5,938		5,084

Operating income			8,329		8,119		22,700		19,999
Other expense, net:
	Interest expense		1,036		1,081		3,216		3,773
	Other		210		1,215		283		850

Income before income tax			7,083		5,823		19,021		15,376
Income tax provision			2,765		2,356		7,491		6,031

Net income		$	4,318	$	3,467	$	11,710	$	9,345

Earnings per share:
	Basic	$	.21	$	.17	$	.56	$	.45

	Diluted	$	.20	$	.16	$	.55	$	.44

Weighted average common shares			20,750		20,810		20,792		20,810

Weighted average common and common equivalent shares			21,116		21,292		21,227		21,303

See notes to unaudited condensed consolidated financial statements.

SAGA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



		Nine months ended
		September 30,

		2004			2003


		(In thousands)
		Unaudited
Cash flows from operating activities:
	Cash provided by operating activities	$	22,073		$	20,244
Cash flows from investing activities:
	Acquisition of property and equipment		(8,249	)		(6,410	)
	Proceeds from sale of assets		741			337
	Increase in intangibles and other assets		(903	)		(4,974	)
	Acquisition of stations and radio networks		(13,607	)		(9,170	)

Net cash used in investing activities			(22,018	)		(20,217	)
Cash flows from financing activities:
	Proceeds from long-term debt		—			128,600
	Payments on long-term debt		(45	)		(113,656	)
	Purchase of shares held in treasury		(4,533	)		(731	)
	Net proceeds from exercise of stock options		944			78

Net cash (used in) provided by financing activities			(3,634	)		14,291
Net (decrease) increase in cash and cash equivalents			(3,579	)		14,318
Cash and cash equivalents, beginning of period			11,766			5,874

Cash and cash equivalents, end of period		$	8,187		$	20,192

See notes to unaudited condensed consolidated financial statements.

SAGA COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED


1.	Summary of Significant Accounting Policies


	*Basis of Presentation*

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.

In our opinion, the accompanying financial statements include all adjustments of normal, recurring nature considered necessary for a fair presentation of its financial position as of September 30, 2004 and the results of operations for the three and nine months ended September 30, 2004 and 2003. Results of Operations for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Saga Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 2003.

The classification of certain amounts previously reported in the consolidated balance sheets as of December 31, 2003 financial statements have been modified to conform to the September 30, 2004 method of presentation.


	*Income Taxes*

Our effective tax rate is higher than the federal statutory rate as a result of certain non-deductible depreciation and amortization expenses and the inclusion of state taxes in the income tax amount.


	*Time Brokerage Agreements*

We have entered into Time Brokerage Agreements (“TBAs”) in certain markets. In a typical TBA, the Federal Communications Commission (“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 their own commercial advertising announcements during the time periods specified. We account for TBAs under SFAS 13, “Accounting for Leases” and related interpretations. Revenue and expenses related to TBAs are included in the accompanying Consolidated Statements of Income.


	*Stock-Based Compensation*

We follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations, in accounting for our employee and non-employee director stock options. Under APB 25, when the exercise price of our employee stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized.

For purposes of the required pro forma disclosures required for stock-based compensation, the estimated fair value of the options is amortized to expense over the options’ vesting period. Pro forma net income and pro forma earnings per share as if the stock-based awards had been accounted for using the provisions of

SAGA COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” is as follows:



		Three Months						Nine months
		Ended						Ended
		September 30,						September 30,

		2004			2003			2004			2003


		(In thousands, except per share information)
Net income, as reported		$	4,318		$	3,467		$	11,710		$	9,345
Add back: stock based compensation cost, net of tax			12			13			38			38
Less: pro forma stock based compensation cost determined under fair value method, net of tax			(495	)		(526	)		(1,512	)		(1,504	)

Pro forma net income		$	3,835		$	2,954		$	10,236		$	7,879

Pro forma earnings per share:
	Basic	$	.18		$	.14		$	.49		$	.38

	Diluted	$	.18		$	.14		$	.48		$	.37

The fair value of our stock options were estimated as of the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the nine months ended September 30, 2004 and 2003: risk-free interest rate of 3.7% and 3.4%; a dividend yield of 0%; expected volatility of 31.1% and 32.2%; and a weighted average expected life of the options of 7 years, respectively.


2.	Recent Accounting Pronouncements

On March 31, 2004 the Financial Accounting Standards Board (“FASB”) issued an exposure draft of a proposed standard that, if adopted, will significantly change the accounting for stock based compensation including employee stock options by requiring us to expense stock options using a suggested method different than the method that we currently use to determine the fair value of options. On October 31, 2004, the FASB delayed the effective date of the proposed standard until our interim period beginning July 1, 2005. We anticipate that if the new standard is adopted, it will impact our financial position and results of operations. See Note 1 for a discussion of our current treatment of stock-based compensation and the effect it would have had for the three-month and nine-month periods ended September 30, 2004.

In January 2003, the FASB issued FIN 46 entitled “Consolidation of Variable Interest Entities.” Until this interpretation was issued, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the expected losses from the variable interest entity’s activities or is entitled to receive a majority of the entity’s expected residual return. FIN 46 applied immediately to all variable interest entities created after January 31, 2003 and is effective no later than the first interim period ending after December 31, 2003 for variable interest entities created prior to February 1, 2003.

Effective January 1, 2004 we adopted FIN 46 resulting in the consolidation of Surtsey Media, LLC which was previously accounted for under FASB Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The adoption of FIN 46 did not materially impact our financial position, cash flows or results of operations. See note 6.

SAGA COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


3.	Intangible Assets and Goodwill

Under SFAS No. 142 (“SFAS 142”) “Accounting for Goodwill and Other Intangible Assets,” goodwill and intangible assets deemed to have indefinite lives are not amortized and are subject to annual, or more frequent if impairment indicators arise, impairment tests.

We consider FCC broadcast licenses to have indefinite lives. Factors that we considered in evaluating that the radio and television FCC licenses are indefinite-lived intangible assets under SFAS 142 include the following:

• The radio and television broadcasting licenses may be renewed indefinitely at little cost.

• The radio and television broadcasting licenses are essential to our business, and we intend to renew our licenses indefinitely.

• We have never been denied the renewal of a FCC broadcast license.

• We do not believe that there will be any compelling challenge to the renewal of our broadcast licenses.

• We do not believe that the technology used in broadcasting will be replaced by another technology in the foreseeable future.

Based on the above, we believe cash flows from our radio and television licenses are expected to continue indefinitely.

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 lives of the leases. Other intangibles are amortized over five to forty years.

In accordance with SFAS 142 we perform our impairment tested of goodwill and broadcast licenses (which we have deemed as indefinite lived since the licenses are expected to generate cash flows indefinitely) as of October 1 of each year by comparing their estimated fair value to the related carrying value as of that date. As of September 30, 2004 we have not yet determined the effect, if any, of impairment of the carrying value of goodwill or broadcast licenses for the year 2004.


