SALEM MEDIA GROUP, INC. /DE/ - Quarter Report: 2021 March (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

OR

 

☐	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 000-26497

 

 

SALEM MEDIA GROUP, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

 

 

 

DELAWARE		77-0121400
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)		(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
6400 NORTH BELT LINE ROAD IRVING, TEXAS		75063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		(ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (469) 586-0080

 

 

 

Title of each Class		Trading Symbol(s)		Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share		SALM		NASDAQ Global Market

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically 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 such files.)    Yes  ☒    No  ☐

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

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller Reporting Company		☒
				Emerging Growth Company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class A		Outstanding at May 1, 2021
Common Stock, $0.01 par value per share		21,315,449 shares

 

Class B		Outstanding at May 1, 2021
Common Stock, $0.01 par value per share		5,553,696 shares

 

 

 

SALEM MEDIA GROUP, INC.

INDEX

 

		PAGE NO.
COVER PAGE
INDEX
FORWARD LOOKING STATEMENTS			3
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.			3
Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			56
Item 4. Controls and Procedures.			56
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.			57
Item 1A. Risk Factors.			57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			57
Item 3. Defaults Upon Senior Securities.			57
Item 4. Mine Safety Disclosures.			57
Item 5. Other Information.			57
Item 6. Exhibits.			57
EXHIBIT INDEX			57
SIGNATURES			59

 

1

CERTAIN DEFINITIONS

Unless the context requires otherwise, all references in this report to “Salem” or the “company,” including references to Salem by “we” “us” “our” and “its” refer to Salem Media Group, Inc. and our subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Salem makes “forward-looking statements” from time to time in both written reports (including this annual report) and oral statements, within the meaning of federal and state securities laws. Disclosures that use words such as the company “believes,” “anticipates,” “estimates,” “expects,” “intends,” “will,” “may,” “intends,” “could,” “would,” “should,” “seeks,” “predicts,” or “plans” and similar expressions are intended to identify forward-looking statements, as defined under the Private Securities Litigation Reform Act of 1995.

You should not place undue reliance on these forward-looking statements, which reflect our expectations based upon data available to the company as of the date of this annual report. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Except as required by law, the company undertakes no obligation to update or revise any forward-looking statements made in this annual report. Any such forward-looking statements, whether made in this annual report or elsewhere, should be considered in context with the various disclosures made by Salem about its business. These projections and other forward-looking statements fall under the safe harbors of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

2

PART I – FINANCIAL INFORMATION

SALEM MEDIA GROUP, INC.

 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

3

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

 

		December 31, 2020 (Note 1)				March 31, 2021 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	6,325			$	23,394
Trade accounts receivable (net of allowances of $14,069 in 2020 and $13,225 in 2021)			24,469				22,974
Unbilled revenue			3,192				2,548
Other receivables (net of allowances of $124 in 2020 and $424 in 2021)			1,122				1,006
Inventories (net of reserves of $1,499 in 2020 and $1,439 in 2021)			495				588
Prepaid expenses			6,847				7,597
Assets held for sale			3,346				—
Total current assets			45,796				58,107
Notes receivable (net of allowance of $461 in 2020 and $831 in 2021)			721				696
Property and equipment (net of accumulated depreciation of $180,336 in 2020 and $183,136 in 2021)			79,122				78,598
Operating lease right-of-use assets			48,203				46,508
Financing lease right-of-use assets			152				138
Broadcast licenses			319,773				319,773
Goodwill			23,757				23,757
Amortizable intangible assets (net of accumulated amortization of $58,897 in 2020 and $59,478 in 2021)			4,017				3,563
Deferred financing costs			213				187
Other assets			2,817				2,627
Total assets		$	524,571			$	533,954
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	2,006			$	1,312
Accrued expenses			11,002				9,932
Accrued compensation and related expenses			10,242				11,153
Accrued interest			1,225				4,875
Contract liabilities			11,652				12,600
Deferred rent income			147				149
Income taxes payable			563				584
Current portion of operating lease liabilities			8,963				8,615
Current portion of financing lease liabilities			60				60
Current portion of long-term debt			5,000				—
Total current liabilities			50,860				49,280
Long-term debt, less current portion			213,764				225,143
Operating lease liabilities, less current portion			47,740				46,058
Financing (capital) lease liabilities, less current portion			107				94
Deferred income taxes			68,883				69,071
Contract liabilities, long-term			1,869				2,159
Deferred rent income, less current portion			3,864				3,841
Other long-term liabilities			2,205				2,236
Total liabilities			389,292				397,882
Commitments and contingencies (Note 16)
Stockholders’ Equity:
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 23,447,317 and 23,633,099 issued and 21,129,667 and 21,315,449 outstanding at December 31, 2020 and March 31, 2021, respectively			227				229
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2020 and March 31, 2021, respectively			56				56
Additional paid-in capital			247,025				247,493
Accumulated deficit			(78,023	)			(77,700	)
Treasury stock, at cost (2,317,650 shares at December 31, 2020 and March 31, 2021)			(34,006	)			(34,006	)
Total stockholders’ equity			135,279				136,072
Total liabilities and stockholders’ equity		$	524,571			$	533,954

See accompanying notes

 

4

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share data)

(Unaudited)

 

		Three Months Ended
		March 31,
		2020				2021
Net broadcast revenue		$	45,180			$	44,048
Net digital media revenue			9,104				9,619
Net publishing revenue			3,966				5,686
Total net revenue			58,250				59,353
Operating expenses:
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $431 and $443 for the three months ended March 31, 2020 and 2021, respectively, paid to related parties)			37,327				33,343
Digital media operating expenses, exclusive of depreciation and amortization shown below			8,326				8,673
Publishing operating expenses, exclusive of depreciation and amortization shown below			5,062				5,205
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $180 and $3 for the three months ended March 31, 2020 and 2021, respectively, paid to related parties)			4,210				4,288
Depreciation			2,713				2,589
Amortization			987				581
Change in the estimated fair value of contingent earn-out consideration			(5	)			—
Impairment of indefinite-lived long-term assets other than goodwill			17,254				—
Impairment of goodwill			307				—
Net (gain) loss on the disposition of assets			79				318
Total operating expenses			76,260				54,997
Operating income (loss)			(18,010	)			4,356
Other income (expense):
Interest income			—				1
Interest expense			(4,032	)			(3,926	)
Gain on early retirement of long-term debt			49				—
Net miscellaneous income and expenses			(52	)			22
Net income (loss) before income taxes			(22,045	)			453
Provision for income taxes			33,159				130
Net income (loss)		$	(55,204	)		$	323
Basic earnings (loss) per share data:
Basic earnings (loss) per share Class A and Class B common stock		$	(2.07	)		$	0.01
Diluted earnings (loss) per share data:
Diluted earnings (loss) per share Class A and Class B common stock		$	(2.07	)		$	0.01
Basic weighted average Class A and Class B shares outstanding			26,683,363				26,736,639
Diluted weighted average Class A and Class B shares outstanding			26,683,363				27,138,773

