Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM
10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

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)

LOGO

DELAWARE

77-0121400
(STATE OR OTHER JURISDICTION
OF
INCORPORATION OR ORGANIZATION)

 

77-0121400

(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)

  
6400 NORTH BELT LINE ROAD
IRVING, TEXAS
 
75063

4880 SANTA ROSA ROAD

CAMARILLO, CALIFORNIA

(ADDRESS OF PRINCIPAL

EXECUTIVE OFFICES)

 

93012

(ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-0400

(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.

Yesx  ☒    No¨

  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)

Yesx  ☒    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 filerxEmerging Growth Company ¨
 
Non-accelerated filer¨Smaller Reporting Company¨
  
 (Do not check if a 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¨  ☐    Nox

  ☒

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 November 3, 20172, 2021
Common Stock, $0.01 par value per share 20,609,55121,431,824 shares

Class B Outstanding at November 3, 20172, 2021
Common Stock, $0.01 par value per share 5,553,696 shares

 


CERTAIN DEFINITIONS

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

NOTE

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Salem Media Group, Inc. (“Salem” or the “company,” including references to Salem by “we,” “us” and “our”) 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. These risks, as well as other risks and uncertainties, are detailed in Salem’s reports on Forms 10-K, 10-Q and 8-K filed with or furnished to the Securities and Exchange Commission. 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

3

PART I – FINANCIAL INFORMATION

SALEM MEDIA GROUP, INC.

ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4

Table of ContentsITEM 1.      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

  December 31, 2016
(Note 1)
  September 30, 2017
(Unaudited)
 
ASSETS        
Current assets:        
Cash and cash equivalents $130  $4 
Trade accounts receivable (net of allowances of $10,420 in 2016 and $10,627 in 2017)  37,260   35,862 
Other receivables (net of allowances of $260 in 2016 and $145 in 2017 )  751   990 
Inventories (net of reserves of $2,226 in 2016 and $1,611 in 2017)  670   809 
Prepaid expenses  6,287   7,288 
Deferred income taxes - current  9,411    
Total current assets  54,509   44,953 
Notes receivable (net of allowance of $564 in 2016 and $794 in 2017)  65   92 
Land held for sale  1,000   1,000 
Property and equipment (net of accumulated depreciation of $156,024 in 2016 and $161,848 in 2017)  102,790   102,203 
Broadcast licenses  388,517   388,720 
Goodwill  25,613   26,436 
Other indefinite-lived intangible assets  332   313 
Amortizable intangible assets (net of accumulated amortization of $44,488 in 2016 and $46,007 in 2017)  14,408   14,276 
Deferred financing costs  82   549 
Deferred income taxes – non-current     1,877 
Other assets  2,952   3,205 
Total assets $590,268  $583,624 
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable $4,968  $3,721 
Accrued expenses  15,658   12,427 
Accrued compensation and related expenses  8,133   9,865 
Accrued interest  77   6,481 
Current portion of deferred revenue  9,491   10,835 
Income taxes payable  223   174 
Current portion of long-term debt and capital lease obligations  590   6,741 
Total current liabilities  39,140   50,244 
Long-term debt and capital lease obligations less unamortized debt issuance costs, net of current portion  261,084   249,375 
Fair value of interest rate swap  514    
Deferred income taxes  60,769   54,644 
Deferred rent expense  9,596   9,633 
Deferred revenue less current portion  5,252   6,427 
Other long-term liabilities  67   64 
Total liabilities  376,422   370,387 
Commitments and contingencies (Note 18)        
Stockholders’ Equity:        
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 22,593,130 and 22,927,201 issued and 20,275,480 and 20,609,551 outstanding at December 31, 2016 and September 30, 2017, respectively  226   227 
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2016 and September 30, 2017  56   56 
Additional paid-in capital  243,607   245,800 
Accumulated earnings  3,963   1,160 
Treasury stock, at cost (2,317,650 shares at December 31, 2016 and September 30, 2017)  (34,006)  (34,006)
Total stockholders’ equity  213,846   213,237 
Total liabilities and stockholders’ equity $590,268  $583,624 

See accompanying notes

3

   December 31, 2020
(Note 1)
  
September 30, 2021

(Unaudited)
 
ASSETS
         
Current assets:         
Cash and cash equivalents  $6,325  
$
23,781
 
Trade accounts receivable (net of allowances of $14,069 in 2020 and $11,680 in 2021)   24,469  
 
24,429
 
Unbilled revenue   3,192  
 
3,300
 
Other receivables (net of allowances of $124 in 2020 and $455 in 2021)   1,122  
 
1,589
 
Inventories   495  
 
907
 
Prepaid expenses   6,847  
 
7,970
 
Assets held for sale   3,346  
 
1,875
 
          
Total current assets   45,796  
 
63,851
 
          
Notes receivable (net of allowance of $461 in 2020 and $996 in 2021)   721  
 
364
 
Property and equipment (net of accumulated depreciation of $180,336 in 2020 and $185,127 in 2021)   79,122  
 
78,425
 
Operating lease
right-of-use
assets
   48,203  
 
44,100
 
Financing lease
right-of-use
assets
   152  
 
121
 
Broadcast licenses   319,773  
 
320,008
 
Goodwill   23,757  
 
23,986
 
Amortizable intangible assets (net of accumulated amortization of $58,897 in 2020 and $57,769 in 2021)   4,017  
 
2,785
 
Deferred financing costs   213  
 
895
 
Other assets   2,817  
 
3,678
 
          
Total assets  $524,571  
$
538,213
 
          
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
Current liabilities:         
Accounts payable  $2,006  
$
2,180
 
Accrued expenses   11,002  
 
11,740
 
Accrued compensation and related expenses   10,242  
 
10,752
 
Accrued interest   1,225  
 
2,750
 
Contract liabilities   11,652  
 
11,561
 
Deferred rent income   147  
 
114
 
Income taxes payable   563  
 
626
 
Current portion of operating lease liabilities   8,963  
 
8,604
 
Current portion of financing lease liabilities   60  
 
59
 
Current portion of long-term debt   5,000  
 
0  
 
          
Total current liabilities   50,860  
 
48,386
 
          
Long-term debt, less current portion   213,764  
 
208,559
 
Operating lease liabilities, less current portion   47,740  
 
43,180
 
Financing (capital) lease liabilities, less current portion   107  
 
79
 
Deferred income taxes   68,883  
 
69,287
 
Contract liabilities, long-term   1,869  
 
2,081
 
Deferred rent income, less current portion   3,864  
 
3,795
 
Other long-term liabilities   2,205  
 
2,248
 
          
Total liabilities   389,292  
 
377,615
 
          
Commitments and contingencies (Note 14)0   0   
Stockholders’ Equity: 
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 23,447,317 and 23,639,824 issued and 21,129,667 and 21,322,174 outstanding at December 31, 2020 and September 30, 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 September 30, 2021, respectively   56  
 
56
 
Additional
paid-in
capital
   247,025  
 
247,668
 
Accumulated deficit   (78,023 
 
(53,349
Treasury stock, at cost (2,317,650 shares at December 31, 2020 and September 30, 2021)   (34,006 
 
(34,006
          
Total stockholders’ equity   135,279  
 
160,598
 
          
Total liabilities and stockholders’ equity  $524,571  
$
538,213
 
          
See accompanying notes
 
5

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2016  2017  2016  2017 
Net broadcast revenue $51,052  $48,424  $149,768  $145,479 
Net digital media revenue  11,999   10,446   34,056   31,998 
Net publishing revenue  8,221   6,563   19,802   19,048 
Total net revenue  71,272   65,433   203,626   196,525 
Operating expenses:                
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $412 and $431 for the three months ended September 30, 2016 and 2017, respectively, and $1,231 and $1,284 for the nine months ended September 30, 2016 and 2017, respectively, paid to related parties)  37,434   37,040   109,455   108,807 
Digital media operating expenses, exclusive of depreciation and amortization shown below  9,172   8,169   26,815   25,241 
Publishing operating expenses, exclusive of depreciation and amortization shown below  8,020   6,686   19,951   18,705 
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $147 and $98 for the three months ended September 30, 2016 and 2017, respectively, and $254 and $218 for the nine months ended September 30, 2016 and 2017, respectively, paid to related parties)  4,147   4,233   11,928   13,183 
Depreciation  2,976   3,082   8,950   9,171 
Amortization  1,341   1,135   3,673   3,420 
Change in the estimated fair value of contingent earn-out consideration  (196)  (12)  (458)  (54)
Impairment of long-lived assets        700    
Impairment of indefinite-lived long-term assets other than goodwill           19 
Net (gain) loss on the sale or disposal of assets  (457)  95   (2,008)  (410)
Total operating expenses  62,437   60,428   179,006   178,082 
Operating income  8,835   5,005   24,620   18,443 
Other income (expense):                
Interest income  1   1   4   3 
Interest expense  (3,726)  (4,802)  (11,252)  (12,156)
Change in the fair value of interest rate swap  856      (1,325)  357 
Loss on early retirement of long-term debt  (18)     (32)  (2,775)
Net miscellaneous income and (expenses)  7   (80)  7   (80)
Net income before income taxes  5,955   124   12,022   3,792 
Provision for income taxes  3,763   170   6,121   1,506 
Net income (loss) $2,192  $(46) $5,901  $2,286 
                 
Basic earnings (loss) per share data:                
Basic earnings (loss) per share $0.08  $  $0.23  $0.09 
Diluted earnings (loss) per share data:                
Diluted earnings (loss) per share $0.08  $  $0.23  $0.09 
Distributions per share $0.07  $0.07  $0.20  $0.20 
Basic weighted average shares outstanding  25,815,242   26,144,796   25,617,307   26,036,333 
Diluted weighted average shares outstanding  26,183,182   26,144,796   26,012,930   26,454,923 

See accompanying notes

4

(Unaudited)

   
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
   2020  
2021
  2020  
2021
 
Net broadcast revenue  $45,391  
$
49,591
 
 $130,041  
$
140,422
 
Net digital media revenue   9,808  
 
10,645
 
  28,355  
 
30,603
 
Net publishing revenue   5,442  
 
5,747
 
  13,366  
 
18,093
 
                  
Total net revenue   60,641  
 
65,983
 
  171,762  
 
189,118
 
                  
Operating expenses:                 
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $447 and $480 for the three months ended September 30, 2020 and 2021, respectively, and $1,313 and $1,369 for the nine months ended September 30, 2020 and 2021, respectively, paid to related parties)   34,283  
 
37,463
 
  104,704  
 
106,968
 
Digital media operating expenses, exclusive of depreciation and amortization shown below   7,144  
 
8,269
 
  23,123  
 
25,280
 
Publishing operating expenses, exclusive of depreciation and amortization shown below   5,814  
 
5,213
 
  16,443  
 
16,844
 
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $18 and $0 for the three months ended September 30, 2020 and 2021, respectively, and $198 and $5 for the nine months ended September 30, 2020 and 2021, respectively, paid to related parties)   3,849  
 
4,284
 
  11,909  
 
12,764
 
Debt modification costs   —    
 
2,347
 
  —    
 
2,347
 
Depreciation   2,677  
 
2,788
 
  8,108  
 
8,118
 
Amortization   751  
 
427
 
  2,578  
 
1,553
 
Change in the estimated fair value of contingent
earn-out
consideration
   (10 
 
—  
 
  (12 
 
—  
 
Impairment of indefinite-lived long-term assets other than goodwill   —    
 
—  
 
  17,254  
 
—  
 
Impairment of goodwill   —    
 
—  
 
  307  
 
—  
 
Net (gain) loss on the disposition of assets   1,381  
 
(10,607
  1,494  
 
(10,552
                  
Total operating expenses   55,889  
 
50,184
 
  185,908  
 
163,322
 
                  
Operating income (loss)   4,752  
 
15,799
 
  (14,146 
 
25,796
 
Other income (expense):                 
Interest income   1  
 
—  
 
  1  
 
1
 
Interest expense   (4,024 
 
(4,026
  (12,069 
 
(11,887
Gain on the forgiveness of PPP loans   —    
 
11,212
 
  —    
 
11,212
 
Gain (loss) on the early retirement of long-term debt   —    
 
(56
  49  
 
(56
Net miscellaneous income and (expenses)   1  
 
2
 
  (45 
 
87
 
                  
Net income (loss) before income taxes   730  
 
22,931
 
  (26,210 
 
25,153
 
Provision for income taxes   401  
 
837
 
  31,180  
 
479
 
                  
Net income (loss)  $329  
$
22,094
 
 $(57,390 
$
24,674
 
                  
Basic income (loss) per share data:                 
Basic income (loss) per share  $0.01  
$
0.82
 
 $(2.15 
$
0.92
 
Diluted income (loss) per share data:                 
Diluted income (loss) per share  $0.01  
$
0.81
 
 $(2.15 
$
0.91
 
Basic weighted average shares outstanding   26,683,363  
 
26,870,664
 
  26,683,363  
 
26,825,483
 
                  
Diluted weighted average shares outstanding   27,791,353  
 
27,280,949
 
  26,683,363  
 
27,217,382
 
                  
 
See accompanying notes
 
6

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                        
                                       
Stock-based compensation   —      —      —      —      96    —     —     96 
Net loss   —      —      —      —      —      (2,515  —     (2,515
                                       
Stockholders’ equity, June 30, 2020
   23,447,317   $227    5,553,696   $56   $246,879   $(81,680 $(34,006 $131,476 
Stock-based compensation   —      —      —      —      74    —     —     74 
Net income   —      —      —      —      —      329   —     329 
                                       