4.	Common Stock and Treasury Stock

The following summarizes information relating to the number of shares of our common stock involved in stock transactions through September 30, 2004:



		Common Stock
		Issued

		Class A		Class B


		(shares in
		thousands)
Balance, January 1, 2003			18,499		2,360
	Exercised options		93		—

Balance, December 31, 2003			18,592		2,360
	Exercised options		103		—

Balance, September 30, 2004			18,695		2,360

We have a Stock Buy-Back Program (the “Buy-Back Program”) to allow us to purchase up to $20,000,000 of our Class A Common Stock. From its inception in 1998 through September 30, 2004 we have repurchased 812,564 shares of our Class A Common Stock for approximately $12,200,000.

SAGA COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


5.	Total Comprehensive Income and Accumulated Other Comprehensive Income



		Three Months Ended				Nine months Ended
		September 30,				September 30,

		2004		2003		2004		2003


		(In thousands)
Total Comprehensive Income Consists of:
Net income		$	4,318	$	3,467	$	11,710	$	9,345
Accumulated other comprehensive income:
	Change in fair value of derivative instruments, net of tax		—		171		—		464
	Change in market value of securities, net of tax		1		—		13		—

Total comprehensive income		$	4,319	$	3,638	$	11,723	$	9,809


	Marketable
	Securities		Derivatives


	(In thousands)
Accumulated Comprehensive Income (loss) Consists of:
Balance at January 1, 2003	$	—	$	(464	)
Change in fair value of derivatives, net of $250 taxes		—		(464	)
Change in market value of securities, net of $15 taxes		29		—

Balance at December 31, 2003		29		—
Change in market value of securities, net of $8 taxes		13		—

Balance at September 30, 2004	$	42	$	—


6.	Acquisitions and Dispositions

We actively seek and explore opportunities for expansion through the acquisition of additional broadcast properties. This activity is part of our strategy to be the leading broadcaster in the markets where we own 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 costs were allocated to the acquired assets and assumed liabilities based on their estimated fair values as of the acquisition dates.


	*Pending Acquisitions*

On January 21, 2004, we entered into agreements to acquire an FM radio station (WOXL-FM) and one AM radio station (WISE-AM), both serving the Asheville, North Carolina market, for approximately $10,000,000. We are currently providing programming to WISE-AM under a Time Brokerage Agreement (“TBA”) and to WOXL-FM under a Sub-Time Brokerage Agreement. These transactions are subject to the approval of the Federal Communications Commission and have been contested, however, we expect to get approval and close on the acquisitions during the first quarter 2005.

On May 20, 2004, we entered into an agreement to acquire two FM and two AM radio stations (WQNY-FM, WYXL-FM, WTKO-AM and WHCU-AM) serving the Ithaca, New York market for approximately $13,250,000. This transaction, subject to the approval of the Federal Communications Commission, is expected to close during the first quarter 2005.

SAGA COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On September 29, 2004 we entered into an agreement to acquire a low power television station (K17FS) serving Victoria, Texas for approximately $200,000. This transaction, subject to the approval of the Federal Communications Commission, is expected to close during the fourth quarter of 2004 or first quarter 2005.


	*2004 Acquisitions and Dispositions*

On August 10, 2004 we sold an AM radio station (WJQY-AM) serving the Springfield, Tennessee market for approximately $150,000. We recognized a loss on the disposal of this station of approximately $10,000.

On July 1, 2004, we acquired an FM radio station (WXTT-FM) serving the Champaign, Illinois market, for approximately $3,272,000.

On March 1, 2004, we acquired the Minnesota News Network and the Minnesota Farm Network for approximately $3,443,000.

On April 1, 2004 we acquired three FM radio stations (WRSI-FM, Turners Falls, Massachusetts, WPVQ-FM, Greenfield, Massachusetts and WRSY-FM, Marlboro, Vermont) serving the Springfield, Massachusetts, Greenfield, Massachusetts and Brattleboro, Vermont markets, respectively, for approximately $7,220,000.


	*2003 Acquisitions, Time Brokerage Agreements, Shared Services Agreements and Dispositions*

In March, 2003 we entered into an agreement of understanding with Surtsey Media, LLC (an affiliate of Surtsey Productions, Inc. “Surtsey”), whereby we have guaranteed up to $1,250,000 of the debt that Surtsey Media, LLC has incurred in closing on the acquisition of a construction permit for KFJX-TV station in Pittsburg, Kansas. At September 30, 2004, there was approximately $1,061,000 outstanding under this agreement. The station, a new full power Fox affiliate, went on the air for the first time on October 18, 2003. Under the FCC’s ownership rules, we are prohibited from owning this station. In consideration for our guarantee, Surtsey Media, LLC has entered into various agreements with us relating to the station, including a Shared Services Agreement, Technical Services Agreement, Agreement for the Sale of Commercial Time and Broker Agreement. Surtsey is a multi-media company that is 100% owned by the daughter of Edward K. Christian, our principal stockholder, President and CEO.

On March 11, 2003, we acquired an AM radio station (WOXL-AM) serving the Asheville, North Carolina market for approximately $350,000.

On March 28, 2003, we acquired an FM radio station (WODB-FM) Delaware, Ohio, serving the Columbus, Ohio market for approximately $10,432,000. We began operating this station under the terms of a TBA on January 1, 2003. In conjunction with this transaction, we sold our AM radio station (WVKO-AM) serving the Columbus, Ohio market for approximately $941,000. The buyer began brokering time on WVKO under the terms of a TBA on January 1, 2003. We recognized a gain on the disposal of this station of approximately $425,000.

On April 1, 2003, we acquired an FM radio station (WINQ-FM) in the Winchendon, Massachusetts market for approximately $290,000 plus an additional $500,000 if within five years of closing we obtain approval from the FCC for a city of license change. The radio station was owned by a company in which a member of our Board of Directors has a 26% beneficial ownership interest, which was disclosed to our Board prior to its approval of the transaction. The interested director did not participate in voting on this transaction when it came before the Board. The purchase price was determined on an arm’s length basis. We began operating this station under the terms of a TBA on February 1, 2003, simulcasting WKBK-AM in Keene, New Hampshire.

SAGA COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On April 1, 2003 we sold an AM radio station (WLLM-AM) serving the Lincoln, Illinois market for approximately $275,000. We recognized a gain on the sale of the station of approximately $29,000.

On October 1, 2003, we acquired two FM radio stations (WJZA-FM Lancaster, Ohio and WJZK-FM Richwood, Ohio) serving the Columbus, Ohio market for approximately $13,242,000 including approximately $1,063,000 of our Class A common stock, plus up to an additional $2,000,000 if we obtain approval from the FCC for a city license changes for each station.

On November 17, 2003, we acquired an AM radio station (WIDE-AM) serving the Portland, Maine market for approximately $386,000. We began operating this station under the terms of a TBA on August 1, 2003.