See accompanying notes

 

5

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands, except share and per share data)

 

		Class A								Class B
		Common Stock								Common Stock								Additional
																		Paid-In				Accumulated				Treasury
		Shares				Amount				Shares				Amount				Capital				Deficit				Stock				Total
Stockholders’ equity, December 31, 2019			23,447,317			$	227				5,553,696			$	56			$	246,680			$	(23,294	)		$	(34,006	)		$	189,663
Stock-based compensation			—				—				—				—				103				—				—				103
Cash distributions			—				—				—				—				—				(667	)			—				(667	)
Net loss			—				—				—				—				—				(55,204	)			—				(55,204	)
Stockholders’ equity, March 31, 2020			23,447,317			$	227				5,553,696			$	56			$	246,783			$	(79,165	)		$	(34,006	)		$	133,895
Distributions per share		$	0.025							$	0.025

 

		Class A								Class B
		Common Stock								Common Stock								Additional
																		Paid-In				Accumulated				Treasury
		Shares				Amount				Shares				Amount				Capital				Deficit				Stock				Total
Stockholders’ equity, December 31, 2020			23,447,317			$	227				5,553,696			$	56			$	247,025			$	(78,023	)		$	(34,006	)		$	135,279
Stock-based compensation			—				—				—				—				78				—				—				78
Options exercised			185,782				2				—				—				390				—				—				392
Net income			—				—				—				—				—				323				—				323
Stockholders’ equity, March 31, 2021			23,633,099			$	229				5,553,696			$	56			$	247,493			$	(77,700	)		$	(34,006	)		$	136,072

See accompanying notes

 

6

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

		Three Months Ended March 31,
		2020				2021
OPERATING ACTIVITIES
Net income (loss)		$	(55,204	)		$	323
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Non-cash stock-based compensation			103				78
Depreciation and amortization			3,700				3,170
Amortization of deferred financing costs			227				213
Non-cash lease expense			2,252				2,161
Provision for bad debts			1,900				(295	)
Deferred income taxes			33,084				188
Change in the estimated fair value of contingent earn-out consideration			(5	)			—
Impairment of indefinite-lived long-term assets other than goodwill			17,254				—
Impairment of goodwill			307				—
Gain on early retirement of long-term debt			(49	)			—
Net (gain) loss on the disposition of assets			79				318
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue			2,419				2,549
Inventories			70				(93	)
Prepaid expenses and other current assets			(587	)			(750	)
Accounts payable and accrued expenses			4,478				2,490
Operating lease liabilities			(2,407	)			(2,497	)
Contract liabilities			133				1,122
Deferred rent income			(84	)			170
Other liabilities			6				29
Income taxes payable			57				21
Net cash provided by operating activities			7,733				9,197
INVESTING ACTIVITIES
Cash paid for capital expenditures net of tenant improvement allowances			(1,587	)			(1,859	)
Capital expenditures reimbursable under tenant improvement allowances and trade agreements			(84	)			—
Deposit on broadcast assets and radio station acquisitions			—				(100	)
Proceeds from sale of assets			2				3,501
Other			(428	)			(238	)
Net cash provided by (used in) investing activities			(2,097	)			1,304
FINANCING ACTIVITIES
Payments to repurchase 6.75% Senior Secured Notes			(3,392	)			—
Proceeds from borrowings under ABL Facility			33,319				16
Payments on ABL Facility			(31,745	)			(5,016	)
Proceeds from borrowings under PPP Loans			—				11,195
Payments of debt issuance costs			(1	)			(3	)
Proceeds from the exercise of stock options			—				392
Payments on financing lease liabilities			(18	)			(16	)
Payment of cash distribution on common stock			(667	)			—
Book overdraft			(1,885	)			—
Net cash provided by (used in) financing activities			(4,389	)			6,568
Net increase in cash and cash equivalents			1,247				17,069
Cash and cash equivalents at beginning of year			6				6,325
Cash and cash equivalents at end of period		$	1,253			$	23,394

 

See accompanying notes

 

7

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollars in thousands)

(Unaudited)

 

		Three Months Ended March 31,
		2020				2021
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Cash paid for interest, net of capitalized interest		$	163			$	51
Cash paid for interest on finance lease liabilities		$	2			$	2
Net cash paid for (received from) income taxes		$	18			$	(79	)
Other supplemental disclosures of cash flow information:
Barter revenue		$	1,192			$	391
Barter expense		$	1,034			$	373
Non-cash investing and financing activities:
Capital expenditures reimbursable under tenant improvement allowances		$	84			$	—
Right-of-use assets acquired through operating leases		$	575			$	553
Right-of-use assets acquired through financing leases		$	—			$	2
Non-cash capital expenditures for property & equipment acquired under trade agreements		$	4			$	6
Net assets and liabilities assumed in a non-cash acquisition		$	—				127
Estimated present value of contingent-earn out consideration		$	—			$	11

See accompanying notes

 

8

SALEM MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BUSINESS AND BASIS OF PRESENTATION

Business

Salem Media Group, Inc. (“Salem,” “we,” “us,” “our” or the “company”) is a domestic multimedia company specializing in Christian and conservative content. Our media properties include radio broadcasting, digital media, and publishing entities. We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which are discussed in Note 17 – Segment Data.