Stockholders’ equity, September 30, 2020
  
 
23,447,317
 
  
$
227
 
  
 
5,553,696
 
  
$
56
 
  
$
246,953
 
  
$
(81,351
 
$
(34,006
 
$
131,879
 
                                       
   
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 
                                       
Stock-based compensation   —      —      —      —      84    —     —     84 
Net income   —      —      —      —      —      2,257   —     2,257 
                                       
Stockholders’ equity, June 30, 2021
   23,633,099   $229    5,553,696   $56   $247,577   $(75,443 $(34,006 $138,413 
                                       
Stock-based compensation   —      —      —      —      78    —     —     78 
Options exercised   6,725    —      —      —      13    —     —     13 
Net income   —      —      —      —      —      22,094   —     22,094 
                                       
Stockholders’ equity, September 30, 2021
  
 
23,639,824
 
  
$
229
 
  
 
5,553,696
 
  
$
56
 
  
$
247,668
 
  
$
(53,349
 
$
(34,006
 
$
160,598
 
                                       
See accompanying notes
7

SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

  

Nine Months Ended

September 30,

 
  2016  2017 
OPERATING ACTIVITIES        
Net income $5,901  $2,286 
Adjustments to reconcile net income to net cash provided by operating activities:        
Non-cash stock-based compensation  458   1,693 
Tax benefit related to stock options exercised  264    
Depreciation and amortization  12,623   12,591 
Amortization of deferred financing costs  475   645 
Accretion of financing items  155   74 
Accretion of acquisition-related deferred payments and contingent consideration  55   32 
Provision for bad debts  688   1,548 
Deferred income taxes  5,684   1,409 
Change in the fair value of interest rate swap  1,325   (357)
Change in the estimated fair value of contingent earn-out consideration  (458)  (54)
Impairment of long-lived assets  700    
Impairment of indefinite-lived long-term assets other than goodwill     19 
Loss on early retirement of long-term debt  32   2,775 
Net gain on the sale or disposal of assets  (2,008)  (410)
Changes in operating assets and liabilities:        
Accounts receivable  4,380   (463)
Inventories  147   (139)
Prepaid expenses and other current assets  (718)  (1,001)
Accounts payable and accrued expenses  (39)  4,879 
Deferred rent  1,183   3 
Deferred revenue  (4,444)  (310)
Other liabilities     (3)
Income taxes payable  106   (49)
Net cash provided by operating activities  26,509   25,168 
INVESTING ACTIVITIES        
Cash paid for capital expenditures net of tenant improvement allowances  (7,240)  (6,800)
Capital expenditures reimbursable under tenant improvement allowances and trade agreements  (486)  (50)
Escrow deposits related to acquisitions  (228)  (30)
Purchases of broadcast assets and radio stations  (718)  (1,662)
Purchases of digital media businesses and assets  (3,153)  (1,690)
Purchases of publishing businesses assets  (3,318)   
Proceeds from sale of broadcast assets  3,147   602 
Other  (398)  (224)
Net cash used in investing activities  (12,394)  (9,854)
FINANCING ACTIVITIES        
Payments under Term Loan B  (5,000)  (263,000)
Proceeds from borrowings under Revolver and ABL Facility  35,601   60,133 
Payments on Revolver and ABL Facility  (37,837)  (53,980)
Payment of interest rate swap     (783)
Proceeds from bond offering     255,000 
Payment of debt issuance costs     (6,837)
Payments of acquisition-related contingent earn-out consideration  (99)  (14)
Payments of deferred installments due from acquisition activity  (3,421)  (225)
Proceeds from the exercise of stock options  969   501 
Payments of capital lease obligations  (80)  (93)
Payment of cash distributions on common stock  (5,000)  (5,089)
Book overdraft  734   (1,053)
Net cash used in financing activities  (14,133)  (15,440)
Net decrease in cash and cash equivalents  (18)  (126)
Cash and cash equivalents at beginning of year  98   130 
Cash and cash equivalents at end of period $80  $4 

   
Nine Months Ended

September 30,
 
   
2020
  
2021
 
OPERATING ACTIVITIES
         
Net income (loss)  $(57,390 
$
24,674
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:         
Non-cash
stock-based compensation
   273  
 
240
 
Depreciation and amortization   10,686  
 
9,671
 
Amortization of deferred financing costs   675  
 
690
 
Non-cash
lease expense
   6,745  
 
6,527
 
Provision for bad debts   4,122  
 
(248
Deferred income taxes   30,954  
 
404
 
Change in the estimated fair value of contingent
earn-out
consideration
   (12 
 
—  
 
Impairment of indefinite-lived long-term assets other than goodwill   17,254  
 
—  
 
Impairment of goodwill   307  
 
—  
 
Gain on the forgiveness of PPP loans   —    
 
(11,212
Gain (loss) on the early retirement of long-term debt   (49 
 
56
 
Net (gain) loss on the disposition of assets   1,494  
 
(10,552
Changes in operating assets and liabilities:         
Accounts receivable and unbilled revenue   2,565  
 
(67
Inventories   99  
 
(412
Prepaid expenses and other current assets   (1,343 
 
(1,218
Accounts payable and accrued expenses   5,871  
 
2,596
 
Operating lease liabilities   (6,396 
 
(7,317
Contract liabilities   5,274  
 
782
 
Deferred rent income   (268 
 
28
 
Other liabilities   2,254  
 
41
 
Income taxes payable   30  
 
63
 
          
Net cash provided by operating activities   23,145  
 
14,746
 
          
INVESTING ACTIVITIES
         
Cash paid for capital expenditures net of tenant improvement allowances   (3,565 
 
(6,952
Capital expenditures reimbursable under tenant improvement allowances and trade agreements   (140 
 
(138
Deposit on broadcast assets and radio station acquisitions   —    
 
(100
Purchases of broadcast assets and radio stations   —    
 
(600
Purchases of digital media businesses and assets   (400 
 
(3,980
Proceeds from sale of long-lived assets   188  
 
15,771
 
Proceeds from the cash surrender value of life insurance policies   2,363  
 
—  
 
Other   (353 
 
(1,227
          
Net cash provided by (used in) investing activities   (1,907 
 
2,774
 
          
FINANCING ACTIVITIES
         
Proceeds from 2028 Notes   —    
 
114,731
 
Payments to repurchase or exchange 2024 Notes   (3,392 
 
(119,443
Proceeds from borrowings under ABL Facility   38,626  
 
16
 
Payments on ABL Facility   (34,452 
 
(5,016
Proceeds from borrowings under PPP Loans   —    
 
11,195
 
Payments under PPP loans   —    
 
17
 
Payments of debt issuance costs   (124 
 
(1,921
Proceeds from the exercise of stock options   —    
 
405
 
Payments on financing lease liabilities   (52 
 
(48
Payment of cash distribution on common stock   (667 
 
—  
 
Book overdraft   (1,885 
 
—  
 
          
Net cash used in financing activities   (1,946 
 
(64
          
Net increase in cash and cash equivalents   19,292  
 
17,456
 
Cash and cash equivalents at beginning of year   6  
 
6,325
 
          
Cash and cash equivalents at end of period  $19,298  
$
23,781
 
          
  
See accompanying notes

5

8

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollars in thousands)

(Unaudited)

Supplemental disclosures of cash flow information:        
Cash paid during the period for:        
Cash paid for interest, net of capitalized interest $10,644  $4,962 
Cash paid for income taxes $67  $128 
Other supplemental disclosures of cash flow information:        
Barter revenue $3,886  $4,152 
Barter expense $3,734  $4,012 
Non-cash investing and financing activities:        
Capital expenditures reimbursable under tenant improvement allowances $486  $50 
Current value of deferred cash payments (short-term) $1,566  $ 

Net assets and liabilities assumed non-cash acquisition

     2,852 
Assets acquired under capital leases $  $16 
Debt issuance costs accrued $  $132 

See accompanying notes

6

(Unaudited)

   
Nine Months Ended

September 30,
 
   
2020
   
2021
 
Supplemental disclosures of cash flow information:
          
Cash paid during the period for:          
Cash paid for interest, net of capitalized interest  $  7,731   
$
  9,628
 
Cash paid for interest on finance lease liabilities  $6   
$
6
 
Net cash paid for (received from) income taxes  $196   
$
13
 
Other supplemental disclosures of cash flow information:          
Barter revenue  $2,152   
$
1,647
 
Barter expense  $1,971   
$
1,699
 
Non-cash
investing and financing activities:
          
Capital expenditures reimbursable under tenant improvement allowances  $140   
$
138
 
Deferred payments on acquisitions  $708   
 
0  
 
Right-of-use
assets acquired through operating leases
  $2,715   
$
3,466
 
Right-of-use
assets acquired through financing leases
  $—     
$
17
 
Non-cash
capital expenditures for property & equipment acquired under trade agreements
  $4   
$
27
 
Net assets and liabilities assumed in a
non-cash
acquisition
  $—     
$
311
 
Estimated present value of contingent-earn out consideration  $—     
$
11
 
 
See accompanying notes
 
9

SALEM MEDIA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BUSINESS AND BASIS OF PRESENTATION

The accompanying consolidated financial statements of

Business
Salem Media Group, Inc. (“Salem”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 3 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 materially impacted our business. 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 were 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 we see progress being made in revenue returning to
pre-pandemic
levels, the
COVID-19
pandemic continues to create significant uncertainty and disruption in the economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for doubtful accounts, impairments and
right-of-use assets.
As a result, many estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
During 2020 we implemented several measures to reduce costs and conserve cash to ensure that we had 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 continues to show signs of recovery, many of these cost reduction initiatives were reversed during 2021. We continue to operate with lower staffing levels, we have not reinstated the company 401(k) match and we have not paid equity distributions on our common stock.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act provided emergency economic assistance for individuals and businesses impacted by the
COVID-19
pandemic, including opportunities for additional liquidity, loan guarantees, and other government programs. On December 27, 2020, Congress passed the Consolidated Appropriations Act (“CAA”) that included a second relief package, which, among other things, provides for an extension of the Payroll Support Program established by the CARES Act. We utilized certain benefits of the CARES Act and the CAA, including:
we deferred $3.3 million of employer FICA taxes from April 2020 through December 2020, with 50% payable in December 2021 recorded in accrued compensation and related expenses and 50% payable in December 2022 recorded in other long-term liabilities;
10

relaxation of interest expense deduction limitation for income tax purposes;
we received Paycheck Protection Program (“PPP”) loans of $11.2 million in total during the first quarter of 2021 through the Small Business Association (“SBA”) based on the eligibility as determined on a
per-location
basis; and
In July 2021, the SBA forgave all but $20,000 of the PPP loans, with the remaining PPP loan repaid in July 2021.
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. Effective February 19, 2015, we changed our name from Salem Communications Corporation to Salem Media Group, Inc. Salem was formed in 1986 as a California corporation and was reincorporated in Delaware in 1999. Our content is intended for audiences interested in Christian and family-themed programming and conservative news talk. We maintain a website at www.salemmedia.com.

Information with respect to the three and nine months ended September 30, 20172021 and 20162020 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 statementsshould 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, 2016.2020. Our results are subject to seasonal fluctuations. Therefore,
fluctuations and therefore, the results of operations for the interim periods presented are not necessarily indicative of the results of operations for thea full year.

The balance sheet at December 31, 20162020 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.

Description of Business

Salem is a domestic multimedia company specializing in Christian and conservative content. Our media properties are comprised of radio broadcasting, digital media, and publishing entities. We Certain reclassifications have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which are discussed in Note 19 – Segment Data. Our foundational business is radio broadcasting, which includesbeen made to the ownership and operation of radio stations in large metropolitan markets. We also own and operate Salem Radio Network® (“SRN”), SRN News Network (“SNN”), Today’s Christian Music (“TCM”), Singing News Network (formerly Solid Gospel Network) and Salem Media RepresentativesTM (“SMR”). SRN, SNN, TCM and Singing News Network are networks that develop, produce and syndicate a broad range of programming specifically targetedprior year financial statements to Christian and family-themed talk stations, music stations and general News Talk stations throughoutconform to the United States, including Salem-owned and operated stations. SMR, a national advertising sales firm with offices in ten U.S. cities, specializes in placing national advertising on religious and other format commercial radio stations. Each of our radio stations has a website specifically designed for that station from which our audience can access our entire library of digital content and online publications.

Our digital media based businesses provide Christian, conservative, investing and health-themed content, e-commerce, audio and video streaming, and other resources digitally through the web. Salem Web Network™ (“SWN”) websites include Christian content websites; OnePlace.com, Christianity.com, Crosswalk.com®, GodVine.com, GodTube.com, CrossCards.com, LightSource.com, Jesus.org, BibleStudyTools.com, iBelieve.com, CCMmagazine.com and ChristianHeadlines.com, and our conservative opinion websites; collectively known as Townhall Media, include Townhall.com™, HotAir.com, Twitchy.com, HumanEvents.com, RedState.com, and BearingArms.com. We also publish digital newsletters through Eagle Financial Publications, which provide market analysis and non-individualized investment strategies from financial commentators on a subscription basis.

Our church e-commerce websites, including WorshipHouseMedia.com, SermonSpice.com, SermonSearch.com, ChurchStaffing.com, and ChristianJobs.com, offer a variety of digital resources including videos, song tracks, sermon archives and job listings to pastors and Church leaders. E-commerce also includes Eagle Wellness, which sells nutritional supplements.