On December 1, 2003, we acquired an FM and AM radio station (WQEL-FM and WBCO-AM) serving the Bucyrus, Ohio market for approximately $2,375,000. We began operating these stations under the terms of a TBA on October 1, 2003.

Condensed Consolidated Balance Sheet of 2004 and 2003 Acquisitions:



		Acquisitions in

		2004			2003


		(In thousands)
Assets Acquired:
Current assets		$	650		$	590
Property and equipment			848			1,357
Other assets:
	Broadcast licenses-Radio segment		6,453			19,958
	Broadcast licenses-TV segment		—			1,000
	Goodwill-Radio segment		6,290			3,494
	Goodwill-TV segment		—			27
	Other intangibles, deferred costs and investments		(244	)		648

Total other assets			12,499			25,127

Total assets acquired		$	13,997		$	27,074

Liabilities Assumed:
Current liabilities			390			298
Long-term syndicated programming			—			229
Long-term debt			—			1,060

Total liabilities assumed			390			1,587

Net assets acquired		$	13,607		$	25,487

SAGA COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following unaudited pro forma results of our operations for the three and nine months ended September 30, 2004 and 2003 assume the 2004 and 2003 acquisitions occurred as of January 1, 2003. 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.


	*Pro Forma Results of Operations for Acquisitions:*



	Three Months Ended				Nine months Ended
	September 30,				September 30,

	2004		2003		2004		2003


	(In thousands except per share information)
Consolidated Results of Operations
Net operating revenue	$	34,262	$	32,192	$	99,417	$	94,051
Station operating expense		24,005		22,109		70,678		68,283
Corporate general and administrative		1,927		1,844		5,938		5,084

Operating income		8,330		8,239		22,801		20,684
Interest expense		1,036		1,154		3,216		3,990
Other		210		1,215		283		850
Income tax provision		2,765		2,370		7,536		6,221

Net income	$	4,319	$	3,500	$	11,766	$	9,623

Basic earnings per share	$	.21	$	.17	$	.57	$	.46

Diluted earnings per share	$	.20	$	.16	$	.55	$	.45



	Three Months Ended				Nine months Ended
	September 30,				September 30,

	2004		2003		2004		2003


	(In thousands)
Radio Broadcasting Segment
Net operating revenue	$	30,616	$	29,129	$	88,852	$	85,257
Station operating expense		20,780		19,435		61,153		60,122

Operating income	$	9,836	$	9,694	$	27,699	$	25,135



	Three Months Ended				Nine months Ended
	September 30,				September 30,

	2004		2003		2004		2003


	(In thousands)
Television Broadcasting Segment
Net operating revenue	$	3,646	$	3,063	$	10,565	$	8,794
Station operating expense		3,225		2,674		9,525		8,161

Operating income	$	421	$	389	$	1,040	$	633

SAGA COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Reconciliation of pro forma segment operating income to pro forma consolidated operating income (in thousands):*


					Corporate
	Radio		Television		and Other			Consolidated

Three Months Ended September 30, 2004:
Net operating revenue	$	30,616	$	3,646	$	—		$	34,262
Station operating expense		20,780		3,225		—			24,005
Corporate general and administrative		—		—		1,927			1,927

Operating income (loss)	$	9,836	$	421	$	(1,927	)	$	8,330


					Corporate
	Radio		Television		and Other			Consolidated

Three Months Ended September 30, 2003:
Net operating revenue	$	29,129	$	3,063	$	—		$	32,192
Station operating expense		19,435		2,674		—			22,109
Corporate general and administrative		—		—		1,844			1,844

Operating income (loss)	$	9,694	$	389	$	(1,844	)	$	8,239


					Corporate
	Radio		Television		and Other			Consolidated

Nine months Ended September 30, 2004:
Net operating revenue	$	88,852	$	10,565	$	—		$	99,417
Station operating expense		61,153		9,525		—			70,678
Corporate general and administrative		—		—		5,938			5,938

Operating income (loss)	$	27,699	$	1,040	$	(5,938	)	$	22,801


					Corporate
	Radio		Television		and Other			Consolidated

Nine months Ended September 30, 2003:
Net operating revenue	$	85,257	$	8,794	$	—		$	94,051
Station operating expense		60,122		8,161		—			68,283
Corporate general and administrative		—		—		5,084			5,084

Operating income (loss)	$	25,135	$	633	$	(5,084	)	$	20,684


7.	Segment Information

We evaluate the operating performance of our broadcast markets individually. 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-one broadcast markets, which includes all seventy-nine of our radio stations and five radio information networks. The Television segment includes three broadcast markets and consists of five television stations and three low power television (“LPTV”) stations. The Radio and Television segments derive their revenue primarily from the sale of commercial broadcast inventory. The category “Corporate and Other” represents the income and expense not allocated to reportable segments.

SAGA COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


					Corporate
	Radio		Television		and Other			Consolidated


	(in thousands)
Three Months Ended September 30, 2004:
Net operating revenue	$	30,616	$	3,646	$	—		$	34,262
Station operating expense		20,781		3,225		—			24,006
Corporate general and administrative		—		—		1,927			1,927

Operating income (loss)	$	9,835	$	421	$	(1,927	)	$	8,329

Depreciation and amortization	$	1,361	$	422	$	49		$	1,832


					Corporate
	Radio		Television		and Other			Consolidated


	(in thousands)
Three Months Ended September 30, 2003:
Net operating revenue	$	27,370	$	3,063	$	—		$	30,433
Station operating expense		17,79		62,674		—			20,470
Corporate general and administrative		—		—		1,844			1,844

Operating income (loss)	$	9,574	$	389	$	(1,844	)	$	8,119

Depreciation and amortization	$	1,279	$	353	$	50		$	1,682


					Corporate
	Radio		Television		and Other			Consolidated


	(in thousands)
Nine months Ended September 30, 2004:
Net operating revenue	$	87,997	$	10,565	$	—		$	98,562
Station operating expense		60,399		9,525		—			69,924
Corporate general and administrative		—		—		5,938			5,938

Operating income (loss)	$	27,598	$	1,040	$	(5,938	)	$	22,700

Depreciation and amortization	$	3,913	$	1,263	$	148		$	5,324

Total assets	$	231,597	$	31,180	$	13,071		$	275,847


					Corporate
	Radio		Television		and Other			Consolidated


	(in thousands)
Nine months Ended September 30, 2003:
Net operating revenue	$	79,570	$	8,794	$	—		$	88,364
Station operating expense		55,120		8,161					63,281
Corporate general and administrative		—		—		5,084			5,084

Operating income (loss)	$	24,450	$	633	$	(5,084	)	$	19,999

Depreciation and amortization	$	3,997	$	1,136	$	149		$	5,282

Total assets	$	198,927	$	29,335	$	27,403		$	255,665


8.	Subsequent Events

On October 15, 2004 we entered into an agreement to acquire an AM (WINA-AM) and two FM (WWWV-FM and WQMZ-FM) radio stations serving the Charlottesville, Virginia market for approximately $22,000,000 including approximately $2,000,000 of our Class A common stock. This transaction is subject to

SAGA COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

approval of the Federal Communications Commission and is expected to be completed during the fourth quarter of 2004 or first quarter 2005.