Impact of the COVID-19 Pandemic

The COVID-19 global pandemic that began in March 2020 continues to impact our business. Measures taken by federal, state and local governments to prevent the spread of COVID-19 have adversely affected workforces, certain economies, and financial markets resulting in a significant economic downturn. We experienced a rapid decline in revenue from advertising, programming, events and book sales. Several advertisers reduced or ceased advertising spending due to the outbreak and stay-at-home orders that effectively shut many businesses down. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who have been particularly hard hit due to social distancing and government interventions, and our publishing segment, which derives revenue from book sales through retail stores and live events.

While the disruption is expected to be temporary, there remains to be considerable uncertainty around the duration. Advertising revenue continues to improve over the lowest levels that were experienced during April and May of 2020, but remain significantly below prior years. The exact timing and pace of the economic recovery has not been determinable as certain markets have reopened, some of which have since experienced a resurgence of COVID-19 cases, resulting in varying degrees of reinstated stay-at-home orders. Due to continuing uncertainties regarding the ultimate scope and trajectory of COVID-19’s spread and evolution, it is impossible to predict the total impact that the pandemic will have on our business. If public and private entities continue to enforce restrictive measures, the material adverse effect on our business, results of operations, financial condition and cash flows could persist. Our businesses could also continue to be impacted by the disruptions from COVID-19 and resulting adverse changes in advertising and consumer behavior.

Lower revenue and longer days to collect receivables negatively impacts future availability under our credit facility. Availability under our Asset Based Loan (“ABL Facility”) is subject to a borrowing base consisting of (a) 90% of the eligible accounts receivable plus (b) a calculated amount based on the value of certain real property. The maximum amount available under our ABL Facility was $26.1 million at March 31, 2021 compared to $24.8 million at December 31, 2020, of which none was outstanding at March 31, 2021 compared to $5.0 million outstanding at December 31, 2020.

We implemented several measures during 2020 to reduce costs and conserve cash to ensure that we have adequate cash to meet our debt servicing requirements, including:

 

•

limiting capital expenditures;

 

•

reducing discretionary spending, including travel and entertainment;

 

•

eliminating open positions and freezing new hires;

 

•

reducing staffing levels;

 

•

implementing temporary company-wide pay cuts of 5%, 7.5% or 10% depending on salary level;

 

•

furloughing certain employees;

 

•

temporarily suspending the company 401(k) match;

 

•

requesting rent concessions from landlords;

 

•

requesting discounts from vendors;

 

•

offering early payment discounts to certain customers in exchange for advance cash payments; and

 

•

suspending the payment of distributions on our common stock indefinitely.

As the economy begins to show signs of recovery, many of these cost reduction initiatives have or will be reversed during 2021. We continue to operate with lower staffing levels, have not reinstated the company 401(k) match and have not paid equity distributions on our common stock.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the COVID-19 pandemic and their employees. On December 27, 2020, Congress passed the Consolidated Appropriations Act (“CAA”) that includes a second relief package, which, among other things, provides for an extension of the Payroll Support Program established by the CARES Act. We have utilized certain benefits of the CARES Act, and we may be entitled to benefits under the CAA based on our individual locations, including:

 

•

we deferred $3.3 million of employer FICA taxes from April 2020 through December 2020 , with 50% payable in December 2021 and 50% payable in December 2022;

 

9

•

relaxation of interest expense deduction limitation for income tax purposes; and

 

•

Paycheck Protection Plan (“PPP”) loans available based on the eligibility determined on a per-location basis of $11.2 million on a consolidated basis.

We believe that our customers have benefited from the enhanced benefits provided by the CARES Act, and that they will also benefit from the CAA. The CAA provides for another round of direct payments, enhanced unemployment benefits, education funding, and aid to sectors still reeling from the economic fallout of the pandemic. While these measures may benefit many of our customers, we cannot assure you that the implementation of these measures will offset the negative impact of COVID-19 on our customers. If the CAA or any additional stimulus measures are not sufficient to remediate the financial stress on our customers as a result of the pandemic, we may experience ongoing challenges in growing and maintaining revenue and we may experience an increase in delinquencies that could materially and adversely impact our results of operations and financial condition in future periods.

We continue to review and consider any available potential benefit under the CARES Act and the CAA for which we qualify. We cannot predict the manner in which such benefits or any of the other benefits described herein will be allocated or administered and we cannot assure you that we will be able to access such benefits in a timely manner or at all. If the U.S. government or any other governmental authority agrees to provide such aid under the CARES Act, the CAA, or any other crisis relief assistance it may impose certain requirements on the recipients of the aid, including restrictions on executive officer compensation, dividends, prepayment of debt, limitations on debt and other similar restrictions that may apply for a period of time after the aid is repaid or redeemed in full.

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements of Salem include the company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Information with respect to the three months ended March 31, 2021 and 2020 is unaudited. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) 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 the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations and cash flows of the company. The unaudited interim financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report for Salem filed on Form 10-K for the year ended December 31, 2020. Our results are subject to seasonal fluctuations. Therefore, the results of operations for the interim periods presented are not necessarily indicative of the results of operations for the full year.

The balance sheet at December 31, 2020 included in this report has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results can be materially different from these estimates and assumptions.

Significant areas for which management uses estimates include:

 

•

revenue recognition;

 

•

asset impairments, including broadcasting licenses, goodwill and other indefinite-lived intangible assets;

 

•

probabilities associated with the potential for contingent earn-out consideration;

 

•

fair value measurements;

 

•

contingency reserves;

 

•

allowance for doubtful accounts;

 

•

sales returns and allowances;

 

•

barter transactions;

 

•

inventory reserves;

 

•

reserves for royalty advances;

 

•

fair value of equity awards;

 

•

self-insurance reserves;

 

•

estimated lives for tangible and intangible assets;

 

•

assessment of contract-based factors, asset-based factors, entity-based factors and market-based factors to determine the lease term impacting Right-Of-Use (“ROU”) assets and lease liabilities;

 

•

determining the Incremental Borrowing Rate (“IBR”) for calculating ROU assets and lease liabilities,

 

•

income tax valuation allowances;

 

10

•

uncertain tax positions; and

 

•

estimates used in going concern analysis.

These estimates require the use of judgment as future events and the effect of these events cannot be predicted with certainty. The estimates will change as new events occur, as more experience is acquired and as more information is obtained. We evaluate and update our assumptions and estimates on an ongoing basis and we may consult outside experts to assist as considered necessary.