Our web content is accessible through all of our radio station websites that feature content of interest to local audiences throughout the United States.

Our publishing operating segment is comprised of three businesses: (1) Regnery Publishing, a traditional book publisher that has published dozens of bestselling books by leading conservative authors and personalities, including Ann Coulter, Newt Gingrich, David Limbaugh, Ed Klein, Mark Steyn and Dinesh D’Souza; (2) Salem Author Services, our self-publishing service for authors through Xulon Press and Mill City Press; and (3)Singing News® magazine, previously Salem Publishing™ which produced and distributed print magazines.

7

Variable Interest Entities

We may enter into agreements or investments with other entities that could qualify as variable interest entities (“VIEs”) in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 “Consolidation.”A VIE is consolidatedpresentation in the financial statements ifwe are deemed to be the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interests in the VIE, either explicitly or implicitly. A VIE is an entity forcurrent year, which the primary beneficiary’s interest in the entity can change with variations in factors other than the amount of investment in the entity. We perform our evaluation for VIE’s upon entry into the agreement or investment. We re-evaluate the VIE when or if events occur that could change the status of the VIE.

We may enter into lease arrangements with entities controlled by our principal stockholders or other related parties. We believe that the requirements of FASB ASC Topic 810 do not apply to these entities because the lease arrangements do not contain explicit guarantees of the residual value of the real estate, do not contain purchase options or similar provisions and the leases are at terms that do not vary materially from leases that would have been available with unaffiliated parties. Additionally, we do not have an equity interest in the entities controlled by our principal stockholders or other related parties and we do not guarantee debt of the entities controlled by our principal stockholders or other related parties.

We also enter into Local Marketing Agreements (“LMAs”) or Time Brokerage Agreements (“TBAs”) contemporaneously with entering into an Asset Purchase Agreement (“APA”) to acquire or sell a radio station. Typically, both LMAs and TBAs are contractual agreements under which the station owner/licensee makes airtime available to a programmer/licensee in exchange for a fee and reimbursement of certain expenses. LMAs and TBAs are subject to compliance with the antitrust laws and the communications laws, including the requirement that the licensee must maintain independent control over the station and, in particular, its personnel, programming, and finances. The FCC has held that such agreements do not violate the communications laws as long as the licensee of the station receiving programming from another station maintains ultimate responsibility for, and control over, station operations and otherwise ensures compliance with the communications laws.

The requirements of FASB ASC Topic 810 may apply to entities under LMAs or TBAs, dependinghad no impact on the facts and circumstances related to each transaction. As of September 30, 2017, we did not have implicit or explicit arrangements that required consolidation under the guidance in FASB ASC Topic 810.

previously reported financial statements.

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 could differcan be materially different from those estimates.

these estimates and assumptions.

Significant areas for which management uses estimates include:

·asset impairments, including goodwill, broadcasting licenses, other indefinite-lived intangible assets, and assets held for sale;
·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;
·income tax valuation allowances; and
·uncertain tax positions.

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 obsolescence;
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,
11

income tax valuation allowances;
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.

Reclassifications

Certain reclassifications

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 madeno changes to our significant accounting policies described in Note 2 to our Annual Report on Form
10-K
for the prior 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
All new accounting pronouncements that are in effect that may impact our financial statements to conform to the current year presentation. These include the reclassification of land held for sale from current assets to long term assets based on the APA term that exceeds twelve months and the reclassification of Salem Consumer Products (“SCP”) from our digital media segment to our broadcast segment. SCP sells books, DVD’s and editorial content developed by our on-air personalities. SCP was reclassed to include revenue from all network sources, in broadcast to assess the overall performance of each network program. Refer to Note 19 – Segment Data for an explanation of this reclassification.

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 ASUson ourfinancial position, results of operations, cash flows, or presentation thereof. Described below are ASUs that are not yet effective, but 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.  

8

In September 2017, the FASB issued ASU 2017-13,Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842). ASU 2017-13 provides additional clarification including the addition of SEC paragraphs to the new revenue and leases sections of the Codification.have been implemented. We do not expect these clarifications tobelieve that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position, results of operations or cash flows

.
NOTE 3. RECENT TRANSACTIONS
During the nine-month period ended September 30, 2021, we completed or presentation thereof.

In August 2017,entered into the FASB issued ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities," which improves the financial reporting of hedging relationships to better align risk management activities in financial statements and make certain targeted improvements to simplify the applicationfollowing transactions:

Debt Transactions
On September 24, 2021, we repurchased $4.7 million of the hedge accounting guidance6.75% Senior Secured Notes due 2024 (“2024 Notes”) for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs.
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of newly issued 7.125% Senior Secured Notes due 2028 (“2028 Notes.”) Contemporaneously with the refinancing, we obtained commitments from the holders of the 2028 Notes to purchase up to $50 million in additional 2028 Notes (“Delayed Draw 2028 Notes,”) contingent upon satisfying certain performance benchmarks, the proceeds of which are to be used exclusively to repurchase or repay the remaining balance outstanding of the 2024 Notes. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 470, “
Debt
.” We incurred debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current GAAP.period, $0.8 million is deferred with the Delayed Draw 2028 Notes, and $1.1 million, along with $3.0 million from the exchanged 2024 Notes, is being amortized as part of the effective yield on the 2028 Notes.
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. The standard is effectivePPP loans were accounted for fiscal years beginning after December 15, 2018,as debt in accordance with FASB ASC Topic 470. The loan balances and accrued interest were forgivable provided that the proceeds were used for eligible purposes, including interim periodspayroll, benefits, rent and utilities within those fiscal years. Early adoption is permittedthe covered period. We used the PPP loan proceeds according to the terms and filed timely applications for any interimforgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million. The remaining PPP loan was repaid in July 2021.
Shelf Registration Statement and annual financial statements that
At-the-Market
Facility
In April 2021, we filed a prospectus supplement to our shelf registration statement on Form
S-3
with the SEC covering the offering, issuance and sale of up to $15.0 million of our Class A Common Stock pursuant to an
at-the-market
facility, with B. Riley Securities, Inc. acting as sales agent. No Common Stock transactions have not yet been issued.We do not expecttaken place under the adoptionfacility.
12

Acquisitions
The operating results of ourfinancial position, business acquisitions and asset purchases are included in our consolidated results of operations cash flows, or presentation thereof.

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting,” which clarifies when to account for a change in the terms or conditions of a share-based payment award as a modification. ASU 2017-09 requires modification accounting only if the fair value, the vesting conditions,from their respective closing date or the classificationdate that we began operating them under a Local Marketing Agreement (“LMA”) or Time Brokerage Agreement (“TBA.”)

On July 2, 2021, we acquired the SeniorResource.com domain for $0.1 million in cash.
On July 1, 2021, we acquired the ShiftWorship.com domain and digital assets for $2.6 million in cash. The digital content library is operated within Salem Web Network’s church products division. We recognized goodwill of $0.2 million attributable to the expected synergies to be realized when combining the operations of this entity into our existing operations.
On June 1, 2021, we acquired radio stations
KDIA-AM
and
KDYA-AM
in San Francisco, California for $0.6 million in cash. The radio stations were acquired in formats that we operate and resulted in $4,000 of goodwill attributable to the additional audience reach obtained and the expected synergies to be realized from combining the operations of these stations into our existing market cluster.
On April 28, 2021, we acquired the Centerline New Media domain and digital assets for $1.3 million in cash. The digital content library is operated within Salem Web Network’s church products division. We recognized goodwill of $24,000 attributable to the expected synergies to be realized when combining the operations of this entity into our existing operations.
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 award (as equity or liability) changes as a result ofpurchase agreement, we may pay up to an additional $11,000 in contingent
earn-out
consideration over the change in terms or conditions. ASU 2017-09 is effective for fiscalnext two years beginning after December 15, 2017, and interim periods within those fiscal years.We do not expectthe adoption of this accounting standard to have a material impacton ourfinancial position, results of operations, cash flows, or presentation thereof.

In March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium on Purchased Callable Debt Securities,” which amends the amortization period for certain purchased callable debt securities held at a premium to a shorter period based on the earliest call date. ASU 2017-08achievement of certain revenue benchmarks.

A summary of our business acquisitions and asset purchases during the nine-month period ending September 30, 2021, none of which were individually or in the aggregate material to our consolidated financial position as of the respective date of acquisition, is effective for fiscal years beginning after December 15, 2018,as follows:
Acquisition Date
  
Description
  
Total Consideration
 
      
(Dollars in thousands)
 
July 2, 2021  SeniorResource.com (asset acquisition)  
$
80
 
July 1, 2021  ShiftWorship.com (business acquisition)  
 
2,600
 
June 1, 2021  
KDIA-AM
and
KDYA-AM
San Francisco, California (business acquisition)
  
 
600
 
April 28, 2021  Centerline New Media (business acquisition)  
 
1,300
 
March 8, 2021  Triple Threat Trader (asset acquisition)  
 
127
 
         
      
$
4,707
 
         
Under the acquisition method of accounting as specified in FASB ASC Topic 805, “
Business Combinations
,” the total acquisition consideration of a business is allocated to the assets acquired and interim periods within those fiscal years.Weliabilities assumed based on their estimated fair values as of the date of the transaction. Transactions that do not expectmeet the adoption of this accounting standard to have a material impacton ourfinancial position, results of operations, cash flows, or presentation thereof.

In February 2017, the FASB issued ASU 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20),” which clarifies the scope and application of ASC Topic 610-20 on accounting for the sale or transfer of nonfinancial assets, that is an asset with physical value such as real estate, equipment, intangibles or similar property. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.We have not yetevaluated the impact of the adoption of this accounting standardon ourfinancial position, results of operations, cash flows, or presentation thereof.

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill in Step 2 of the goodwill impairment test. Under ASU 2017-04, goodwill impairment charges will be based on the excessdefinition of a reporting unit’s carrying amount over its fair value as determinedbusiness in Step 1 of the testing. ASU 2017-04 is effective for interim and annual testing dates after January 1, 2019, with early adoption permitted for interim and annual goodwill impairment testing dates after January 1, 2017.We have not yetevaluated the impact of the adoption of this accounting standardon ourfinancial position, results of operations, cash flows, or presentation thereof.

In January 2017, the FASB issued ASU

2017-01
Business Combinations (Topic 805) Clarifying the Definition of a Business,” which clarifiesBusiness”
are recorded as asset purchases. Asset purchases are recognized based on their cost to acquire, including transaction costs. The cost to acquire an asset group is allocated to the definitionindividual assets acquired based on their relative fair value with no goodwill recognized.
The total acquisition consideration is equal to the sum of all cash payments, the fair value of any deferred payments and promissory notes, and the present value of any estimated contingent
earn-out
consideration. We estimate the fair value of any contingent
earn-out
consideration using a probability-weighted discounted cash flow model. The fair value measurement is based on significant inputs that are not observable in the market
and
thus represent a Level 3 measurement as defined in Note 12, Fair Value Measurements and Disclosures.
The total purchase price consideration for our business for determining whether transactions should be accounted foracquisitions and asset purchases the nine-month period ending September 30, 2021, is as acquisitions or disposalsfollows:
Description
  
Total Consideration
 
   
(Dollars in thousands)
 
Cash payments made upon closing  
$
4,580
 
Deferred payments  
 
116
 
Present value of estimated fair value of contingent
earn-out

consideration
  
 
11
 
      
Total purchase price consideration  
$
4,707
 
      
13

The allocations presented in the table below are based upon estimates of the fair values using valuation techniques including income, cost and market approaches. The following preliminary purchase price allocations are based upon the valuation of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We expectthese estimates and assumptions are subject to change as we obtain additional information during the adoptionmeasurement period, which may be up to one year from the acquisition date. Differences between the preliminary and final valuation could be substantially different from the initial estimate.
      
Net Broadcast
Assets Acquired
   
Net Digital
Assets Acquired
   
Total
Net Assets
 
                
      
(Dollars in thousands)
 
Assets
                  
   Property and equipment  $361   $3,221   $3,582 
   Broadcast licenses   235    0      235 
   Goodwill   4    225    229 
   Customer lists and contracts   0      789    789 
   Domain and brand names   0      66    66 
                   
      
$
600
 
  
$
4,301
 
  
$
4,901
 
                   
Liabilities
                  
   Contract liabilities, short-term   0      (194   (194
                   
      
$
600
 
  
$
4,107
 
  
$
4,707
 
                   
Divestitures
The operating results of ASU 2017-01 to impact the purchase price allocation of any future radio station acquisitions that will be consideredbusiness and asset acquisitions under the new guidance rather than business acquisitions. We do not expect the change to have a material impact ondivestitures are excluded from our financial position,consolidated results of operations cash flows,from their respective closing date or presentation thereof.

In November 2016, the FASB issued ASU 2016-18, “Statements of Cash Flows (Topic 230): Restricted Cash,” which provides guidancedate that a third-party began operating them under an LMA or TBA.