9.	Derivative Instruments and Hedging Activities

Periodically we enter into derivative financial instruments, including interest rate swap agreements to reduce our risk of rising interest rates. Our swap agreements, which expired in March 2003 and September 2003, were used to convert the variable Eurodollar interest rate of a portion of our bank borrowings to a fixed interest rate. At September 30, 2004 and December 31, 2003 we had no interest rate swap agreements in place.

We account for derivatives and hedging activities in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, which requires companies to recognize all of their derivative instruments as either assets or liabilities at fair value in the statement of financial position. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge.

For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. All of the Company’s derivative instruments are accounted for as cash flow hedges.

We had the following interest rate swap agreements in place during 2003:

• Two interest rate swap agreements with a total notional amount of $26,250,000. We paid 4.11% calculated on the notional amount; we received LIBOR calculated on the notional amount of $26,250,000. These agreements expired in March, 2003.

• Two interest rate swap agreements with a total notional amount of $13,750,000. We paid 3.67% calculated on the notional amount; we received LIBOR calculated on the notional amount of $13,750,000. In March 2003 the total notional amount of these swap agreements increased to $40,000,000 with all other terms remaining the same. These agreements expired in September, 2003.

Net receipts or payments under the agreements were recognized as an adjustment to interest expense. All of the above interest rate swap agreements were assessed as effective. Therefore, changes in their fair value were recognized in other comprehensive income.


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto of Saga Communications, Inc. and its subsidiaries contained elsewhere herein and the audited financial statements and Management Discussion and Analysis contained in our Annual Report on Form 10-K for the year ended December 31, 2003. The following discussion is presented on both a consolidated and segment basis. Corporate general and administrative expenses, interest expense, other (income) expense, and income tax expense are managed on a consolidated basis and are, therefore reflected only in our discussion of consolidated results.

Our discussion of the results of operations of our operating segments focuses on their operating income because we manage our operating segments primarily on their operating income. 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. The Radio segment includes twenty one markets, which includes all seventy-nine of our radio stations and five radio information networks. The Television segment includes three markets and consists of five television stations and three low power television (“LPTV”) stations.

General

We are a broadcast company primarily engaged in acquiring, developing and operating radio and television stations. We actively seek and explore opportunities for expansion through the acquisition of additional broadcast properties. We review acquisition opportunities on an ongoing basis.

For additional information with respect to acquisitions, see “Liquidity and Capital Resources” below.

Radio Segment

In our radio segment 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 available to be broadcast each hour.

Most advertising contracts are short-term, and generally run only for a few weeks to a few months. Most of our revenue is generated from local advertising, which is sold primarily by each radio markets’ sales staff. For the nine months ended September 30, 2004 and 2003, approximately 84% and 81%, respectively, of our gross radio segments revenue was from local advertising. To generate national advertising sales, we engage an independent national advertising sales representative firm that specializes 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 includes the first quarter of each year.

Our net operating revenue, and the resulting station operating expenses, and operating income varies from market to market based upon the related markets rank or size which is based upon population and the available radio advertising revenue in that particular market.

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. Because reaching a large and demographically attractive audience is crucial to a station’s financial success, we endeavor to develop strong listener loyalty.

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 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. 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 including sales commissions, depreciation, programming expenses, advertising expenses, and promotion expenses.

Historically, our radio stations in the Columbus, Ohio, Manchester, New Hampshire, Milwaukee, Wisconsin, and Norfolk, Virginia markets have each represented 15% or more of our consolidated operating income. During the nine month periods ended September 30, 2004 and 2003 and the years ended December 31, 2003 and 2002, these markets when combined, represented approximately 75%, 86%, 81% and 81%, respectively, of our consolidated operating income. While radio revenues in each of the Columbus, Manchester, Milwaukee and Norfolk markets have remained relatively stable historically, an adverse change in any of these radio markets or our relative market position in those markets could have a significant impact on our operating results as a whole. Total available radio advertising dollars available in the Columbus Ohio market has resulted in a decline in our revenue and related operating income in our radio stations there. We anticipate that this decline is temporary in nature. None of our television markets represented more than 15% or more of our consolidated operating income. The following tables describe the percentage of our consolidated operating income represented by each of these markets:



	Percentage of
	Consolidated						Percentage of
	Operating						Consolidated
	Income For the						Operating
	Nine months						Income For the
	Ended						Years Ended
	September 30,						December 31,

	2004			2003			2003			2002

Market:
Columbus, Ohio		11	%		19	%		17	%		19	%
Manchester, New Hampshire		15	%		16	%		15	%		16	%
Milwaukee, Wisconsin		33	%		33	%		32	%		30	%
Norfolk, Virginia		16	%		18	%		17	%		16	%

We utilize 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). 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 GAAP basis.

During the nine month periods ended September 30, 2004 and 2003 and the years ended December 31, 2003 and 2002, the radio stations in our four largest markets when combined, represented approximately 52% 59%, 58% and 59%, 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						Percentage of
	Consolidated						Consolidated
	Station						Station
	Operating						Operating
	*Income() For**						*Income() For**
	the Nine						the Years
	Months Ended						Ended
	September 30,						December 31,

	2004			2003			2003			2002

Market:
Columbus, Ohio		8	%		13	%		12	%		14	%
Manchester, New Hampshire		10	%		11	%		11	%		11	%
Milwaukee, Wisconsin		23	%		23	%		23	%		22	%
Norfolk, Virginia		11	%		12	%		12	%		12	%

* Operating income plus corporate general and administrative expenses, depreciation and amortization

Television Segment

In our television segment our 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 certain network affiliation and syndicated programming agreements and, with respect to children’s programs, federal regulation. Our television broadcasting segment local market managers only determine the number of advertisements to be broadcast hourly in locally produced programs which are comprised mainly of news programming and the occasional locally produced sports or information show.

Our net operating revenue, and the resulting station operating expenses, and operating income varies from market to market based upon the related markets rank or size which is based upon population, the 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. Because audience ratings are crucial to a station’s financial success, we endeavor to develop strong viewer loyalty.

When we acquire and/or begin operating a station or group of stations we generally increase programming expenses including local news, sports and weather programming, new syndicated programming, and advertising and promotion expenses to increase our viewership. 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/operated station or group of stations.

Our stations strive to maximize revenue by constantly adjusting prices for our commercial spots based upon local market conditions, demand for advertising 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 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 nine months ended September 30, 2004 and 2003, approximately 78% of our gross television 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 includes the first quarter of each year.

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

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003


	*Results of Operations*

The following tables summarize our results of operations for the three months ended September 30, 2004 and 2003.