The COVID-19 pandemic continues to create significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties could materially impact our estimates related to, but not limited to, revenue recognition, broadcast licenses, goodwill and income taxes. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our consolidated financial statements.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no changes to our significant accounting policies described in Note 2 to our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 4, 2021, that have had a material impact on our Condensed Consolidated Financial Statements and related notes.

Recent Accounting Pronouncements

Changes to accounting principles are established by the FASB in the form of ASUs to the FASB’s Codification. We consider the applicability and impact of all ASUs on our financial position, results of operations, cash flows, or presentation thereof. Described below are ASUs that may be applicable to our financial position, results of operations, cash flows, or presentation thereof. ASUs not listed below were assessed and determined to not be applicable to our financial position, results of operations, cash flows, or presentation thereof.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refines the scope of ASC 848, Reference Rate Reform, and clarifies guidance as part of the FASB’s ongoing monitoring of global reference rate reform activities. The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. The ASU is effective upon issuance and did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses, which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. Subsequent to issuing ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, for the purpose of clarifying certain aspects of ASU 2016-13. ASU 2018-19 has the same effective date and transition requirements as ASU 2016-13. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which is effective with the adoption of ASU 2016-13. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326), which is also effective with the adoption of ASU 2016-13. In October 2019, the FASB voted to delay the implementation date for certain companies, including those, such as Salem, that qualify as a smaller reporting company under SEC rules, until January 1, 2023. We will adopt this ASU on its effective date of January 1, 2023. We do not expect the adoption of this ASU to have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

NOTE 3. RECENT TRANSACTIONS

During the three-month period ended March 31, 2021, we completed or entered into the following transactions:

Debt Transactions

We applied for and received $11.2 million in aggregate principal amount of PPP loans through the Small Business Administration (“SBA”) that were available to our radio stations and networks under the CAA. The PPP loans and accrued interest are forgivable provided that the proceeds are used for eligible purposes, including payroll, benefits, rent and utilities within the covered period of up to 24 weeks from funding of the loans. The amount of PPP loan and accrued interest that is forgiven can be reduced if we reduce payroll or eliminate positions during the covered period. We are using, and intend to continue to use, the PPP loan proceeds according to the terms and will file timely applications for forgiveness. The PPP loans accrue interest at 1% annually and mature in five years for any amount that is not forgiven. The PPP loans are reflected in long-term debt in the accompanying condensed consolidated financial statements in accordance with FASB ASC Topic 470, Debt, until the loans are repaid or legally discharged.

 

11

Acquisitions

On March 8, 2021, we acquired the Triple Threat Trader newsletter. We paid no cash at the time of closing and assumed deferred subscription liabilities of $0.1 million. As part of the purchase agreement, we may pay up to an additional $11,000 in contingent earn-out consideration over the next two years based on the achievement of certain revenue benchmarks.

Divestitures

On March 18, 2021, we sold radio station WKAT-AM and an FM translator in Miami, Florida for $3.5 million. We collected $3.2 million in cash upon closing and entered a promissory note for $0.3 million in cash due one year from the closing date. The buyer began operating the station under a Local Marketing Agreement (“LMA”) in November 2020. We recognized an estimated pre-tax loss of $1.4 million during the three-month period ended September 30, 2020, the date we entered the Asset Purchase Agreement (“APA”) with the buyer, which reflected the sale price as compared to the carrying value of the assets to be sold, estimated closing costs, and the write-off of the remaining Miami assets as a result of exiting this market. We adjusted the pre-tax loss by $0.3 million to $1.7 million upon closing based on the actual closing costs incurred and a reconciliation of total station assets to the assets included in the sale.

Pending Transactions

On February 4, 2021, we entered into an APA to acquire KDIA-AM and KDYA-AM in San Francisco, California for $0.6 million in cash. We paid $0.1 million in cash to an escrow account with $0.5 million of cash due upon closing. The purchase is subject to the approval of the FCC and is expected to close in the first half of 2021.

On February 5, 2020, we entered into an APA with Word Broadcasting to sell radio stations WFIA-AM, WFIA-FM and WGTK-AM in Louisville, Kentucky for $4.0 million with credits applied from amounts previously paid, including a portion of the monthly fees paid under a Time Brokerage Agreement (“TBA”). Due to changes in debt markets, the transaction was not funded, and it is uncertain when, or if, the transaction will close. Word Broadcasting continues to program the stations under a TBA that began in January 2017.

NOTE 4. REVENUE RECOGNITION

We recognize revenue in accordance with ASC 606, “Revenue from Contracts with Customers” (“ASC 606,”) a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to customers at an amount that reflects the consideration expected to be received. The application of ASC 606 requires us to use significant judgment and estimates when applying a five-step model applicable to all revenue streams.

Principal versus Agent Considerations

When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent.

Contract Assets

Contract Assets—Costs to Obtain a Contract: We capitalize commissions paid to sales personnel in our self-publishing business when customer contracts are signed and advance payment is received. These capitalized costs are recorded as prepaid commission expense in the Consolidated Balance Sheets. The amount capitalized is incremental to the contract and would not have been incurred absent the execution of the customer contract. Commissions paid upon the initial acquisition of a contract are expensed at the point in time that related revenue is recognized. Prepaid commission expenses are periodically reviewed for impairment. At March 31, 2021, our prepaid commission expense was $0.7 million.

Contract Liabilities

Contract liabilities consist of customer advance payments and billings in excess of revenue recognized. We may receive payments from our customers in advance of completing our performance obligations. Additionally, new customers, existing customers without approved credit terms and authors purchasing specific self-publishing services, are required to make payments in advance of the delivery of the products or performance of the services. We record contract liabilities equal to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms. Contract liabilities were historically recorded under the caption “deferred revenue” and are reported as current liabilities on our consolidated financial statements when the time to fulfill the performance obligations under terms of our contracts is less than one year. Long-term contract liabilities represent the amount of payments received in excess of revenue earned, including those that are refundable, when the time to fulfill the performance obligation is greater than one year. Our long-term liabilities consist of subscriptions with a term of two-years for which some customers have purchased and paid for multiple years.