On July 27, 2021, we sold the Hilary Kramer Financial Newsletter and related assets for $0.2 million to be collected in quarterly installments over the
two-year
period ending September 30, 2023. We recognized a
pre-tax
gain on the presentationsale of restricted cash or restricted cash equivalents$0.1 million.
On July 23, 2021, we sold approximately 34 acres of land in Lewisville, Texas, for $12.1 million in cash. The land was being used for as the transmitter site for company owned radio station
KSKY-AM.
We retained a portion of the land in the statementsouthwest corner of the site to continue operating the radio station. We recognized a
pre-tax
gain on the sale of $10.5 million.
On May 25, 2021, we sold Singing News Magazine and Singing News Radio for $0.1 million in cash. In addition to the assets sold, the buyer assumed deferred subscription liabilities of $0.4 million resulting in a
pre-tax
gain on the sale of $0.5 million.
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 flows. ASU 2016-18 is effectiveupon closing and received a promissory note for fiscal years beginning after December 15, 2017,$0.3 million due one year from the closing date. The buyer began operating the station under an 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 into an 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 interim periods within those fiscal years.the
write-off
of the remaining Miami assets as a result of exiting this market. We do notadjusted the
pre-tax
loss by $0.4 million to $1.8 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 August 31, 2021, we entered an agreement to sell 9.3 acres of land in the Denver area for $8.2 million.
We expect to close this sale early in 2022 and plan to continue broadcasting both
KRKS-AM
and
KBJD-AM
from this site.
On August 23, 2021, we entered an agreement to sell approximately 77 acres of land in Tampa, Florida for $13.5 million. We will move the adoptiontransmitter for
WTBN-AM
and diplex it at our owned and operated
WGUL-AM
facility. We expect to close on this transaction by the end of ASU 2016-18the year.
On June 2, 2021, we entered into an APA to haveacquire radio station
KKOL-AM
in Seattle, Washington for $0.5 million. We paid $0.1 million in cash into an escrow account and we began operating the station under an LMA on June 7, 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 material impact on our cash flows or presentation thereof.

In October 2016,portion of the FASB issued ASU 2016-16 “Intra-Entity Transfers of Assets Other Than Inventory,” which modifies existing guidance for the accounting for income tax consequences of intra-entity transfers of assets.This ASU requires entitiesmonthly fees paid under a TBA. Due to immediately recognize the tax consequences on intercompany asset transfers (excluding inventory) atchanges in debt markets, the transaction date, rather than deferringwas not funded, and it is uncertain when, or if, the tax consequencestransaction will close. Word Broadcasting continues to program the stations under current GAAP. The guidance is effective for fiscal years beginning after December 15, 2018, and interim reports within those fiscal years,a TBA that began in January 2017.

14

NOTE 4. REVENUE RECOGNITION
We recognize revenue in accordance with early adoption permitted only as of the first quarter of a fiscal year.We do not expect the adoption of ASU 2016-16 to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

In August 2016, the FASB issued ASU 2016-15,ASC Topic 606,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,”which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing diversity in practice related to eight specific types of transactions. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We do not expect the adoption of ASU 2016-15 to have a material impact on our financial cash flows or presentation thereof.

9

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. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted.We have not yetevaluated the impact of the adoption of this accounting standardon ourfinancial position, results of operations, cash flows, or presentation thereof.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires that lessees recognize a right-of-use asset and a lease liability for all leases with lease terms greater than twelve months in the balance sheet. ASU 2016-02 requires additional disclosures including the significant judgments made by management to provide insight into the revenue and expense to be recognized from existing contracts and the timing and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We have not yet determined the dollar impact of recording operating leases on our statement of financial position. The adoption of ASU 2016-02 will have a material impacton ourfinancial position and the presentation thereof. Our existing credit facility stipulates that our covenants are based on GAAP as of the agreement date. Therefore, the material impact of recording right-to-use assets and lease liabilities on our statement of financial position is not expected to impact the compliance status for any covenant.

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which provides updated guidance that enhances the reporting model for financial instruments, including amendments, to address aspects of recognition, measurement, presentation and disclosure. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. With the exception of the early application guidance applicable to certain entities, early adoption of the amendments is not permitted.We have not yetevaluated the impact of the adoption of this accounting standardon ourfinancial position, results of operations, cash flows, or presentation thereof.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers, (Topic 606),and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016 and December 2016, within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2016-20 and ASU 2017-13 respectively (ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2016-20, and ASU 2017-13, collectively, “Topic 606”). Topic 606 supersedes nearly all existing

a comprehensive revenue recognition guidance under GAAP. The core principlemodel that requires revenue to be recognized when control of Topic 606 is to recognize revenues whenthe promised goods or services are transferred to customers inat an amount that reflects the consideration that is expected to be received for those goods or services.received. The application of FASB ASC Topic 606 defines a five-step processrequires us to achieve this core principle and, in doing so, it is possible moreuse significant judgment and estimates may be requiredwhen applying a five-step model applicable to all revenue streams.
The following table presents our revenues disaggregated by revenue source for each of our operating segments:
   
Nine Months Ended September 30, 2021
 
   
Broadcast
   
Digital Media
   
Publishing
   
Consolidated
 
                 
   
(Dollars in thousands)
 
By Source of Revenue:                    
Block Programming – National  $35,824   $0—     $0—     $35,824 
Block Programming – Local   18,072    0—      0—      18,072 
Spot Advertising – National   10,565    0—      0—      10,565 
Spot Advertising – Local   30,123    0—      0—      30,123 
Infomercials   682    0—      0—      682 
Network   14,729    0—      0—      14,729 
Digital Advertising   18,415    13,859    132    32,406 
Digital Streaming   3,559    2,579    0—      6,138 
Digital Downloads and eBooks   509    4,637    1,294    6,440 
Subscriptions   828    9,227    262    10,317 
Book Sales and
e-commerce,
net of estimated sales returns and allowances
   289    163    10,851    11,303 
Self-Publishing Fees   0—      0—      4,730    4,730 
Print Advertising   2    0—      123    125 
Other Revenues   6,825    138    701    7,664 
                     
   
$
 140,422
 
  
$
 30,603
 
  
$
 18,093
 
  
$
 189,118
 
                     
Timing of Revenue Recognition                    
Point in Time  $ 138,540   $ 30,603   $ 18,093   $ 187,236 
Rental Income (1)   1,882    0—      0—      1,882 
                     
   
$
140,422
 
  
$
30,603
 
  
$
18,093
 
  
$
189,118
 
                     
   
Nine Months Ended September 30, 2020
 
   
Broadcast
   
Digital Media
   
Publishing
   
Consolidated
 
                 
   
(Dollars in thousands)
 
By Source of Revenue:                    
Block Programming – National  $35,536   $—     $—     $35,536 
Block Programming – Local   18,211    —      —      18,211 
Spot Advertising – National   10,179    —      —      10,179 
Spot Advertising – Local   28,630    —      —      28,630 
Infomercials   750    —      —      750 
Network   13,505    —      —      13,505 
Digital Advertising   10,676    14,473    216    25,365 
Digital Streaming   1,981    2,611    —      4,592 
Digital Downloads and eBooks   3,049    4,291    960    8,300 
Subscriptions   868    6,679    519    8,066 
Book Sales and
e-commerce,
net of estimated sales returns and allowances
   1,128    108    6,849    8,085 
Self-Publishing Fees   —      —      3,860    3,860 
Print Advertising   1    —      278    279 
Other Revenues   5,527    193    684    6,404 
                     
   
$
 130,041
 
  
$
 28,355
 
  
$
 13,366
 
  
$
 171,762
 
                     
Timing of Revenue Recognition                    
Point in Time  $ 128,157   $ 28,319   $ 13,366   $ 169,842 
Rental Income (1)   1,884    36    —      1,920 
                     
   
$
130,041
 
  
$
28,355
 
  
$
13,366
 
  
$
171,762
 
                     
(1)
Rental income is not applicable to FASB 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.
15

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 12
1
/
2
, 25 or
50-minutes
of time. We separate block program revenue recognition process thaninto
3
categories, National, Local and Infomercial revenue. Our stations are required under existing GAAP. These estimates include identifying performance obligations in the contract, estimating the amount of variable considerationclassified by format, including our three main formats Christian Teaching and Talk, News Talk, and Contemporary Christian Music. National and local programming content is complementary to include in the transaction price and allocating the transaction price to each separate performance obligation, among others. The guidanceour station format while infomercials are closely associated with long-form advertisements. Block programming revenue is effective for us as of January 2018, the first interim period within fiscal years beginning on or after December 15, 2017, using either of two methods: (1) retrospective application of Topic 606 to each prior reporting period presented with the option to elect certain practical expedients as defined within Topic 606 or (2) retrospective application of Topic 606 with the cumulative effect of initially applying Topic 606 recognized at the datetime of initial application and providing certain additional disclosures as defined per Topic 606. We have developed a project plan forbroadcast, which represents the implementation of ASC 606 and all related ASU’s as ofpoint in time that control is transferred to the effective date with further analysis planned during the remainder of 2017 to complete the implementation plan. Based oncustomer thereby completing our evaluation of a sample ofperformance obligation. Programming revenue contracts with customers against the requirements of the standard, we believe that the reporting of revenue as principal (gross) or agent (net) will impact our consolidated financial statements. We may sell advertising that includes placement on third party websites that we currently reportis recorded on a gross basis as principal dueunless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency. Block Programming revenue may also include variable consideration for charities and programmers that purchase blocks of airtime to having latitudegenerate donations and contributions from our audience.
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 establishing the sales price and bearing credit risk. Under new guidance, we will report this revenue net as agent because the third partytime that control is primarily responsible for fulfilling the service. Preliminarily, we plan to adopt Topic 606 pursuanttransferred to the modified retrospective application methodcustomer 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 Topic 606. 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 do not believerecognize revenue from the sale of advertising on our owned and operated websites, the sale of advertisements on our own and operated mobile applications, the sale of advertisements in digital newsletters that there will be a material impactwe produce, the sale of advertising in streaming and podcasts, and the sale of custom digital advertising solutions, such as web pages and social media campaigns that we offer to our revenues upon adoption ascustomers. Digital advertising revenue is recognized at the practicetime that the advertisement is delivered, or when the number of sellingimpressions 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 third party websites has not been widely used. We expect this typea gross basis unless an agency represents the customer, in which case, revenue is reported net of salethe commission retained by the agency.
Salem Surround, our multimedia advertising agency, offers a comprehensive suite of digital marketing services to growdevelop and execute audience-based marketing strategies for clients on both the national and local level. Salem Surround specializes in popularity in future periods with the net incremental revenue reported in our financials. We continue to evaluate the impact of our pending adoption of Topic 606 and our preliminary assessments are subject to change.

NOTE 2. IMPAIRMENT OF GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS

Approximately 71% of our total assets as of September 30, 2017 consist of indefinite-lived intangible assets, such as broadcast licenses, goodwill and mastheads, the value of which depends significantly upon the operating results of our businesses. In the casedigital 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 would notview as one performance obligation. Our advertising campaigns are designed to be able“white label” agreements between Salem and our advertiser, meaning we provide special care and attention to operate the propertiesdetails 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 responsible for delivering the campaign results to our customer with or without the related FCC licensethird-party. We are responsible for each property. Broadcast licenses are renewed withany payments due to the FCC every eight years for a nominal costthird-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.

16

Digital Streaming
. We recognize revenue from the sale of advertisements and from the placement of ministry content that is expensed as incurred. We continually monitorstreamed on our stations’ compliance with the various regulatory requirements. Historically, allowned and operated websites and on our owned and operated mobile applications. Each of our broadcast licensesradio stations, our digital media entities and certain publishing entities have been renewedcustom websites and mobile applications that generate streaming revenue. Digital streaming revenue is recognized at the endtime that the content is delivered, or when the number of their respective periods,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 we expect
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 all broadcast licenses will continuecontrol 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 renewedmade 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 future. Accordingly, we consider our broadcast licenses to be indefinite-lived intangible assets in accordance with FASB ASC Topic 350, “Intangibles – Goodwill and Other.” Broadcast licenses account for approximately 94% of our indefinite-lived intangible assets. Goodwill and mastheads account for the remaining 6%.current period. Print-based consumer books are sold on a fully returnable basis. We do not amortize goodwillrecord assets or other indefinite-lived intangible assets, but rather testinventory for impairment at least annually or more frequently if events or circumstances indicate that an asset may be impaired.

10

We complete our annual impairment tests in the fourth quarter of each year. We believe that our estimate of the value of our broadcast licenses, mastheads, and goodwillreturned books as they are considered used regardless of the condition returned. Our experience with unsold or returned books is a critical accounting estimate as thethat their resale value is significantinsignificant 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 relationadvance 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 total assets, and our estimates incorporate variables and assumptions thatperformance obligation. Revenue is reported net of estimated returns, which are based on past experiencesour experience and judgment about future operating performancehistorical return rates. Returned products are recorded in inventory if they are unopened and
re-saleable
with a corresponding reduction in the cost of our marketsgoods sold.
Self-Publishing Fees
. We recognize revenue from self-publishing services through Salem Author Services (“SAS”), including book publishing and business segments. If actual operating resultssupport 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 less favorable thanunique to each author, authors must make payments in advance of the assumptions and estimates we used, or if we reduce our estimates of future operating results, weperformance. Payments are subjecttypically made in installments over the expected production timeline for each publication. We record contract liabilities equal to future impairment charges, 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 may be material. The fair value measurements forrepresents the point in time that control of the product is transferred to the author, thereby completing our indefinite-lived intangible assets use significant unobservable inputs that reflect our own assumptions aboutperformance obligation. Revenue is recorded at the estimates that market participants would use in measuring fair valuenet amount due from the author, including assumptions about risk. The unobservable inputs are defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” as Level 3 inputs discussed in detail in Note 16.

Throughout 2017, we continued to evaluate ourdiscounts based on the service package.