Consolidated Results of Operations



	Three Months Ended
	September 30,
					$ Increase			% Increase
	2004		2003		(Decrease)			(Decrease)


	(In thousands, except percentages and per share
	information)
Net operating revenue	$	34,262	$	30,433	$	3,829			12.6	%
Station operating expense		24,006		20,470		3,536			17.3	%
Corporate G&A		1,927		1,844		83			4.5	%

Operating income		8,329		8,119		210			2.6	%
Interest expense		1,036		1,081		(45	)		(4.2	)%
Other expense, net		210		1,215		(1,005	)		(82.7	)%
Income taxes		2,765		2,356		409			17.4	%

Net income	$	4,318	$	3,467	$	851			24.6	%

Basic earnings per share	$	.21	$	.17	$	.04			23.5	%

Diluted earnings per share	$	.20	$	.16	$	.04			25.0	%

Radio Broadcasting Segment



	Three Months Ended
	September 30,

	2004		2003		$ Increase		% Increase


	(In thousands, except percentages)
Net operating revenue	$	30,616	$	27,370	$	3,246		11.9	%
Station operating expense		20,781		17,796		2,985		16.8	%

Operating income	$	9,835	$	9,574	$	261		2.7	%

Television Broadcasting Segment



	Three Months Ended
	September 30,

	2004		2003		$ Increase		% Increase


	(In thousands, except percentages)
Net operating revenue	$	3,646	$	3,063	$	583		19.0	%
Station operating expense		3,225		2,674		551		20.6	%

Operating income	$	421	$	389	$	32		8.2	%


	*Reconciliation of segment operating income to consolidated operating income:*


					Corporate
	Radio		Television		and Other			Consolidated


	(In thousands)
Three Months Ended September 30, 2004:
Net operating revenue	$	30,616	$	3,646	$	—		$	34,262
Station operating expense		20,781		3,225		—			24,006
Corporate general and administrative		—		—		1,927			1,927

Operating income (loss)	$	9,835	$	421	$	(1,927	)	$	8,329


	*Reconciliation of segment operating income to consolidated operating income:*


					Corporate
	Radio		Television		and Other			Consolidated


	(In thousands)
Three Months Ended September 30, 2003:
Net operating revenue	$	27,370	$	3,063	$	—		$	30,433
Station operating expense		17,796		2,674		—			20,470
Corporate general and administrative		—		—		1,844			1,844

Operating income (loss)	$	9,574	$	389	$	(1,844	)	$	8,119


	*Consolidated*

For the three months ended September 30, 2004, consolidated net operating revenue was $34,262,000 compared with $30,433,000 for the three months ended September 30, 2003, an increase of $3,829,000 or 13%. Approximately $1,779,000 or 46% of the increase in our radio segment was attributable to revenue generated by stations that we did not own or operate for the comparable period in 2003. Net operating revenue generated by stations that we owned and operated for the entire comparable period (“same station revenue”) increased by approximately 7% or approximately $2,050,000 ($1,467,000 or 5% in our radio segment and $583,000 or 19% in our television segment). This increase was primarily the result of increased political advertising and improvements in the economy, which contributed to an increase in demand for advertising and an increase in advertising rates at the majority of our stations. The majority of the improvement in same station revenue was attributable to political and local revenue increases of approximately 11%. Same station national revenue decreased on a consolidated basis by approximately 12% because the national advertisers have reduced spending in the ratio segment. National advertising represents approximately 16% of our gross revenue.

Station operating expense (i.e., programming, technical, selling, station general and administrative expense, and station depreciation and amortization expense) increased by $3,536,000 or 17% to $24,006,000 for the three months ended September 30, 2004, compared with $20,470,000 for the three months ended September 30, 2003. Of the total increase, approximately $1,589,000 or 45% was the result of the impact of the operation of stations that we did not own or operate for the comparable period in 2003. Station operating expense increased by approximately $1,947,000 or 10% on a same station basis which was primarily attributable to a $501,000 or 63% increase in health care costs with the remaining increase primarily in advertising and promotion expenses incurred in fighting format attacks in four of our largest markets. Health care costs for the nine months ended September 30, 2004 are up 7% over last year. Because we are self insured we see variances from quarter to quarter.

Operating income for the three months ended September 30, 2004 was $8,329,000 compared to $8,119,000 for the three months ended September 30, 2003, an increase of approximately $210,000 or 3%. The increase was the result of the increase in net operating revenue and station operating expense, $150,000 or 10% increase in depreciation and amortization expense and $83,000 or 5% increase in corporate general and administrative charges. We incurred approximately $309,000 in costs during the third quarter to comply with

Sarbanes-Oxley Section 404. These costs were primarily attributable to auditing, additional personnel and outside consulting services.

We generated net income of approximately $4,318,000 ($.20 per share on a fully diluted basis) during the three months ended September 30, 2004, compared with $3,467,000 ($.16 per share on a fully diluted basis) for the three months ended September 30, 2003, an increase of approximately $851,000 or 25%. The increase was the result of the increase in operating income discussed above and a $45,000 decrease in interest expense, and a $1,005,000 decrease in other expense, offset by a $409,000 increase in income tax expense. The decrease in interest expense was the result of lower interest rates over the prior year, and the expiration of our swap agreements in September 2003. The decrease in other expense was primarily attributable to a $1,200,000 charge incurred during the three months ended September 30, 2003 to write off unamortized debt issuance costs in conjunction with refinancing of our debt, offset by losses recognized during the three months ended September 30, 2004 for the disposal of broadcast properties. The increase in income tax expense was directly attributable to the improvement in operating performance.


	*Radio Segment*

For the three months ended September 30, 2004, net operating revenue of the radio segment was $30,616,000 compared with $27,370,000 for the three months ended September 30, 2003, an increase of $3,246,000 or 12%. Approximately $1,779,000 or 55% of the increase was attributable to revenue generated by radio stations and radio networks that we did not own or operate for the comparable period in 2003. Net operating revenue generated by radio stations and radio networks that we owned and operated for the entire comparable period increased by approximately 5% or approximately $1,467,000. This increase was primarily the result of improvements in the economy and an increase in political advertising in connection with the recent elections, which contributed to an increase in demand for advertising. The majority of the improvement in same station revenue was attributable to increases in same station local and political revenue increases of approximately 8%, while our same station national revenue decreased by approximately 15%. The decrease in national is attributable to reduced national spending in the radio segment.

Station operating expense in the radio segment increased by $2,985,000 or 17% to $20,781,000 for the three months ended September 30, 2004, compared with $17,796,000 for the three months ended September 30, 2003. Approximately $1,589,000 or 53% of the increase was attributable to station and networks that we did not own or operate for the comparable period in 2003. Station operating expense increased by approximately $1,396,000 or 8% on a same station basis, which was primarily attributable to approximately $425,000 increase in health insurance costs and additional advertising and promotion expense incurred in fighting off format attacks in four of our large markets.

Operating income in the radio segment for the three months ended September 30, 2004 was $9,835,000 compared to $9,574,000 for the three months ended September 30, 2003, an increase of approximately $261,000 or 3%. The increase was the result of the increase in net operating revenue and by the increase in station operating expense.