 

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Significant changes in our contract liabilities balances during the period are as follows:

 

		Short- Term				Long- Term
		(Dollars in thousands)
Balance, beginning of period January 1, 2021		$	11,652			$	1,869
Revenue recognized during the period that was included in the beginning balance of contract liabilities			(3,814	)			—
Additional amounts recognized during the period			7,087				524
Revenue recognized during the period that was recorded during the period			(2,559	)			—
Transfers			234				(234	)
Balance, end of period March 31, 2021		$	12,600				2,159
Amount refundable at beginning of period		$	11,607				1,869
Amount refundable at end of period		$	12,588				2,159

We expect to satisfy these performance obligations as follows:

 

		Amount
For the Twelve Months Ended March 31,		(Dollars in thousands)
2022		$	12,600
2023			1,365
2024			472
2025			184
2026			55
Thereafter			83
		$	14,759

Significant Financing Component

The length of our typical sales agreement is less than 12 months; however, we may sell subscriptions with a two-year term. The balance of our long-term contract liabilities represents the unsatisfied performance obligations for subscriptions with a remaining term in excess of one year. We review long-term contract liabilities that are expected to be completed in excess of one year to assess whether the contract contains a significant financing component. The balance includes subscriptions that will be satisfied at various dates between April 1, 2021 and March 31, 2026. The difference between the promised consideration and the cash selling price of the publications is not significant. Therefore, we have concluded that subscriptions do not contain a significant financing component under ASC 606.

Our self-publishing contracts may exceed a one-year term due to the length of time for an author to submit and approve a manuscript for publication. The author may pay for publishing services in installments over the production timeline with payments due in advance of performance. The timing of the transfer of goods and services under self-publishing arrangements are at the discretion of the author and based on future events that are not substantially within our control. We require advance payments to provide us with protection from incurring costs for products that are unique and only sellable to the author. Based on these considerations, we have concluded that our self-publishing contracts do not contain a significant financing component under ASC 606.

Variable Consideration

Like former revenue recognition guidance, we continue to make significant estimates related to variable consideration at the point of sale, including estimates for refunds and product returns. Under ASC 606, estimates of variable consideration are to be recognized before contingencies are resolved in certain circumstances, including when it is probable that a significant reversal in the amount of any estimated cumulative revenue will not occur.

We enter into agreements under which the amount of revenue we earn is contingent upon the amount of money raised by our customer over the contract term. Our customer is typically a charity or programmer that purchases blocks of programming time or spots to generate revenue from our audience members. Contract terms can range from a few weeks to a few months, depending the charity or programmer. If the campaign does not generate a pre-determined level of donations or revenue to our customer, the consideration that we expect to be entitled to may vary above a minimum base level per the contract. Historically, under ASC Topic 605, we reported variable consideration as revenue when the amount was fixed and determinable. Under ASC 606, variable consideration is to be estimated using the expected value or the most likely amount to the extent it is probable that a significant reversal will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Based on the constraints for using estimates of variable consideration within ASC 606, and our historical experience with these campaigns, we will continue to recognize revenue at the base amount of the campaign with variable consideration recognized when the uncertainty of each campaign is resolved. These constraints include: (1) the amount of consideration received is highly susceptible to factors outside of our influence, specifically the extent to which our audience donates or contributes to our customer or programmer, (2) the length of time in which the uncertainty about the amount of consideration expected is to be resolved, and (3) our experience has shown these contracts have a large number and broad range of possible outcomes.

 

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Practical Expedients and Exemptions

We elected certain practical expedients and policy elections as follows:

 

•

We do not adjust the promised amount of consideration for the effects of a significant financing component if the period between transfer of product and customer payment is expected to be less than one year at the time of contract inception;

 

•

We do not assess promised goods or services as performance obligations if they are immaterial in the context of the contract with the customer;

 

•

We exclude sales and similar taxes from the transaction price;

 

•

We treat shipping and handling costs that occur after control transfers as fulfillment activities instead of assessing such activities as separate performance obligations; and

 

•

We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

A summary of our principal sources of revenue is as follows:

Block Programming. We recognize revenue from the sale of blocks of airtime to program producers that typically range from 12¹/₂, 25 or 50-minutes of time. We separate block program revenue into three categories, National, Local and Infomercial revenue. Our stations are classified by format, including Christian Teaching and Talk, News Talk, Contemporary Christian Music, Spanish Language Christian Teaching and Talk and Business. National and local programming content is complementary to our station format while infomercials are closely associated with long-form advertisements. Block Programming revenue may include variable consideration for charities and programmers that purchase blocks of airtime to generate donations and contributions from our audience. Block programming revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Programming revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.

Spot Advertising. We recognize revenue from the sale of airtime to local and national advertisers who purchase spot commercials of varying lengths. Spot Advertising may include variable consideration for charities and programmers that purchase spots to generate donations and contributions from our audience. Advertising revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.

Network Revenue. Network revenue includes the sale of advertising time on our national network and fees earned from the syndication of programming on our national network. Network revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Network revenue is recorded on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.

Digital Advertising. We recognize revenue from the sale of banner advertising on our owned and operated websites and on our own and operated mobile applications. Each of our radio stations, our digital media entities and certain publishing entities have custom websites and mobile applications that generate digital advertising revenue. Digital advertising revenue is recognized at the time that the banner display is delivered, or the number of impressions delivered meets the previously agreed-upon performance criteria, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Digital advertising revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.

Broadcast digital advertising revenue consists of local digital advertising, such as the sale of banner advertisements on our owned and operated websites, the sale of advertisements on our own and operated mobile applications, and advertisements in digital newsletters that we produce, as well as national digital advertising, or the sale of custom digital advertising solutions, such as web pages and social media campaigns, that we offer to our customers. Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.