Advertising – Print
. We recognized revenue from the sale of print magazine business due to declines in operating results and projected revenues. We ceased publishing Preaching Magazine, YouthWorker Journal, FaithTalk Magazine and Homecoming® The Magazineadvertisements. Revenue was recognized upon delivery of the May 2017 print publications.magazine which represents the point in time that control is transferred to the customer thereby completing the performance obligation. Revenue was 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.
17

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 tested print magazinesrecognize event revenue, including fees earned for impairmentticket 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 March 31, 2017the 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
September 30,
   
Nine Months Ended
September 30,
 
         
   2020   
2021
   2020   
2021
 
                 
   
(Dollars in thousands)
 
Net broadcast barter revenue  $444   
$
582
 
  $2,118   
$
1,647
 
Net digital media barter revenue   —     
 
—  
 
   —     
 
—  
 
Net publishing barter revenue   3   
 
—  
 
   34   
 
—  
 
Net broadcast barter expense  $413   
$
619
 
  $1,971   
$
1,704
 
Net digital media barter expense   —     
 
0—  
 
   —     
 
0—  
 
Net publishing barter expense   —     
 
(2
   —     
 
(5
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 our 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 commissions are periodically reviewed for impairment. At September 30, 2021, our prepaid commissions were $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.
18

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
  
 
(7,770   0—   
Additional amounts recognized during the period  
 
19,742    883 
Revenue recognized during the period that was recorded during the period  
 
(12,734   0—   
Transfers  
 
671    (671
           
Balance, end of period September 30, 2021  
$
11,561
 
  $2,081 
           
Amount refundable at beginning of period  $11,607
 
  $1,869 
Amount refundable at end of period  $11,549
 
  $2,081 
We expect to satisfy these performance obligations as follows:
   
Amount
 
For the Twelve Months Ended September 30,
  
(Dollars in thousands)
 
2022
  $11,561 
2023
   979 
2024
   787 
2025
   238 
2026
   77 
Thereafter
   0   
      
   $13,642 
      
Significant Financing Component
Our sales agreements are typically 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 October 1, 2021, and September 30, 2026. The difference between the promised consideration and the cash selling price of the publications is not significant and therefore, we concluded that subscriptions do not contain a significant financing component under FASB ASC Topic 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 decisioncontrol. We require advance payments to cease publicationsprovide us with protection from incurring costs for products that are unique and recorded an impairment chargeonly sellable to the author. Based on these considerations, we have concluded that our self-publishing contracts do not contain a significant financing component under FASB ASC Topic 606.
NOTE 5. INVENTORIES
Inventories consist of $19,000 associated with mastheads. There were no changes in depreciable livesfinished books from Regnery
®
Publishing. All inventories are valued at the lower of any propertycost or equipment associated with these magazinesnet realizable value as each individually identifiable asset had been fully depreciated.

determined on a weighted average cost method.

NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS

6. PROPERTY AND EQUIPMENT

We account for property and equipment in accordance with FASB ASC Topic
360-10,
Property, Plant and Equipment
.”
19

The following is a summary of the categories of our property and equipment:
   December 31, 2020   
September 30, 2021
 
         
   
(Dollars in thousands)
 
Buildings  $28,922
 
  
$
28,567
 
Office furnishings and equipment  
 
36,875
 
  
 
36,592
 
Antennae, towers and transmitting equipment  
 
78,057
 
  
 
77,543
 
Studio, production, and mobile equipment  
 
29,023
 
  
 
29,333
 
Computer software and website development costs  
 
33,928
 
  
 
38,272
 
Record and tape libraries  
 
17
 
  
 
—  
 
Automobiles  
 
1,514
 
  
 
1,492
 
Leasehold improvements   18,187   
 
18,703
 
           
   $226,523   
$
230,502
 
Less accumulated depreciation   (180,336  
 
(185,127
           
    46,187   
 
45,375
 
Land  $30,254   
$
27,040
 
Construction-in-progress
   2,681   
 
6,010
 
           
   $79,122   
$
78,425
 
           
Depreciation expense was approximately $2.7 million for the three-month periods ended September 30, 2021 and 2020, and $8.1 million for the nine-month periods ended September 30, 2021 and 2020. We periodically review our long-lived assets for impairment wheneverwhen events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. OurThis review requires us to estimate the fair value of the assets when events or circumstances indicate that they may be impaired. The fair value measurements for our long-lived assets useusing significant observableunobservable 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. We reviewed long-lived assets associated with Preaching Magazine, YouthWorker Journal, FaithTalk Magazine and Homecoming® The Magazine as of March 31, 2017, due to our decision to cease publishing these magazines as of the May 2017 issue. We recorded a $1.9 million decrease in the cost and a $1.9 million decrease in the accumulated amortization for fully amortized assets, including subscriber lists and domain names associated with these magazines. There was no impairment loss or adjustment required to the previously estimated useful lives of these assets. There were no further indications of impairment present as of September 30, 2017.

NOTE 4. ACQUISITIONS AND RECENT TRANSACTIONS

Duringduring the nine monththree- and nine-month period ended September 30, 2017, we completed or entered into the following transactions:

Debt

On May 19, 2017, we closed on a private offering2021

.
NOTE 7. OPERATING AND FINANCE LEASE
RIGHT-OF-USE
ASSETS
Leases
We account for leases in accordance with FASB ASC Topic 842, “
Leases
” that requires lessees to recognize Right of $255.0 million aggregate principal amount of 6.75% senior secured notes due 2024 (the “Notes”Use (“ROU”) assets and concurrently entered into a five-year $30.0 million senior secured asset-based revolving credit facility, which includes a $5.0 million subfacility for standby letters of credit and a $7.5 million subfacility for swingline loans (“ABL Facility”) due May 19, 2022. The net proceeds from the offering of the Notes, together with borrowings under the ABL Facility, were used to repay outstanding borrowings, including accrued and unpaid interest, on our previously existing senior credit facilities consisting of a term loan (“Term Loan B”) and a revolving credit facility of $25.0 million (“Revolver”), and to pay fees and expenses incurred in connection with the Notes offering and the ABL Facility (collectively, the “Refinancing”).

In connection with the Refinancing, on May 19, 2017, we repaid $258.0 million in principal on the Term Loan B and paid interest due as of that date. We recorded a $0.6 million pre-tax loss on the early retirement of long-term debt related to the unamortized discount and a $1.5 million pre-tax loss on the early retirement of long-term debt related to unamortized debt issuance costs associated with the Term Loan B. We also terminated the Revolver as of May 19, 2017. We repaid $4.1 million in outstanding principal on the Revolver and paid interest due as of that date. We recorded a $56,000 pre-tax loss on the early retirement of long-term debt related to unamortized debt issuance costs associated with the Revolver.

On February 28, 2017, we repaid $3.0 million principal on the Term Loan B of $300.0 million, and paid interest due as of that date. We recorded a $6,200 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and $18,000 in unamortized debt issuance costs associated with the principal repayment.

On January 30, 2017, we repaid $2.0 million in principal on the Term Loan B and paid interest due as of that date. We recorded a $4,500 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and $12,000 in unamortized debt issuance costs associated with the principal repayment.

11

Equity

On September 12, 2017, we announced a quarterly equity distribution in the amount of $0.0650 per share on Class A and Class B common stock. The equity distribution of $1.7 million was paid on September 29, 2017 to all Class A and Class B common stockholders of record as of September 22, 2017.

On August 9, 2017, a restricted stock award of 33,066 shares was granted to an executive that vested immediately. The fair value of the restricted stock award was measuredlease liabilities calculated based on the grant date market pricepresent value of lease payments for all lease agreements with terms that are greater than twelve months. FASB ASC Topic 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 common sharescalculation 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 expensed aspartnerships created for the benefit of the vesting date. The restricted stock award contains transfer restrictions under which they cannot be sold, pledged, transferred or assigned until three months from vesting date. The recipient of this restricted stock award is entitled to all ofprincipal stockholders and their families. These leases are designated as Related Party leases in the rights of absolute ownership ofdetails provided.
Operating leases are reflected on our balance sheet within operating lease ROU assets and therestricted stock from the date of grant, including related current and
non-current
operating lease liabilities. ROU assets represent the right to voteuse an underlying asset for the shareslease term, and lease liabilities represent the obligation to receive dividends.
Restricted stock awardsmake lease payments arising from lease agreement. Operating lease ROU assets and liabilities are independent of option grants and are granted at no cost to the recipient other than applicable taxes owed by the recipient. The award is considered issued and outstanding from the vest date of grant.

On June 1, 2017, we announced a quarterly equity distribution in the amount of $0.0650 per share on Class A and Class B common stock. The equity distribution of $1.7 million was paid on June 30, 2017 to all Class A and Class B common stockholders of record as of June 16, 2017.

On March 9, 2017, we announced a quarterly equity distribution in the amount of $0.0650 per share on Class A and Class B common stock. The equity distribution of $1.7 million was paid on March 30, 2017 to all Class A and Class B common stockholders of record as of March 20, 2017.

On March 24, 2017, a restricted stock award of 178,592 shares was granted to certain members of management that vested immediately. The fair value of each restricted stock award was measured based on the grant date market price of our common shares and expensed as of the vesting date. These restricted stock awards contained transfer restrictions under which they could not be sold, pledged, transferred or assigned until three months from vesting date. Recipients of these restricted stock awards were entitled to all the rights of absolute ownership of therestricted stock from the date of grant, including the right to vote the shares and to receive dividends.Restricted stock awards are independent of option grants and are granted at no cost to the recipient other than applicable taxes owed by the recipient. The awards were considered issued and outstanding from the vest date of grant.

Acquisitions – Broadcast

On September 15, 2017, we closed on the acquisition of real property, including the land, tower and broadcasting facilities, of radio station WSPZ-AM in Bethesda, Maryland for $1.5 million in cash. We recognized goodwill of approximately $13,000 associated with the going concern value of the existing income generating leases acquired with the broadcast tower.

On July 24, 2017, we closed on the acquisition of the FM translator construction permit in Eaglemount, Washington, for $40,000 in cash. The FM translator will be relocated to the Portland, Oregon market for use by our KDZR-AM radio station.

On June 28, 2017, we closed on the acquisition of an FM translator construction permit in Festus, Missouri for $40,000 in cash. The FM translator will be relocated to the St. Louis, Missouri market for use by our KXFN-FM radio station.

On March 14, 2017, we closed on the acquisition of an FM translator construction permit in Quartz Site, Arizona for $20,000 in cash. The FM translator will be relocated to the San Diego, California market for use by our KPRZ-AM radio station.

On March 1, 2017, we closed on the acquisition of an FM translator construction permit in Roseburg, Oregon for $45,000 in cash. The FM translator will be relocated to the Portland, Oregon market for use by our KPDQ-AM radio station.

On January 16, 2017, we closed on the acquisition of an FM translator in Astoria, Oregon for $33,000 in cash. The FM translator will be relocated to the Seattle, Washington market for use by our KGNW-AM radio station.

On January 6, 2017, we closed on the acquisition of an FM translator construction permit in Mohave Valley, Arizona for $20,000 in cash. The FM translator will be relocated to the San Diego, California market for use by our KCBQ-AM radio.

Acquisitions − Digital Media

On August 31, 2017, we acquired the TeacherTube.com website and related assets for $1.1 million in cash. TeacherTube.com is an online instructional video sharing community for teachers, students and parents. We recorded goodwill of approximately $0.4 million associated with the expected synergies to be realized from combining this website and related assets into our existing digital media platform. The accompanying Condensed Consolidated Statement of Operations reflects the operating results as of the closing date within our digital media operating segment.

On August 31, 2017, we acquired the Intelligence Report newsletter and related assets valued at $2.5 million and we assumed deferred subscription liabilities of $2.9 million. We paid no cash to the seller upon closing. We recorded goodwill of approximately $0.4 million associated with the expected synergies to be realized from combining this financial publication and related assets into our existing digital media platform. The accompanying Condensed Consolidated Statement of Operations reflects the operating results as of the closing date within our digital media operating segment.

12

On July 6, 2017, we acquired the TradersCrux.com website and related assets for $0.3 million in cash. As part of the purchase agreement, we may pay up to an additional $0.1 million in contingent earn-out consideration within one year upon the achievement of income benchmarks. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of TradersCrux.com to achieve the income targets at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $18,750, which approximates the discounted present value due to the earn-out period of less than one year. We recorded goodwill of approximately $900 associated with the expected synergies to be realized from combining this website and related assets into our existing digital media platform.

On June 8, 2017, we acquired a Portuguese Bible mobile application and related assets for $65,000 in cash. As part of the purchase agreement, we may pay up to an additional $20,000 in contingent earn-out consideration over the next twelve months based on the achievement of certain revenue benchmarks. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of the Portuguese Bible mobile’s applications to achieve the revenue targets at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $16,500, which approximated the discounted present value due to the earn-out period of less than one year.

On March 15, 2017, we acquired the website prayers-for-special-help.com and related assets for $0.2 million in cash. We recorded goodwill of approximately $15,000 with the expected synergies to be realized from combining these applications into our existing digital media platform. The accompanying Condensed Consolidated Statement of Operations reflects the operating results as of the closing date within our digital media operating segment.