	*Television Segment*

For the three months ended September 30, 2004, net operating revenue of our television segment was $3,646,000 compared with $3,063,000 for the three months ended September 30, 2003, an increase of $583,000 or 19%. Approximately $237,000 or 41% of the increase was attributable to an increase in political advertising. The majority of the improvement in same station revenue was attributable to same station national revenue increases of approximately 6% while our same station local revenue increase was approximately 8%. These increases were primarily the result of improvements in the economy and the recent political elections, which contributed to an increase in demand for advertising and an increase in advertising rates at the majority of our stations.

Station operating expense in the television segment increased by $551,000 or 21% to $3,225,000 for the three months ended September 30, 2004, compared with $2,674,000 for the three months ended September 30, 2003. The increase is primarily attributable to increased spending for programming and sales costs at our new Fox affiliate in Joplin, Missouri which went on the air in October 2003.

Operating income in the television segment for the three months ended September 30, 2004 was $421,000 compared to $389,000 for the three months ended September 30, 2003, an increase of approximately $32,000 or 8%. The increase was the result of the increase in net operating revenue and the increase in station operating.

Nine months Ended September 30, 2004 Compared to Nine months Ended September 30, 2003

The following tables summarize our results of operations for the nine months ended September 30, 2004 and 2003.

Consolidated Results of Operations



		Nine months Ended
		September 30,
						$ Increase			% Increase
		2004		2003		(Decrease)			(Decrease)


		(In thousands, except percentages)
Net operating revenue		$	98,562	$	88,364	$	10,198			11.5	%
Station operating expense			69,924		63,281		6,643			10.5	%
Corporate G&A			5,938		5,084		854			16.8	%

Operating income			22,700		19,999		2,701			13.5	%
Interest expense			3,216		3,773		(557	)		(14.8	)%
Other expense			283		850		(567	)		(66.7	)%
Income taxes			7,491		6,031		1,460			24.2	%

Net income		$	11,710	$	9,345	$	2,365			25.3	%

Earnings per share:
	Basic	$	.56	$	.45	$	.11			24.4	%

	Diluted	$	.55	$	.44	$	.11			25.0	%

Radio Broadcasting Segment



	Nine months Ended
	September 30,

	2004		2003		$ Increase		% Increase


	(In thousands, except percentages)
Net operating revenue	$	87,997	$	79,570	$	8,427		10.6	%
Station operating expense		60,399		55,120		5,279		9.6	%

Operating income	$	27,598	$	24,450	$	3,148		12.9	%

Television Broadcasting Segment



	Nine months Ended
	September 30,

	2004		2003		$ Increase		% Increase


	(In thousands, except percentages)
Net operating revenue	$	10,565	$	8,794	$	1,771		20.1	%
Station operating expense		9,525		8,161		1,364		16.7	%

Operating income	$	1,040	$	633	$	407		64.3	%


	*Reconciliation of segment operating income to consolidated operating income:*


					Corporate
	Radio		Television		and Other			Consolidated


	(In thousands)
Nine months Ended September 30, 2004:
Net operating revenue	$	87,997	$	10,565	$	—		$	98,562
Station operating expense		60,399		9,525		—			69,924
Corporate general and administrative		—		—		5,938			5,938

Operating income (loss)	$	27,598	$	1,040	$	(5,938	)	$	22,700


	*Reconciliation of segment operating income to consolidated operating income:*


					Corporate
	Radio		Television		and Other			Consolidated


	(In thousands)
Nine months Ended September 30, 2003:
Net operating revenue	$	79,570	$	8,794	$	—		$	88,364
Station operating expense		55,120		8,161		—			63,281
Corporate general and administrative		—		—		5,084			5,084

Operating income (loss)	$	24,450	$	633	$	(5,084	)	$	19,999


	*Consolidated*

For the nine months ended September 30, 2004, consolidated net operating revenue was $98,562,000 compared with $88,364,000 for the nine months ended September 30, 2003, an increase of $10,198,000 or 12%. Approximately $4,826,000 ($4,091,000 in our radio segment and $735,000 in our television segment) or 47% of the increase was attributable to revenue generated by stations that we did not own or operate for the comparable period in 2003. Net operating revenue generated by stations that we owned and operated for the entire comparable period increased by approximately 6% or approximately $5,372,000 ($4,336,000 or 6% in our radio segment and $1,036,000 or 12% in our television segment). This increase was primarily the result of improvements in the economy, which contributed to an increase in demand for advertising and an increase in advertising rates at the majority of our stations. The majority of the improvement in same station revenue was attributable to same station local revenue increases of approximately 7% and a $1,255,000 or 34% increase in political revenue, while our same station national revenue decreased by approximately 5%.

Station operating expense increased by $6,643,000 or 11% to $69,924,000 for the nine months ended September 30, 2004, compared with $63,281,000 for the nine months ended September 30, 2003. Of the total increase, approximately $4,236,000 ($3,579,000 in our radio segment and $657,000 in our television segment) or 64% was the result of the impact of the operation of stations that we did not own or operate for the comparable period in 2003. Station operating expense increased by approximately $2,407,000 or 4% on a same station basis, as a result of an increase in selling and commission expenses which was directly attributable to the increase in revenue, and increases in programming expenses and advertising and promotions expense as a result of increased advertising and promotion expenses incurred in fighting off format attacks in four of our largest markets.

Operating income for the nine months ended September 30, 2004 was $22,700,000 compared to $19,999,000 for the nine months ended September 30, 2003, an increase of approximately $2,701,000 or 14%. The increase was the result of the increase in net operating revenue offset by the increase in station operating expense and a $854,000 or 17% increase in corporate general and administrative charges. The increase in corporate general and administrative charges was primarily attributable to approximately $600,000 in charges incurred in Sarbanes-Oxley Section 404 related costs including professional consulting fees, additional salary and travel expenses; charges incurred in registering our stock on the New York Stock Exchange; and an

overall increase in corporate general and administrative primarily attributable to the growth of the Company as a whole.

We generated net income of approximately $11,710,000 ($.55 per share on a fully diluted basis) during the nine months ended September 30, 2004, compared with $9,345,000 ($.44 per share on a fully diluted basis) for the nine months ended September 30, 2003, an increase of approximately $2,365,000 or 25%. The increase was the result of the increase in operating income discussed above, a decrease in interest expense and other expense of approximately $557,000 and $567,000 respectively offset by $1,460,000 increase in income tax expense. The decrease in interest expense was the result of lower interest rates over the prior year and the expiration of our swap agreements in September 2003. The decrease in other expense was the principally the result of a $1,200,000 charge incurred for the write-off of unamortized debt issuance costs in 2003 offset by gains recognized on the sale of two of our AM radio stations in our Columbus, Ohio and Springfield, Illinois markets during the nine months ended September 30, 2003. The increase in income tax expense was directly attributable to the improvement in operating performance.