Salem Surround, our national multimedia advertising agency, offers a comprehensive suite of digital marketing services to develop and execute audience-based marketing strategies for clients on both the national and local level. Salem Surround specializes in digital marketing services for each of our radio stations and websites as well as provides a full-service digital marketing strategy for each of our clients. In our role as a digital agency, our sales team provides our customers with integrated digital advertising solutions that optimize the performance of their campaign, which we view as one performance obligation. Our advertising campaigns are designed to be “white label” agreements between Salem and our advertiser, meaning we provide special care and attention to the details of the campaign. We provide custom digital product offerings, including tools for metasearch, retargeting, website design, reputation management, online listing services, and social media marketing. Digital advertising solutions may include third-party websites, such as Google or Facebook, which can be included in a digital advertising social media campaign. We manage all aspects of the digital campaign, including social media placements, review and approval of target audiences, and the monitoring of actual results to make modifications as needed. We may contract directly with a third-party, however, we are

 

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responsible for delivering the campaign results to our customer with or without the third-party. We are responsible for any payments due to the third-party regardless of the campaign results and without regard to the status of payment from our customer. We have discretion in setting the price to our customer without input or approval from the third-party. Accordingly, revenue is reported gross, as principal, as the performance obligation is delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation.

Digital Streaming. We recognize revenue from the sale of advertisements and from the placement of ministry content that is streamed on our owned and operated websites and on our owned and operated mobile applications. Each of our radio stations, our digital media entities and certain publishing entities have custom websites and mobile applications that generate streaming revenue. Digital streaming revenue is recognized at the time that the content is delivered, or when the number of impressions delivered meets the previously agreed-upon performance criteria. Delivery of the content represents the point in time that control is transferred to the customer thereby completing our performance obligation. Streaming revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.

Digital Downloads and e-books. We recognize revenue from sale of downloaded materials, including videos, song tracks, sermons, content archives and e-books. Payments for downloaded materials are due in advance of the download, however, the download is often instant upon confirmation of payment. Digital download revenue is recognized at the time of download, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is recorded at the gross amount due from the customer. All sales are final with no allowances made for returns.

Subscriptions. We recognize revenue from the sale of subscriptions for financial publication digital newsletters, digital magazines, podcast subscriptions for on-air content, and subscriptions to our print magazine. Subscription terms typically range from three months to two years, with a money-back guarantee for the first 30 days. Refunds after the first 30-day period are considered on a pro-rata basis based on the number of publications issued and delivered. Payments are due in advance of delivery and can be made in full upon subscribing or in quarterly installments. Cash received in advance of the subscription term, including amounts that are refundable, is recorded in contract labilities. Revenue is recognized ratably over the subscription term at the point in time that each publication is transmitted or shipped, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is reported net of estimated cancellations, which are based on our experience and historical cancellation rates during the cancellable period.

Book Sales. We recognize revenue from the sale of books upon shipment, which represents the point in time that control is transferred to the customer thereby completing the performance obligation. Revenue is recorded at the gross amount due from the customer, net of estimated sales returns and allowances based on our historical experience. Major new title releases represent a significant portion of the revenue in the current period. Print-based consumer books are sold on a fully returnable basis. We do not record assets or inventory for the value of returned books as they are considered used regardless of the condition returned. Our experience with unsold or returned books is that their resale value is insignificant and they are often destroyed or disposed of.

e-Commerce. We recognize revenue from the sale of products sold through our digital platform. Payments for products are due in advance shipping. We record a contract liability when we receive customer payments in advance of shipment. The time frame from receipt of payment to shipment is typically one business day based on the time that an order is placed as compared to fulfillment. E-Commerce revenue is recognized at the time of shipment, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is reported net of estimated returns, which are based on our experience and historical return rates. Returned products are recorded in inventory if they are unopened and re-saleable with a corresponding reduction in the cost of goods sold.

Self-Publishing Fees. We recognize revenue from self-publishing services through Salem Author Services (“SAS”), including book publishing and support services to independent authors. Services include book cover design, interior layout, printing, distribution, marketing services and editing for print books and e-Books. As each book and related support services are unique to each author, authors must make payments in advance of the performance. Payments are typically made in installments over the expected production timeline for each publication. We record contract liabilities equal to the amount of payments received, including those amounts that are fully or partially refundable. Contract liabilities were historically recorded under the caption “deferred revenue” and are reported as current liabilities or long-term liabilities on our consolidated financial statements based on the time to fulfill the performance obligations under terms of the contract. Refunds are limited based on the percentage completion of each publishing project.

Revenue is recognized upon completion of each performance obligation, which represents the point in time that control of the product is transferred to the author, thereby completing our performance obligation. Revenue is recorded at the net amount due from the author, including discounts based on the service package.

Advertising—Print. We recognize revenue from the sale of print magazine advertisements. Revenue is recognized upon delivery of the print magazine which represents the point in time that control is transferred to the customer thereby completing the performance obligation. Revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.

 

 

15

Other Revenues. Other revenues include various sources, such as event revenue, listener purchase programs, talent fees for on-air hosts, rental income for studios and towers, production services, and shipping and handling fees. We recognize event revenue, including fees earned for ticket sales and sponsorships, when the event occurs, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue for all other products and services is recorded as the products or services are delivered or performed, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Other revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.

Trade and Barter Transactions

In broadcasting, trade or barter agreements are commonly used to reduce cash expenses by exchanging advertising time for goods or services. We may enter barter agreements to exchange airtime or digital advertising for goods or services that can be used in our business or that can be sold to our audience under Listener Purchase Programs. The terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime or digital campaign for cash. The value of these non-cash exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive. Each transaction must be reviewed to determine that the products, supplies and/or services we receive have economic substance, or value to us. We record barter operating expenses upon receipt and usage of the products, supplies and services, as applicable. We record barter revenue as advertising spots or digital campaigns are delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Barter revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.

Trade and barter revenues and expenses were as follows:

 

		Three Months Ended
		March 31,
		2020				2021
Net broadcast barter revenue		$	1,166			$	391
Net digital media barter revenue			—				—
Net publishing barter revenue			26				—
Net broadcast barter expense		$	1,034			$	373
Net digital media barter expense			—				—
Net publishing barter expense			—				—

The following table presents our revenues disaggregated by revenue source for each of our operating segments:

 