A summary of our business acquisitions and asset purchases during the nine month period ended September 30, 2017, none of which were individually or in the aggregate material to our Condensed Consolidated financial position as of the respective date of acquisition, is as follows:

Acquisition Date Description Total Cost 
    (Dollars in thousands) 
September 15, 2017 Real property of radio station WSPZ-AM in Bethesda, Maryland (business acquisition) $1,500 
August 31, 2017 TeacherTube.com (business acquisition)  1,100 
August 31, 2017 Intelligence Reporter newsletter (business acquisition)   
July 24, 2017 FM Translator construction permit, Eaglemount, Washington (asset acquisition)  40 
July 6, 2017 TradersCrux.com (business acquisition)  298 
June 28, 2017 FM Translator construction permit, Festus, Missouri (asset acquisition)  40 
June 8, 2017 Portuguese Bible Mobile Applications (business acquisition)  82 
March 15, 2017 Prayers for Special Help (business acquisition)  245 
March 14, 2017 FM Translator construction permit, Quartz Site, Arizona (asset purchase)  20 
March 1, 2017 FM Translator construction permit, Roseburg, Oregon (asset purchase)  45 
January 16, 2017 FM Translator, Astoria, Oregon (asset purchase)  33 
January 1, 2017 FM Translator construction permit, Mohave Valley, Arizona (asset purchase)  20 
    $3,423 

The operating results of our business acquisitions and asset purchases are included in our consolidated results of operations from their respective closingcommencement date, or the date that we began operating them under an LMA or TBA. Underon which the acquisition method of accounting as specified in FASB ASC Topic 805, “Business Combinations,”lessor makes the total acquisition consideration is allocated to the assets acquired and liabilities assumedunderlying asset available for use, based on their estimated fair values as of the date of the transaction.

Estimates of the fair value include discounted estimated cash flows to be generated by the assets and their expected useful lives based on historical experience, market trends and any synergies believed to be achieved from the acquisition. Acquisitions may include contingent consideration, the fair value of which is estimated as of the acquisition date asupon the present value of the expected contingentlease payments as determined using weighted probabilities ofover the payment amounts. We may retain a third-party appraiser to estimate the fair value of the acquired net assets as of the acquisition date. As part of the valuation and appraisal process, the third-party appraiser prepares a report assigning estimated fair values to the various assets acquired. These fair value estimates are subjective in nature and require careful consideration and judgment. Management reviews the third party reports for reasonableness of the assigned values.

We believe that these valuations and analysis provide appropriate estimates of the fair value for the net assets acquired as of the acquisition date. These initial valuations are subject to refinement during the measurement period, which may be up to one year from the acquisition date. During this measurement period, we may retroactively record adjustments to the net assets acquired based on additional information obtained for items that existed as of the acquisition date. Upon the conclusion of the measurement period, any adjustments are reflected in our Condensed Consolidated Statements of Operations. To date, we have not recorded adjustments to the estimated fair values used in our acquisition consideration during or after the measurement period.

Property and equipment are recorded at the estimated fair value and depreciatedrespective lease term. Lease expense is recognized on a straight-line basis over their estimated useful lives. Finite-lived intangible assets are recorded at their estimated fair value and amortized on a straight-line basis over their estimated useful lives. Goodwill, which represents the organizational systems and procedureslease term, subject to any changes in place to ensure the effective operation oflease or expectation regarding the entity, may also be recorded and tested for impairment. Costs associated with acquisitions,lease terms. Variable lease costs, such as consultingcommon area maintenance, property taxes and legal fees,insurance, are expensed as incurred. We recognized costs associated with acquisitions

20

Balance Sheet
Supplemental balance sheet information related to leases is as follows:
   
September 30, 2021
 
   
(Dollars in thousands)
 
     
Operating Leases
  Related Party   Other   Total 
Operating leases ROU assets  $ 6,303   $ 37,797   $ 44,100 
             
Operating lease liabilities (current)  $1,004   $7,600   $8,604 
Operating lease liabilities
(non-current)
   5,479    37,701    43,180 
                
Total operating lease liabilities  $6,483   $45,301   $51,784 
                
Weighted Average Remaining Lease Term
Operating leases
7.8 years
Finance leases
2.9 years
Weighted Average Discount Rate
Operating leases
7.98
Finance leases
5.74
Lease Expense
The components of lease expense were as follows:
   
Nine Months Ended

September 30, 2021
 
   
(Dollars in thousands)
 
Amortization of finance lease ROU Assets  $48 
Interest on finance lease liabilities   6 
      
Finance lease expense   54 
Operating lease expense   9,656 
Variable lease expense   430 
Short-term lease expense   444 
      
Total lease expense  $ 10,584 
      
Supplemental Cash Flow
Supplemental cash flow information related to leases was
as
follows:
   
Nine Months Ended

September 30, 2021
 
   
(Dollars in thousands)
 
Cash paid for amounts included in the measurement of lease liabilities:     
Operating cash flows from operating leases  $10,403 
Operating cash flows from finance leases   4 
Financing cash flows from finance leases   48 
Leased assets obtained in exchange for new operating lease liabilities  $3,466 
Leased assets obtained in exchange for new finance lease liabilities   17 
21

Maturities
Future minimum lease payments under leases that had initial or remaining
non-cancelable
lease terms in excess of one year as of September 30, 2017 compared to $0.3 million during the same period of the prior year, which2021, are included in unallocated corporate expenses in the accompanying Condensed Consolidated Statements of Operations.

13

The total acquisition consideration is equal to the sum of all cash payments, the fair value of any deferred payments and promissory notes, and the present value of any estimated contingent earn-out consideration. We estimate the fair value of contingent earn-out consideration using a probability-weighted discounted cash flow model. The fair value measurement is based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in Note 16 - Fair Value Measurements.

The following table summarizes the total acquisition consideration for the nine month period ended September 30, 2017:

Description Total Consideration 
  (Dollars in thousands) 
Cash payments made upon closing $3,352 
Escrow deposits paid in prior years  35 
Present value of estimated fair value of contingent earn-out consideration  36 
Total purchase price consideration $3,423 

The fair value of the net assets acquired was allocated as follows:

  Net Broadcast  Net Digital Media  Total Net 
  Assets Acquired  Assets Acquired  Assets Acquired 
  (Dollars in thousands) 
Assets            
Property and equipment $1,487  $479  $1,966 
Broadcast licenses  198      198 
Goodwill  13   810   823 
Customer lists and contracts     314   314 
Domain and brand names     647   647 
Subscriber base and lists     2,316   2,316 
Non-compete agreements     11   11 
  $1,698  $4,577  $6,275 
Liabilities            
Deferred revenue $   (2,852)  (2,852)
  $1,698  $1,725  $3,423 

Pending Transactions

On September 15, 2017, we entered an APA to acquire radio station WSPZ-AM in Bethesda, Maryland for $0.6 million in cash from a related party. We began programming the station under an LMA within our Washington DC broadcast market on the same date. The accompanying Condensed Consolidated Statement of Operations reflects the operating results of this station as of the LMA date within our broadcast segment. The acquisition is subject to the approval of the FCC and is expected to close in the fourth quarter of 2017.

In August 2017, we received an escrow deposit under an agreement to sell land in Covina, California for $1.0 million dollars. The land is recorded in assets held for sale and has not been used in operations. The sale is subject to the buyer’s ability to complete due diligence on their expected use of the land and is currently expected to close in the latter half of 2020.

We are programming radio station KHTE-FM, Little Rock, Arkansas, under a 36 month TBA that began on April 1, 2015. The TBA is extendable for up to 48 months. We have the option to acquire the station for $1.2 million in cash during the TBA period. The accompanying Condensed Consolidated Statements of Operations included in this quarterly report on Form 10-Q reflect the operating results of this entity as of the TBA date within our broadcast segment.

Divestitures

On June 1, 2017, we received $0.6 million in cash for a former transmitter site in our Dallas, Texas market that had been leased to a third-party.

Due to operating results during the three month period ended March 31, 2017 that did not meet management’s expectations, we ceased publishing Preaching Magazine, YouthWorker Journal, FaithTalk Magazine and Homecoming® The Magazine upon delivery of the May 2017 print publications. On May 30, 2017, we received $10,000 for Preaching Magazineand YouthWorker Journal. The purchaser assumed all deferred subscription liabilities for these publications resulting in a pre-tax gain on the sale or disposal of assets of approximately $56,000.

On January 3, 2017, Word Broadcasting began operating our Louisville radio stations (WFIA-AM; WFIA-FM; WGTK-AM) under a twenty-four month TBA.

14

NOTE 5. CONTINGENT EARN-OUT CONSIDERATION

Our acquisitions may include contingent earn-out consideration as part of the purchase price under which we will make future payments to the seller upon the achievement of certain benchmarks. The fair value of the contingent earn-out consideration is estimated as of the acquisition date at the present value of the expected contingent payments to be made using a probability-weighted discounted cash flow model for probabilities of possible future payments. The present value of the expected future payouts is accreted to interest expense over the earn-out period. The fair value estimates use unobservable inputs that reflect our own assumptions as to the ability of the acquired business to meet the targeted benchmarks and discount rates used in the calculations. The unobservable inputs are defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” as Level 3 inputs discussed in detail in Note 16.

We review the probabilities of possible future payments to the estimated fair value of any contingent earn-out consideration on a quarterly basis over the earn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the acquired business increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent earn-out consideration liability will increase or decrease, up to the contracted limit, as applicable. Changes in the estimated fair value of the contingent earn-out consideration are reflected in our results of operations in the period in which they are identified. Changes in the estimated fair value of the contingent earn-out consideration may materially impact and cause volatility in our operating results.

TradersCrux.com

We acquired the TradersCrux.com website and related assets for $0.3 million in cash on July 6, 2017. We paid $0.3 million in cash upon closing and may pay up to an additional $0.1 million in contingent earn-out consideration within one year upon the achievement of income benchmarks. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of TradersCrux.com to achieve the income targets at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $18,750, which approximates the discounted present value due to the earn-out of less than one year.

We review the fair value of the contingent earn-out consideration quarterly over the earn-out period to compare actual revenues achieved and projected to the estimated revenues used in our forecasts. Any changes in the estimated fair value of the contingent earn-out consideration will be reflected in our results of operations in the period they are identified, up to the maximum future value outstanding under the contract of $0.1 million. There were no changes in our estimates of the fair value of the contingent earn-out consideration as of the three month period ended September 30, 2017.

Portuguese Bible Mobile Application

We acquired a Portuguese Bible mobile application and related assets on June 8, 2017. We paid $65,000 in cash upon closing and may pay up to an additional $20,000 in contingent earn-out consideration during the twelve month period ending June 8, 2018 based on the achievement of certain revenue benchmarks. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of the Portuguese Bible mobile applications to achieve the revenue targets at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $16,500, which approximated the discounted present value due to the earn-out of less than one year.

We review the fair value of the contingent earn-out consideration quarterly over the earn-out period to compare actual revenues achieved and projected to the estimated revenues used in our forecasts. Any changes in the estimated fair value of the contingent earn-out consideration will be reflected in our results of operations in the period they are identified, up to the maximum future value outstanding under the contract of $20,000. We recorded an increase of $1,700 in the estimated fair value of the contingent earn-out consideration that is reflected in our results of operations for the three month period ended September 30, 2017. The increase is due to a higher likelihood of achieving the revenue targets based on actual results to date that exceed our original estimates.

Turner Investment Products

We acquired Mike Turner’s line of investment products, including TurnerTrends.com and other domain names and related assets on September 13, 2016. We paid $0.4 million in cash upon closing and may pay up to an additional $0.1 million in contingent earn-out consideration during the twelve month period ended September 13, 2017 based on the achievement of certain revenue benchmarks. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of Turner’s investment products to achieve the revenue targets at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $74,000, which was recorded at the discounted present value of $66,000. The discount is being accreted to interest expense over the twelve month earn-out period. We believe that our experience with digital subscriptions and websites provides a reasonable basis for our estimates.

We review the fair value of the contingent earn-out consideration quarterly over the earn-out period to compare actual subscriber revenues achieved and projected to the estimated subscriber revenues used in our forecasts. Any changes in the estimated fair value of the contingent earn-out consideration will be reflected in our results of operations in the period they are identified, up to the maximum future value outstanding under the contract of $74,000. During the three and nine month period ended September 30, 2017, we recorded a net decrease of $14,000 and $53,000, respectively, in the estimated fair value of the contingent earn-out consideration that is reflected in our results of operations. These decreases were based on the likelihood of achieving the revenue targets based on actual results to date that were lower than our original estimates. We made no additional cash payments to the seller during the earn-out period ended September 13, 2017.

   Operating Leases       
           
   Related Party  Other  Total  Finance Leases  Total 
                 
   
(Dollars in thousands)
 
2021
(Oct-Dec)
  $1,505  $10,789  $12,294  $66  $12,360 
2022   1,370   10,908   12,278   47   12,325 
2023   1,070   8,533   9,603   24   9,627 
2024   1,021   6,890   7,911   10   7,921 
2025   1,089   5,640   6,729   1   6,730 
Thereafter   3,293   22,222   25,515   —     25,515 
                      
Undiscounted Cash Flows  $9,348  $64,982  $74,330  $148  $74,478 
                      
Less: imputed interest   (2,865  (19,681  (22,546  (10  (22,556
                      
Total  
$
6,483
 
 
$
45,301
 
 
$
51,784
 
 
$
138
 
 
$
51,922
 
                      
Reconciliation to lease liabilities:                     
Lease liabilities – current  $1,004  $7,600  $8,604  $59  $8,663 
Lease liabilities – long-term   5,479   37,701   43,180   79   43,259 
                      
Total Lease Liabilities  
$
6,483
 
 
$
45,301
 
 
$
51,784
 
 
$
138
 
 
$
51,922
 
                      
15

Daily Bible Devotion

We acquired Daily Bible Devotion mobile applications on May 6, 2015. We paid $1.1 million in cash upon closing and may pay up to an additional $0.3 million in contingent earn-out consideration payable over the next two years based upon the achievement of cumulative session benchmarks for each mobile application. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of Bible Devotional Applications to achieve the session benchmarks at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $165,000, which was recorded at the discounted present value of $142,000. The discount is being accreted to interest expense over the two-year earn-out period. We believe that our experience with digital mobile applications and websites provides a reasonable basis for our estimates.