	*Radio Segment*

For the nine months ended September 30, 2004, net operating revenue in the radio segment was $87,997,000 compared with $79,570,000 for the nine months ended September 30, 2003, an increase of $8,427,000 or 11%. Approximately $4,091,000 or 49% of the increase was attributable to revenue generated by radio stations and radio networks that we did not own or operate for the comparable period in 2003. Net operating revenue generated by radio stations and radio networks that we owned and operated for the entire comparable period increased by approximately 5% or approximately $4,336,000. This increase was primarily the result of improvements in the economy, which contributed to an increase in demand for advertising and an increase in advertising rates at the majority of our radio stations. The majority of the improvement in same station revenue was attributable to same station local revenue increases of approximately 8% and a 428% increase in political advertising, while our same station national revenue decrease was approximately 14%.

Station operating expense (i.e., programming, technical, selling and station general and administrative expenses) in our radio segment increased by $5,279,000 or 10% to $60,399,000 for the nine months ended September 30, 2004, compared with $55,120,000 for the nine months ended September 30, 2003. Of the total increase, approximately $3,579,000 or 68% was the result of the impact of the operation of stations that we did not own or operate for the comparable period in 2003. Station operating expense increased by approximately $1,700,000 or 3% on a same station basis, which was directly attributable to the increase in revenue.

Operating income in the radio segment for the nine months ended September 30, 2004 was $27,598,000 compared to $24,450,000 for the nine months ended September 30, 2003, an increase of approximately $3,148,000 or 13% The increase was the result of the increase in net operating revenue, offset by the increase in station operating expense.


	*Television Segment*

For the nine months ended September 30, 2004, net operating revenue in the television segment was $10,565,000 compared with $8,794,000 for the nine months ended September 30, 2003, an increase of $1,771,000 or 20%. Approximately $735,000 or 42% of the increase was attributable to revenue generated by television stations that we did not own or operate for the comparable period in 2003. Net operating revenue generated by stations that we owned and operated for the entire comparable period increased by approximately 12% or approximately $1,036,000. Approximately $261,000 or 25% of the same station increase was the result of an increase in political advertising. The remaining increase in revenue was primarily the result of improvements in the economy, which contributed to an increase in demand for advertising and an increase in advertising rates at the majority of our television stations. Same station national revenue increased by approximately 13%, while same station local revenue increased approximately 4%. Approximately 22% of our gross revenue in our television segment is attributable to national advertising.

Station operating expense in our television segment increased by $1,364,000 or 17% to $9,525,000 for the nine months ended September 30, 2004, compared with $8,161,000 for the nine months ended September 30,

2003. Of the total increase, approximately $657,000 or 48% was the result of the impact of the operation of television stations that we did not own or operate for the comparable period in 2003. Station operating expense increased by approximately $707,000 or 9% on a same station basis, which was attributable to increases in selling and commission expenses as a result of the increase in revenue.

Operating income in the television segment for the nine months ended September 30, 2004 was $1,040,000 compared to $633,000 for the nine months ended September 30, 2003, an increase of approximately $407,000 or 64%. The increase was the result of the increase in net operating revenue and the increase in station operating expense.

Forward-Looking Statements

Statements contained in this Form 10-Q 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 2004 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 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.

For a more complete description of the prominent risks and uncertainties inherent in our business, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward Looking Statements; Risk Factors” in our Form 10-K for the year ended December 31, 2003.

Liquidity and Capital Resources


	*Debt Arrangements and Debt Service Requirements*

As of September 30, 2004, we had $121,161,000 of long-term debt outstanding and approximately $79,900,000 of unused borrowing capacity under our Credit Agreement.

Our current financing facility (the “Facility”) under our Credit Agreement is a $200,000,000 reducing revolving line of credit (the “Reducing Revolver”). The Facility matures July 29, 2010. Our indebtedness under the Facility is 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 Reducing Revolver may be used for general corporate purposes, including working capital, capital expenditures, permitted acquisition and related transaction expenses and permitted stock buybacks. On March 31, 2006, the Revolving Commitments (as defined in the Credit Agreement) will be permanently reduced quarterly in amounts ranging from 3.125% to 12.5% of the total Revolving Commitments in effect on March 31, 2006. Any outstanding balance under the Reducing Revolver will be due on the maturity date of July 29, 2010. In addition, the Revolving Commitments shall be further reduced by specified percentages of Excess Cash Flow (as defined in Credit Agreement) based on leverage ratios.

Interest rates under the Facility are payable, at our option, at alternatives equal to LIBOR plus 1.375% to 2.0% or the Agent bank’s base rate plus 0.125% to 0.75%. The spread over LIBOR and the base rate vary from

time to time, depending upon our financial leverage. We also pay quarterly commitment fees of 0.375% to 0.625% per annum on the unused portion of the Facility.

The Credit Agreement contains a number of financial covenants (all of which we were in compliance with at September 30, 2004) 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.


	*Sources and Uses of Cash*

During the nine months ended September 30, 2004 and 2003, we had net cash flows from operating activities of $22,073,000 and $20,244,000, 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 Agreement. 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.

On March 1, 2004 we acquired the Minnesota News Network and the Minnesota Farm Network for approximately $3,443,000 in cash. We financed this acquisition through funds generated from operations.

On April 1, 2004 we acquired three FM radio stations (WRSI-FM, WPVQ-FM and WRSY-FM), serving the Springfield, Massachusetts, Greenfield, Massachusetts and Brattleboro, Vermont markets, respectively, for approximately $7,220,000 in cash. We financed this acquisition through funds generated from operations.

On July 1, 2004 we acquired an FM radio station (WXTT-FM) serving the Champaign, Illinois market, for approximately $3,272,000 in cash. We financed this acquisition through funds generated from operations.

On August 10, 2004 we sold an AM radio station (WJQY-AM) serving the Springfield, Tennessee market for approximately $150,000 in cash.

The following transactions were either pending at September 30, 2004 or were entered into subsequent to that date, which we expect to finance through funds generated from operations and additional borrowings under our Credit Agreement:

• On January 21, 2004, we entered into agreements to acquire one FM radio station (WOXL-FM) and one AM radio station (WISE-AM), both serving the Asheville, North Carolina market, for a combined purchase price of approximately $10,000,000 in cash. We are currently providing programming to WISE-AM under a Time Brokerage Agreement (“TBA”) and to WOXL-FM under a Sub-Time Brokerage Agreement. These transactions are subject to the approval of the Federal Communications Commission and have been contested, however, we expect to get approval and close on the acquisitions during the first quarter 2005.

• On May 20, 2004, we entered into an agreement to acquire two FM and two AM radio stations (WQNY-FM, WYXL-FM, WTKO-AM and WHCU-AM) serving the Ithaca, New York market for approximately $13,250,000. This transaction, subject to the approval of the Federal Communications Commission, is expected to close during the first quarter 2005.

• On September 29, 2004, we entered into an agreement to acquire a low power television station (K17FS) serving the Victoria, Texas market for approximately $200,000. This transaction, subject to the approval of the Federal Communications Commission, is expected to close during the fourth quarter of 2004 or first quarter 2005.