		Three Months Ended March 31, 2021
		Broadcast				Digital Media				Publishing				Consolidated
		(dollars in thousands)
By Source of Revenue:
Block Programming—National		$	11,461			$	—			$	—			$	11,461
Block Programming—Local			5,956				—				—				5,956
Spot Advertising—National			3,660				—				—				3,660
Spot Advertising—Local			8,895				—				—				8,895
Infomercials			237				—				—				237
Network			4,871				—				—				4,871
Digital Advertising			5,781				4,413				62				10,256
Digital Streaming			853				844				—				1,697
Digital Downloads and eBooks			60				1,479				339				1,878
Subscriptions			286				2,773				158				3,217
Book Sales and e-commerce, net of estimated sales returns and allowances			89				31				3,208				3,328
Self-Publishing Fees			—				—				1,624				1,624
Print Advertising			—				—				68				68
Other Revenues			1,899				79				227				2,205
		$	44,048			$	9,619			$	5,686			$	59,353
Timing of Revenue Recognition
Point in Time		$	43,425			$	9,619				5,686			$	58,730
Rental Income (1)			623				—				—				623
		$	44,048			$	9,619			$	5,686			$	59,353

 

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		Three Months Ended March 31, 2020
		Broadcast				Digital Media				Publishing				Consolidated
		(dollars in thousands)
By Source of Revenue:
Block Programming—National		$	12,034			$	—			$	—			$	12,034
Block Programming—Local			6,808				—				—				6,808
Spot Advertising—National			3,957				—				—				3,957
Spot Advertising—Local			11,357				—				—				11,357
Infomercials			308				—				—				308
Network			4,388				—				—				4,388
Digital Advertising			3,326				4,713				99				8,138
Digital Streaming			608				915				—				1,523
Digital Downloads and eBooks			—				1,245				254				1,499
Subscriptions			282				2,135				177				2,594
Book Sales and e-commerce, net of estimated sales returns and allowances			76				28				1,723				1,827
Self-Publishing Fees			—				—				1,402				1,402
Print Advertising			1				—				102				103
Other Revenues			2,035				68				209				2,312
		$	45,180			$	9,104			$	3,966			$	58,250
Timing of Revenue Recognition
Point in Time		$	44,563			$	9,104			$	3,966			$	57,633
Rental Income (1)			617				—				—				617
		$	45,180			$	9,104			$	3,966			$	58,250

 

(1)	Rental income is not applicable to ASC Topic 606, but shown for the purpose of identifying each revenue source presented in total revenue on our Condensed Consolidated Financial Statements within this report on Form 10-Q.

NOTE 5. INVENTORIES

Inventories consist of finished books from Regnery^® Publishing. All inventories are valued at the lower of cost or net realizable value as determined on a First-In First-Out cost method net of estimated reserves for obsolescence.

The following table provides details of inventory on hand:

 

		December 31, 2020				March 31, 2021
		(Dollars in thousands)
Book inventories		$	1,994			$	2,027
Reserve for obsolescence			(1,499	)			(1,439	)
Inventory, net—		$	495			$	588

NOTE 6. PROPERTY AND EQUIPMENT

We account for property and equipment in accordance with FASB ASC Topic 360-10, Property, Plant and Equipment.

The following is a summary of the categories of our property and equipment:

 

		As of December 31, 2020				As of March 31, 2021
		(Dollars in thousands)
Land		$	30,254			$	30,254
Buildings			28,922				28,993
Office furnishings and equipment			36,875				37,289
Antennae, towers and transmitting equipment			78,057				78,152
Studio, production and mobile equipment			29,023				29,389
Computer software and website development costs			33,928				34,085
Record and tape libraries			17				17
Automobiles			1,514				1,514
Leasehold improvements			18,187				18,208
Construction-in-progress			2,681				3,833
		$	259,458			$	261,734
Less accumulated depreciation			(180,336	)			(183,136	)
		$	79,122			$	78,598

Depreciation expense was approximately $2.6 million and $2.7 million for the three-month periods ended March 31, 2021 and 2020, respectively. We periodically review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. This review requires us to estimate the fair value of the assets using

 

17

significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value, including assumptions about risk. If actual future results are less favorable than the assumptions and estimates we used, we are subject to future impairment charges, the amount of which may be material. There were no indications of impairment during the three months ended March 31, 2021.

NOTE 7. OPERATING AND FINANCE LEASE RIGHT-OF-USE ASSETS

Leases

We account for leases in accordance with ASC 842, “Leases” that requires lessees to recognize Right of Use (“ROU”) assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months. ASC 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the statement of operations and statement of cash flows.

Leasing Transactions

Our leased assets include offices and studios, transmitter locations, antenna sites, tower and tower sites, and land. Our lease portfolio has terms remaining from less than one-year to up to twenty years. Many of these leases contain options under which we can extend the term from five to twenty years. Renewal options are excluded from our calculation of lease liabilities unless we are reasonably assured to exercise the renewal option. Our lease agreements do not contain residual value guarantees or material restrictive covenants. We lease certain properties from our principal stockholders or from trusts and partnerships created for the benefit of the principal stockholders and their families. These leases are designated as Related Party leases in the details provided.

Operating leases are reflected on our balance sheet within operating lease ROU assets and the related current and non-current operating lease liabilities. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from lease agreement. Operating lease ROU assets and liabilities are recognized at the commencement date, or the date on which the lessor makes the underlying asset available for use, based upon the present value of the lease payments over the respective lease term. Lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectation regarding the lease terms. Variable lease costs, such as common area maintenance, property taxes and insurance, are expensed as incurred.

Balance Sheet

Supplemental balance sheet information related to leases is as follows:

 

		March 31, 2021
		(Dollars in thousands)
		Related Party				Other				Total
Operating Leases
Operating leases ROU assets		$	6,642			$	39,866			$	46,508
Operating lease liabilities (current)		$	938			$	7,677			$	8,615
Operating lease liabilities (non-current)			5,860				40,198				46,058
Total operating lease liabilities		$	6,798			$	47,875			$	54,673

 

Weighted Average Remaining Lease Term
Operating leases			8.2 years
Finance leases			3.0 years
Weighted Average Discount Rate
Operating leases			7.95	%
Finance leases			5.39	%

Lease Expense

The components of lease expense were as follows:

 

		Three Months Ended March 31, 2021
		(Dollars in thousands)
Amortization of finance lease ROU Assets		$	16
Interest on finance lease liabilities			2
Finance lease expense			18
Operating lease expense			3,214
Variable lease expense			190
Short-term lease expense			157
Total lease expense		$	3,579

 

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Supplemental Cash Flow

Supplemental cash flow information related to leases was as follows:

 