• On October 15, 2004 we entered into an agreement to acquire an AM (WINA-AM) and two FM (WWWV-FM and WQMZ-FM) radio stations serving the Charlottesville, Virginia market for approximately $22,000,000 including approximately $2,000,000 of our Class A common stock. This

transaction is subject to approval of the Federal Communications Commission and is expected to be completed during the fourth quarter of 2004 or first quarter 2005.

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

In August 2004, our board of directors authorized an increase to our Stock Buy-Back Program so that we may purchase a total of $20,000,000 of our Class A Common Stock. From the inception of the Stock Buy-Back program in 1998 through September 30, 2004, we have repurchased 812,564 shares of our Class A Common Stock for $12,216,013. During the three months ended September 30, 2004 we repurchased 117,700 shares for approximately $2,104,857. For more information on our stock repurchases during the third quarter of 2004, see Part II Item 2 “Unregistered Sales of Equity Securities and Use of Proceeds” below.

We anticipate that any future acquisitions of radio and television stations and purchases of Class A Common Stock under the Stock Buy-Back Program 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.

Our capital expenditures, exclusive of acquisitions, for the nine months ended September 30, 2004 were approximately $8,249,000 ($6,410,000 for the nine month ended September 30, 2003). We anticipate capital expenditures exclusive of acquisitions in 2004 to be approximately $9,500,000 to $10,000,000, net of insurance proceeds, which we expect to finance through funds generated from operations or additional borrowings under the Credit Agreement.


	*Summary Disclosures About Contractual Obligations and Commercial Commitments*

We have future cash obligations under various types of contracts under the terms of our Credit Agreement, operating leases, programming contracts, employment agreements, and other operating contracts. For additional information concerning our future cash obligations see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation-Summary Disclosures About Contractual Obligations and Commercial Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2003.

With the exception of the commitments to acquire radio and television stations of $35,450,000 disclosed in Notes 6 and 8, there have been no material changes to such contracts/commitments during the nine months ended September 30, 2004. We anticipate that the above contractual cash obligations will be financed through funds generated from operations or additional borrowings under the Credit Agreement, or a combination thereof.


	*Critical Accounting Policies and Estimates*

Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, 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. Our critical accounting policies are described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2003.


	*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.


Item 3.	*Quantitative and Qualitative Disclosures about Market Risk*

Refer to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Market Risk and Risk Management Policies” in our Annual Report on Form 10-K for the year ended December 31, 2003 for a complete discussion of our market risk. There have been no material changes to the market risk information included in our 2003 Annual Report on Form 10-K.


Item 4.	*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. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to cause the material information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 to be recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2004, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II — OTHER INFORMATION


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*

The following table summarizes our repurchases of our Class A Common Stock during the quarter ended September 30, 2004. All shares repurchased during the quarter were repurchased in open market transactions on the New York Stock Exchange.


						Total
						Number of		Approximate
						Shares		Dollar Value
						Purchased as		of Shares that
		Total				Part of		May Yet be
		Number of		Average		Publicly		Purchased
		Shares		Price Paid		Announced		Under the
Period		Purchased		per Share		Program		Program (a)

July 1 — July 31, 2004			0		0		0	$	4,888,862
August 1 — August 31, 2004			77,400	$	17.916		77,400	$	8,502,167
September 1 — September 30, 2004			40,300	$	18.821		40,300	$	7,783,987

	Total		117,700

(a) On August 7, 1998 our Board of Directors approved a Stock Buy-Back Program of up to $2,000,000 of our Class A Common Stock. Since August 1998, the Board of Directors has authorized several increases to the Stock Buy-Back Program, the most recent occurring on August 24, 2004, which increased the total amount authorized to be repurchased to $20,000,000.


Item 6.	*Exhibits*


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 Rules 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.

SIGNATURES

Pursuant to the requirements 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.

SAGA COMMUNICATIONS, INC.



Date: November 8, 2004		/s/ SAMUEL D. BUSH Samuel D. Bush Senior Vice President, Chief Financial Officer, and Treasurer (Principal Financial Officer)

Date: November 8, 2004		/s/ CATHERINE A. BOBINSKI Catherine A. Bobinski Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer)

INDEX TO EXHIBITS


Exhibit
Number			Description

	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.

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Note:	The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.


	•	The radio and television broadcasting licenses may be renewed indefinitely at little cost.

	•	The radio and television broadcasting licenses are essential to our business, and we intend to renew our licenses indefinitely.

	•	We have never been denied the renewal of a FCC broadcast license.

	•	We do not believe that there will be any compelling challenge to the renewal of our broadcast licenses.

	•	We do not believe that the technology used in broadcasting will be replaced by another technology in the foreseeable future.


	•	Two interest rate swap agreements with a total notional amount of $26,250,000. We paid 4.11% calculated on the notional amount; we received LIBOR calculated on the notional amount of $26,250,000. These agreements expired in March, 2003.

	•	Two interest rate swap agreements with a total notional amount of $13,750,000. We paid 3.67% calculated on the notional amount; we received LIBOR calculated on the notional amount of $13,750,000. In March 2003 the total notional amount of these swap agreements increased to $40,000,000 with all other terms remaining the same. These agreements expired in September, 2003.


*	Operating income plus corporate general and administrative expenses, depreciation and amortization


	•	On January 21, 2004, we entered into agreements to acquire one FM radio station (WOXL-FM) and one AM radio station (WISE-AM), both serving the Asheville, North Carolina market, for a combined purchase price of approximately $10,000,000 in cash. We are currently providing programming to WISE-AM under a Time Brokerage Agreement (“TBA”) and to WOXL-FM under a Sub-Time Brokerage Agreement. These transactions are subject to the approval of the Federal Communications Commission and have been contested, however, we expect to get approval and close on the acquisitions during the first quarter 2005.

	•	On May 20, 2004, we entered into an agreement to acquire two FM and two AM radio stations (WQNY-FM, WYXL-FM, WTKO-AM and WHCU-AM) serving the Ithaca, New York market for approximately $13,250,000. This transaction, subject to the approval of the Federal Communications Commission, is expected to close during the first quarter 2005.

	•	On September 29, 2004, we entered into an agreement to acquire a low power television station (K17FS) serving the Victoria, Texas market for approximately $200,000. This transaction, subject to the approval of the Federal Communications Commission, is expected to close during the fourth quarter of 2004 or first quarter 2005.

	•	On October 15, 2004 we entered into an agreement to acquire an AM (WINA-AM) and two FM (WWWV-FM and WQMZ-FM) radio stations serving the Charlottesville, Virginia market for approximately $22,000,000 including approximately $2,000,000 of our Class A common stock. This


(a)	On August 7, 1998 our Board of Directors approved a Stock Buy-Back Program of up to $2,000,000 of our Class A Common Stock. Since August 1998, the Board of Directors has authorized several increases to the Stock Buy-Back Program, the most recent occurring on August 24, 2004, which increased the total amount authorized to be repurchased to $20,000,000.