		Three Months Ended March 31, 2021
		(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	3,569
Operating cash flows from finance leases			1
Financing cash flows from finance leases			16
Leased assets obtained in exchange for new operating lease liabilities		$	553
Leased assets obtained in exchange for new finance lease liabilities			2

Maturities

Future minimum lease payments under leases that had initial or remaining non-cancelable lease terms in excess of one year as of March 31, 2021, are as follows:

 

Future minimum lease		Operating Leases
		Related Party				Other				Total				Finance Leases				Total
		(Dollars in thousands)
2021 (Apr-Dec)		$	1,466			$	11,042			$	12,508			$	65			$	12,573
2022			1,620				10,744				12,364				57				12,421
2023			1,018				9,209				10,227				31				10,258
2024			1,014				7,030				8,044				12				8,056
2025			1,043				5,928				6,971				4				6,975
Thereafter			3,797				24,763				28,560				—				28,560
Undiscounted Cash Flows		$	9,958			$	68,716			$	78,674			$	169			$	78,843
Less: imputed interest			(3,160	)			(20,841	)			(24,001	)			(15	)			(24,016	)
Total		$	6,798			$	47,875			$	54,673			$	154			$	54,827
Reconciliation to lease liabilities:
Lease liabilities—current		$	938			$	7,677			$	8,615			$	60			$	8,675
Lease liabilities—long-term			5,860				40,198				46,058				94				46,152
Total Lease Liabilities		$	6,798			$	47,875			$	54,673			$	154			$	54,827

NOTE 8. BROADCAST LICENSES

We account for broadcast licenses in accordance with FASB ASC Topic 350 Intangibles—Goodwill and Other. We do not amortize broadcast licenses, but rather test for impairment annually or more frequently if events or circumstances indicate that the value may be impaired. In the case of our broadcast radio stations, we would not be able to operate the properties without the related broadcast license for each property. Broadcast licenses are renewed with the FCC every eight years for a nominal fee that is expensed as incurred. We continually monitor our stations’ compliance with the various regulatory requirements that are necessary for the FCC renewal and all of our broadcast licenses have been renewed at the end of their respective periods. We expect all of our broadcast licenses to be renewed in the future and therefore, we consider our broadcast licenses to be indefinite-lived intangible assets. We are not aware of any legal, competitive, economic or other factors that materially limit the useful life of our broadcast licenses. There were no indications of impairment during the three months ended March 31, 2021.

The following table presents the changes in broadcasting licenses that include acquisitions and divestitures of radio stations and FM translators.

 

Broadcast Licenses		Twelve Months Ended December 31, 2020				Three Months Ended March 31, 2021
		(Dollars in thousands)
Balance before cumulative loss on impairment, beginning of period		$	441,143			$	440,052
Accumulated loss on impairment, beginning of period			(103,285	)			(120,279	)
Balance after cumulative loss on impairment, beginning of period			337,858				319,773
Dispositions of radio stations			(1,091	)			—
Impairments based on the estimated fair value of broadcast licenses			(16,994	)			—
Balance, end of period after cumulative loss on impairment		$	319,773			$	319,773
Balance, end of period before cumulative loss on impairment		$	440,052			$	440,052
Accumulated loss on impairment, end of period			(120,279	)			(120,279	)
Balance, end of period after cumulative loss on impairment		$	319,773			$	319,773

 

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NOTE 9. GOODWILL

We account for goodwill in accordance with FASB ASC Topic 350 “Intangibles—Goodwill and Other.” We do not amortize goodwill, but rather test for impairment annually or more frequently if events or circumstances indicate that an asset may be impaired. We perform our annual impairment testing during the fourth quarter of each year, which coincides with our budget and planning process for the upcoming year. There were no indications of impairment during the three months ended March 31, 2021.

The following table presents the changes in goodwill including business acquisitions and dispositions as discussed in Note 3 of our Condensed Consolidated Financial Statements.

 

Goodwill		Twelve Months Ended December 31, 2020				Three Months Ended March 31, 2021
		(Dollars in thousands)
Balance, beginning of period before cumulative loss on impairment,		$	28,454			$	28,520
Accumulated loss on impairment			(4,456	)			(4,763	)
Balance, beginning of period after cumulative loss on impairment			23,998				23,757
Acquisitions of radio stations			66				—
Impairments based on the estimated fair value goodwill			(307	)			—
Ending period balance		$	23,757			$	23,757
Balance, end of period before cumulative loss on impairment			28,520				28,520
Accumulated loss on impairment			(4,763	)			(4,763	)
Ending period balance		$	23,757			$	23,757

NOTE 10. AMORTIZABLE INTANGIBLE ASSETS

The following tables provide a summary of our significant classes of amortizable intangible assets:

 

		As of March 31, 2021
						Accumulated
		Cost				Amortization				Net
		(Dollars in thousands)
Customer lists and contracts		$	24,139			$	(22,690	)		$	1,449
Domain and brand names			20,350				(19,367	)			983
Favorable and assigned leases			2,188				(1,947	)			241
Subscriber base and lists			9,886				(9,087	)			799
Author relationships			2,771				(2,767	)			4
Non-compete agreements			2,041				(1,991	)			50
Other amortizable intangible assets			1,666				(1,629	)			37
		$	63,041			$	(59,478	)		$	3,563

 

		As of December 31, 2020
						Accumulated
		Cost				Amortization				Net
		(Dollars in thousands)
Customer lists and contracts		$	24,012			$	(22,533	)		$	1,479
Domain and brand names			20,350				(19,127	)			1,223
Favorable and assigned leases			2,188				(1,943	)			245
Subscriber base and lists			9,886				(8,974	)			912
Author relationships			2,771				(2,765	)			6
Non-compete agreements			2,041				(1,954	)			87
Other amortizable intangible assets			1,666				(1,601	)			65
		$62,914				$(58,897)				$4,017

Amortization expense was approximately $0.6 million and $1.0 million for the three-month periods ended March 31, 2021 and 2020, respectively. Based on the amortizable intangible assets as of March 31, 2021, we estimate amortization expense for the next five years to be as follows:

 

Year Ended December 31,		Amortization Expense
		(Dollars in thousands)
2021 (Apr – Dec)		$	1,297
2022			1,252
2023			717
2024			92
2025			8
Thereafter			197
Total		$	3,563

 

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