We reviewed the fair value of the contingent earn-out consideration quarterly over the two-year earn-out period to compare actual cumulative sessions achieved to the estimated cumulative sessions used in our forecasts. Any changes in the estimated fair value of the contingent earn-out consideration were reflected in our results of operations in the period they were identified, up to the maximum amount due under the contract of $165,000 less any amounts paid to date. As of the six month period ended June 30, 2017, the end of the earn-out period, we recorded a net decrease of $4,000 in the estimated fair value of the contingent earn-out consideration based on actual session results at the end of the earn-out period. We paid a total of $75,000 in cash for amounts due under the contingent earn-out as of the end of the term on May 6, 2017. Over the total two-year earn out period, we paid a total of $75,000 to the seller with no payments made during the nine month period ended September 30, 2017.

Bryan Perry Newsletters

On February 6, 2015, we acquired the assets and assumed the deferred subscription liabilities for Bryan Perry Newsletters, paying no cash to the seller upon closing. Future contingent earn-out consideration due to the seller was based upon 50% of the net subscriber revenues achieved over the two-year period from date of close with no minimum or maximum contractual amount due. Using a probability-weighted discounted cash flow model based on our revenue projections at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $171,000, which we recorded at the discounted present value of $158,000. The discount was accreted to interest expense over the two-year earn-out period. We paid a total of $91,000 to the seller over the two year earn out period, of which approximately $14,000 was paid during the six month period ended June 30, 2017, which concluded the earn-out period.

Eagle Publishing

On January 10, 2014, we acquired the entities of Eagle Publishing, including Regnery Publishing, HumanEvents.com, RedState.com, Eagle Financial Publications and Eagle Wellness. The base purchase price was $8.5 million, with $3.5 million paid in cash upon closing, and deferred payments of $2.5 million each due January 2015 and January 2016. The purchase agreement included contingent earn-out consideration of up to $8.5 million based upon the achievement of certain revenue benchmarks established for calendar years 2014, 2015 and 2016 for each of the Eagle entities. Using a probability-weighted discounted cash flow model based on the likelihood of achievement of the benchmarks at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $2.4 million, which was recorded at the discounted present value of $2.0 million. The discount was accreted to interest expense over the three-year earn-out period. We paid a total of $0.9 million in cash for amounts due under the contingent earn-out as of the end of the term on December 31, 2016.

The following table reflects the changes in the present value of our acquisition-related estimated contingent earn-out consideration during the three and nine month periods ended September 30, 2017 and 2016:

  Three Months Ended September 30, 2017 
  Short-Term  Long-Term    
  Accrued Expenses  Other Liabilities  Total 
  (Dollars in thousands) 
Beginning Balance as of July 1, 2017 $31  $  $31 
Acquisitions  19      19 
Accretion of acquisition-related contingent earn-out consideration         
Change in the estimated fair value of contingent earn-out consideration  (12)     (12)
Reclassification of payments due in next 12 months to short-term         
Payments         
Ending Balance as of September 30, 2017 $38  $  $38 

16

  Three Months Ended September 30, 2016 
  Short-Term  Long-Term    
  Accrued Expenses  Other Liabilities  Total 
  (Dollars in thousands) 
Beginning Balance as of July 1, 2016 $441  $  $441 
Acquisitions  66      66 
Accretion of acquisition-related contingent earn-out consideration�� 5      5 
Change in the estimated fair value of contingent earn-out consideration  (196)     (196)
Reclassification of payments due in next 12 months to short-term         
Payments  (11)     (11)
Ending Balance as of September 30, 2016 $305  $  $305 

  Nine Months Ended September 30, 2017 
  Short-Term  Long-Term    
  Accrued Expenses  Other Liabilities  Total 
  (Dollars in thousands) 
Beginning Balance as of January 1, 2017 $66  $  $66 
Acquisitions  36      36 
Accretion of acquisition-related contingent earn-out consideration  4      4 
Change in the estimated fair value of contingent earn-out consideration  (54)     (54)
Reclassification of payments due in next 12 months to short-term         
Payments  (14)     (14)
Ending Balance as of September 30, 2017 $38  $  $38 

  Nine Months Ended September 30, 2016 
  Short-Term  Long-Term    
  Accrued Expenses  Other Liabilities  Total 
  (Dollars in thousands) 
Beginning Balance as of January 1, 2016 $173  $602  $775 
Acquisitions  66      66 
Accretion of acquisition-related contingent earn-out consideration  13   8   21 
Change in the estimated fair value of contingent earn-out consideration  (404)  (54)  (458)
Reclassification of payments due in next 12 months to short-term  556   (556)   
Payments  (99)     (99)
Ending Balance as of September 30, 2016 $305  $  $305 

NOTE 6. INVENTORIES

Inventories consist of finished goods that include books printed for sale by Regnery Publishing and wellness products for sale on our e-commerce sites. All inventories are valued at the lower of cost or market as determined on a First-In First-Out (“FIFO”) cost method and reported net of estimated reserves for obsolescence.

The following table provides details of inventory on hand by segment:

  As of December 31, 2016  As of September 30, 2017 
  (Dollars in thousands) 
Regnery Publishing book inventories $2,473  $2,026 
Reserve for obsolescence – Regnery Publishing  (2,104)  (1,544)
Inventory, net - Regnery Publishing  369   482 
Wellness products $423  $394 
Reserve for obsolescence – Wellness products  (122)  (67)
Inventory, net - Wellness products  301   327 
Consolidated inventories, net $670  $809 

NOTE 7. BROADCAST LICENSES

The following table presents the changes in broadcasting licenses that include capital projects and acquisitions of radio stations and FM translators as discussed in Note 4 of our Condensed Consolidated financial statements.

17

Broadcast Licenses Twelve Months Ended
December 31, 2016
  Nine Months Ended
September 30, 2017
 
  (Dollars in thousands) 
Balance, beginning of period before cumulative loss on impairment $492,032  $494,058 
Accumulated loss on impairment  (99,001)  (105,541)
Balance, beginning of period after cumulative loss on impairment  393,031   388,517 
Acquisitions of radio stations  74    
Acquisitions of FM translators and construction permits  1,645   198 
Capital projects to improve broadcast signal and strength  307   5 
Impairments based on estimated fair value of broadcast licenses  (6,540)   
Balance, end of period before cumulative loss on impairment  494,058   494,261 
Accumulated loss on impairment  (105,541)  (105,541)
Balance, end of period after cumulative loss on impairment $388,517  $388,720 

NOTE 8. GOODWILL

The following table presents the changes in goodwill including acquisitions as discussed in Note 4 of our Condensed Consolidated financial statements.

Goodwill Twelve Months Ended
December 31, 2016
  Nine Months Ended
September 30, 2017
 
  (Dollars in thousands) 
Balance, beginning of period before cumulative loss on impairment $26,560  $27,642 
Accumulated loss on impairment  (1,997)  (2,029)
Balance, beginning of period after cumulative loss on impairment  24,563   25,613 
Acquisitions of radio stations and broadcast businesses     13 
Acquisitions of digital media entities  237   810 
Acquisitions of publishing entities  845    
Impairment charge during year  (32)   
Balance, end of period before cumulative loss on impairment  27,642   28,465 
Accumulated loss on impairment  (2,029)  (2,029)
Ending period balance $25,613  $26,436 

NOTE 9. PROPERTY AND EQUIPMENT

The following is a summary of8. 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 categoriesvalue may be impaired. In the case of our property and equipment:

  As of December 31, 2016  As of September 30, 2017 
  (Dollars in thousands) 
Land $32,402  $33,008 
Buildings  29,070   29,018 
Office furnishings and equipment  37,386   37,135 
Office furnishings and equipment under capital lease obligations  228   244 
Antennae, towers and transmitting equipment  84,144   85,450 
Antennae, towers and transmitting equipment under capital lease obligations  795   795 
Studio, production and mobile equipment  28,668   29,322 
Computer software and website development costs  20,042   22,756 
Record and tape libraries  27   27 
Automobiles  1,373   1,342 
Leasehold improvements  14,696   18,626 
Construction-in-progress  9,983   6,328 
  $258,814  $264,051 
Less accumulated depreciation  (156,024)  (161,848)
  $102,790  $102,203 

Depreciation expense was approximately $3.1 million and $3.0 million,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 three month periodsFCC 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 0 indications of impairment during the three- and nine-month period ended September 30, 20172021.
The following table presents the changes in broadcasting licenses including acquisitions and 2016, respectively,divestitures of radio stations and $9.2 million
FM
translators.

Broadcast Licenses
  Twelve Months Ended
December 31, 2020
   
Nine Months Ended

September 30, 2021
 
         
   
(Dollars in thousands)
 
Balance before cumulative loss on impairment,
beginning of period
  $435,300   
$
434,209
 
Accumulated loss on impairment, beginning of
period
   (97,442  
 
(114,436
           
Balance after cumulative loss on impairment, beginning
of period
   337,858   
 
319,773
 
           
Acquisitions of radio stations   —     
 
235
 
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   
$
320,008
 
           
Balance, end of period before cumulative loss on
impairment
  $434,209   
$
434,444
 
Accumulated loss on impairment, end of period   (114,436  
 
(114,436
           
Balance, end of period after cumulative loss on
impairment
  $319,773   
$
320,008
 
           
22

NOTE 9. GOODWILL
We account for goodwill in accordance with FASB ASC Topic 350 “
Intangibles—Goodwill and $9.0 millionOther
.” 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 nine month periodsupcoming year. There were 0 indications of impairment during the three- and nine-month period ended September 30, 20172021.
The following table presents the changes in goodwill including business acquisitions and 2016, respectively. Includeddispositions as discussed in this amount is $10,000 and $30,000 for the three and nine month periods ended September 30, 2017 and $11,000 and $32,000 for the three and nine month periods ended September 30, 2016, on assets acquired under capital lease obligations. Accumulated depreciationNote 3 of assets acquired under capital leases was $176,000 and $146,000 at September 30, 2017 and December 31, 2016, respectively.

18
our Condensed Consolidated Financial Statements.

Goodwill  Twelve Months Ended
December 31, 2020
   
Nine Months Ended
September 30, 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   
 
4
 
Acquisitions of digital media entities   —     
 
225
 
Impairments based on the estimated fair value
goodwill
   (307  
 
—  
 
           
Ending period balance  $23,757   
$
23,986
 
           
Balance, end of period before cumulative loss on
impairment
   28,520   
 
28,749
 
Accumulated loss on impairment   (4,763  
 
(4,763
           
Ending period balance  $23,757   
$
23,986
 
           

NOTE 10. AMORTIZABLE INTANGIBLE ASSETS

The following tables provide details, by major category,a summary of theour significant classes of amortizable intangible assets:

  As of September 30, 2017 
     Accumulated    
  Cost  Amortization  Net 
  (Dollars in thousands) 
Customer lists and contracts $22,865  $(20,681) $2,184 
Domain and brand names  20,109   (14,139)  5,970 
Favorable and assigned leases  2,379   (2,018)  361 
Subscriber base and lists  8,797   (4,402)  4,395 
Author relationships  2,771   (2,171)  600 
Non-compete agreements  2,029   (1,263)  766 
Other amortizable intangible assets  1,333   (1,333)   
  $60,283  $(46,007) $14,276 

  As of December 31, 2016 
     Accumulated    
  Cost  Amortization  Net 
  (Dollars in thousands) 
Customer lists and contracts $22,599  $(20,070) $2,529 
Domain and brand names  19,821   (12,970)  6,851 
Favorable and assigned leases  2,379   (1,972)  407 
Subscriber base and lists  7,972   (5,304)  2,668 
Author relationships  2,771   (1,824)  947 
Non-compete agreements  2,018   (1,012)  1,006 
Other amortizable intangible assets  1,336   (1,336)   
  $58,896  $(44,488) $14,408 

   
September 30, 2021
 
       Accumulated     
   Cost   Amortization   Net 
             
   
(Dollars in thousands)
 
Customer lists and contracts  
$
23,700
 
  
$
(21,987
  
$
1,713
 
Domain and brand names  
 
19,875
 
  
 
(19,340
  
 
535
 
Favorable and assigned leases  
 
2,188
 
  
 
(1,955
  
 
233
 
Subscriber base and lists  
 
8,647
 
  
 
(8,343
  
 
304
 
Author relationships  
 
2,771
 
  
 
(2,771
  
 
—  
 
Non-compete
agreements
  
 
2,041
 
  
 
(2,041
  
 
—  
 
Other amortizable intangible assets  
 
1,332
 
  
 
(1,332
  
 
—  
 
                
   
$
60,554
 
  
$
(57,769
  
$
2,785
 
                
   
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 
                
23

Amortization expense was approximately $1.1$0.4 million and $1.4$0.8 million for the three month periodthree-month periods ended September 30, 20172021 and 2016,2020, respectively and $3.4$1.5 million and $3.7$2.6 million for the nine month periodnine-month periods ended September 30, 20172021 and 2016,2020, respectively. Based on the amortizable intangible assets as of September 30, 2017,2021, we estimate amortization expense for the next five years to be as follows:

Year Ended December 31, Amortization Expense 
  (Dollars in thousands) 
2017 (Oct – Dec) $1,173 
2018  4,576 
2019  4,006 
2020  2,714 
2021  1,159 
Thereafter  648 
Total $14,276 


Year Ended December 31,
  
Amortization Expense
 
   
(Dollars in thousands)
 
2021 (Oct – Dec)  $341 
2022   1,219 
2023   796 
2024   205 
2025   21 
Thereafter   203 
      
Total  $2,785 
      
NOTE 11. LONG-TERM DEBT

Salem Media Group, Inc. has no independent assets

Long-term debt consists of the following:
   December 31, 2020   
September 30, 2021
 
         
   
(Dollars in thousands)
 
7.125% Senior Secured Notes  $—     
$
114,731
 
Less unamortized discount and debt issuance costs based on imputed interest rate of 7.64%   —     
 
(4,048
         
 
 
7.125% Senior Secured Notes net carrying value   —     
 
110,683
 
           
6.75% Senior Secured Notes   216,341   
 
98,815
 
Less unamortized debt issuance costs based on imputed interest rate of 7.10%   (2,577  
 
(939
         
 
 
6.75% Senior Secured Notes net carrying value   213,764   
 
97,876
 
           
Asset-Based Revolving Credit Facility principal
outstanding (1)
   5,000   
 
—  
 
SBA Paycheck Protection Program loans   —     
 
0—
 
           
Long-term debt less unamortized discount and debt issuance costs  $218,764   
$
208,559
 
           
Less current portion   (5,000  
 
—  
 
           
Long-term debt less unamortized discount and debt issuance costs, net of current portion  $213,764   
$
208,559
 
           
(1)As of September 30, 2021, the Asset-Based Revolving Credit Facility (“ABL”), had a borrowing base of $24.6 million, 0 outstanding borrowings and $0.3 million of outstanding letters of credit, resulting in a $24.3 million borrowing base availability.
Our weighted average interest rate was 6.65% and 6.94% at December 31, 2020 and September 30, 2021, respectively
.
In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of September 30, 2021:
$114.7 million aggregate principal amount of 2028 Notes with semi-annual interest payments at an annual rate of 7.125%;
$98.8 million aggregate principal amount of 2024 Notes with semi-annual interest payments at an annual rate of 6.75%; and
Commitment fee of 0.25% to 0.375% per annum on the unused portion of the ABL Facility.
7.125% Senior Secured Notes
On September 10, 2021, we refinanced $112.8 million of the 2024 Notes by exchanging $112.8 million of 2024 Notes into $114.7 million (reflecting a call premium of 1.688%) of newly issued 7.125% Senior Secured Notes due 2028 (“2028 Notes.”) Contemporaneously with the refinancing, we obtained commitments from the holders of the 2028 Notes to purchase up to $50 million in additional 2028 Notes (“Delayed Draw 2028 Notes”), contingent upon satisfying certain performance benchmarks, the proceeds of which are to be used exclusively to repurchase or operations,repay the subsidiaryremaining balance outstanding of the 2024 Notes.
24

The 2028 Notes and the related guarantees relatingwere exchanged and sold to certain debt are full and unconditional and joint and several, and any subsidiariesholders of Salem Media Group, Inc. other than the subsidiary guarantors are minor.

6.75% Senior Secured2024 Notes,

On May 19, 2017, whom we issuedbelieve to be qualified institutional buyers, in a private placementplacement. The 2028 Notes and the related guarantees have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or any state securities laws. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470.

The 2028 Notes which wereare guaranteed on a senior secured basis by our existing subsidiaries (the “Subsidiary Guarantors”). The Notes bear interest at a rate of 6.75% per year and mature on June 1, 2024, unless earlier redeemed or repurchased. Interest initially accrues on the Notes from May 19, 2017 and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2017.

The Notes and the ABL Facility are secured by liens on substantially all of our and the Subsidiary Guarantors’ assets, other than certain excluded assets. The ABL Facility has a first-priority lien on our and the Subsidiary Guarantor’s accounts receivable, inventory, deposit and securities accounts, certain real estate and related assets (the “ABL Priority Collateral”). The Notes are secured by a first-priority lien on substantially all other assets of ours and the Subsidiary Guarantors (the “Notes Priority Collateral”). There is no direct lien on our Federal Communications Commission (“FCC”) licenses to the extent prohibited by law or regulation.

19

basis. We may redeem the 7.125% Notes, in whole or in part, at any time on or afterprior to June 1, 20202024 at a price equal to 100% of the principal amount of the 2028 Notes plus a “make-whole” premium as of, and accrued and unpaid interest, if any, to, but not including, the redemption date. At any time on or after June 1, 2020,2024, we may redeem some or all of the 2028 Notes at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth in the 2028 Notes Indenture, plus accrued and unpaid interest, if any, to, but not including the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 2028 Notes before June 1, 20202024 with the net cash proceeds from certain equity offerings at a redemption price of 106.75%107.125% of the principal amount plus accrued and unpaid interest, if any, to, but not including the redemption date. We may also redeem up to 10% of the aggregate original principal amount of the 2028 Notes per twelve monthtwelve-month period, before June 1, 2020in connection with up to two redemptions in such twelve-month period, at a redemption price of 103%101% of the principal amount plus accrued and unpaid interest to, but not including, the redemption date.

The 2028 Notes mature on June 1, 2028, unless earlier redeemed or repurchased. Interest accrues on the 2028 Notes from September 10, 2021 and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2021. Based on the balance of the 2028 Notes outstanding, we are required to pay $8.2 million per year in interest. As of September 30, 2021, accrued interest on the 2028 Notes was $0.5 million.
The indenture to the 2028 Notes (“2028 Indenture”) contains covenants that, among other things and subject in each case to certain specified exceptions, limit the ability to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets. At September 30, 2021, we were, and we remain, in compliance with all of the covenants under the 7.125% Indenture.
We incurred debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is deferred with the Delayed Draw 2028 Notes, and $1.1 million, along with $3.0 million from the exchanged 2024 Notes, is being amortized as part of the effective yield on the 2028 Notes.
SBA PPP Loans
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. The PPP loans were accounted for as debt in accordance with FASB ASC Topic 470. The loan balances and accrued interest were forgivable provided that the proceeds were used for eligible purposes, including payroll, benefits, rent and utilities within the covered period. We used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million. The remaining PPP loan was repaid in July 2021.
6.75% Senior Secured Notes
On May 19, 2017, we issued 6.75% Senior Secured Notes (“2024 Notes”) in a private placement. The 2024 Notes are guaranteed on a senior secured basis by our existing subsidiaries (the “Subsidiary Guarantors”). The 2024 Notes bear interest at a rate of 6.75% per year and mature on June 1, 2024, unless they are earlier redeemed or repurchased. Interest is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year.
The 2024 Notes are secured by a first-priority lien on substantially all assets of ours and the Subsidiary Guarantors other than the ABL Facility Priority Collateral (as described below) (the “2024 Notes Priority Collateral”). There is no direct lien on our FCC licenses to the extent prohibited by law or regulation (other than the economic value and proceeds thereof).
The indenture relating to the 2024 Notes (the “Indenture”“2024 Indenture”) contains covenants that, among other things and subject in each case to certain specified exceptions, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets.

The Indenture provides At September 30, 2021, we were, and we remain, in compliance with all of the covenants under the Indenture.

25

We may from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to repurchase the 2024 Notes in open market transactions, privately negotiated transactions, by tender offer or otherwise, as market conditions warrant.
As described above, on September 10, 2021, we exchanges of $112.8 million of the 2024 Notes for $114.7 million of newly issued 2028 Notes, reflecting a call premium of 1.688%. Bond issuance costs of $1.1 million associated with the following events$112.8 million of default (each, an “Eventthe 2024 Notes are being amortized as part of Default”): (i) default in payment of principal or premiumthe effective yield on the 2028 Notes.
On September 24, 2021, we repurchased $4.7 million of the 2024 Notes at maturity, upon repurchase, acceleration, optional redemption or otherwise; (ii) default for 30 days$4.7 million in paymentcash, recognizing a net loss of interest$56,000 after adjusting for bond issuance costs.
Based on the Notes; (iii) the failure by us or certain restricted subsidiaries to comply with other agreements in the Indenture or the Notes, in certain cases subject to notice and lapse of time; (iv) the failure of any guarantee by certain significant Subsidiary Guarantors to be in full force and effect and enforceable in accordance with its terms, subject to notice and lapse of time; (v) certain accelerations (including failure to pay within any grace period) of other indebtedness of ours or any restricted subsidiary if the amount accelerated (or so unpaid) is at least $15 million; (vi) certain judgments for the payment of money in excess of $15 million; (vii) certain events of bankruptcy or insolvency with respect to us or any significant subsidiary; and (vii) certain defaults with respect to any collateral having a fair market value in excess of $15 million. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amountbalance of the 2024 Notes outstanding Notes may declare the principal of the Notes and any accrued interest on the Notes to be due and payable immediately, subject to remedy or cure in certain cases. Certain events of bankruptcy or insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default.

We$98.8 million, we are required to pay $17.2$6.6 million per year in interest on the 2024 Notes. As of September 30, 2017,2021, accrued interest on the 2024 Notes was $6.4$2.3 million.

We incurred debt issuance costs of $6.3 million that were recorded as a reduction of the debt proceeds that are being amortized to
non-cash
interest expense over the life of the Notes using the effective interest method. During the three and nine monthnine-month periods ended September 30, 2017,2021, $0.2 million and $0.3$0.5 million, respectively, of debt issuance costs associated with the Notes were recognized aswas amortized to interest expense.

During the three and nine-month periods ended September 30, 2020, $0.2 million and $0.6 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense.

Asset-Based Revolving Credit Facility

On May 19, 2017, the Company alsowe entered into the ABL Facility pursuant to a Credit Agreement (the “Credit Agreement”) by and among us as a borrower,and our subsidiaries party thereto as borrowers, Wells Fargo Bank, National Association, as administrative agent and lead arranger, and the lenders that are parties thereto. We used the proceeds of the ABL Facility, together with the net proceeds from the Notes offering, to repay outstanding borrowings under our previously existing senior credit facilities, and related fees and expenses. Going forward, the proceeds of the ABL Facility will be used to provide ongoing working capital and for other general corporate purposes (including permitted acquisitions).

The ABL Facility is a five-year $30.0 million revolving credit facility due May 19, 2022,March 1, 2024, which includes a $5.0 million subfacility for standby letters of credit and a $7.5 million subfacility for swingline loans. All borrowings under the ABL Facility accrue interest at a rate equal to a base rate or LIBOR rate plus a spread. The spread, which is based on an availability-based measure, ranges from 0.50% to 1.00% for base rate borrowings and 1.50% to 2.00% for LIBOR rate borrowings. If an event of default occurs, the interest rate may increase by 2.00% per annum. Amounts outstanding under the ABL Facility may be paid and then reborrowed at our discretion without penalty or premium. Additionally, we pay a commitment fee on the unused balance offrom 0.25% to 0.375% per year.

year based on the level of borrowings.

Availability under the 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. As of September 30, 2021, the amount available under the ABL Facility was $25.0 million of which NaN was outstanding. The ABL Facility is secured byhas a first-priority lien on our and the ABLSubsidiary Guarantors’ accounts receivable, inventory, deposit and securities accounts, certain real estate and related assets (the “ABL Facility Priority CollateralCollateral”) and by a second-priority lien on the Notes Priority Collateral. There is no direct lien on the Company’sour FCC licenses to the extent prohibited by law or regulation (other than the economic value and proceeds thereof).

The Credit Agreement includes a springing fixed charge coverage ratio of 1.0 to 1.0, which is tested during the period commencing on the last day At September 30, 2021, we were, and we remain, in compliance with all of the fiscal month most recently ended priorcovenants under Credit Agreement.

On September 10, 2021, we entered into the fifth amendment to the date on which Availability (as defined in the Credit Agreement) is less than the greater of 15% of the Maximum Revolver Amount (as defined in the Credit Agreement) and $4.5 million and continuing for a period of 60 consecutive days after the first day on which Availability exceeds such threshold amount. The Credit Agreement also includes other negative covenants that are customary for credit facilities of this type, including covenants that, subject to exceptions described in the Credit Agreement, restrict the ability of the borrowers and their subsidiaries (i) to incur additional indebtedness; (ii) to make investments; (iii) to make distributions, loans or transfers of assets; (iv) to enter into, create, incur, assume or suffer to exist any liens, (v) to sell assets; (vi) to enter into transactions with affiliates; (vii) to merge or consolidate with, or dispose of all assets to a third party, except as permitted thereby; (viii) to prepay indebtedness; and (ix) to pay dividends.

20

The Credit Agreement provides for the following events of default: (i) default for non-payment of any principal or letter of credit reimbursement when due or any interest, fees or other amounts within five days of the due date; (ii) the failure by any borrower or any subsidiary to comply with any covenant or agreement contained in the Credit Agreement or any other loan document, in certain cases subject to applicable notice and lapse of time; (iii) any representation or warranty made pursuant to the Credit Agreement or any other loan document is incorrect in any material respect when made; (iv) certain defaults of other indebtedness of any borrower or any subsidiary of indebtedness of at least $10 million; (v) certain events of bankruptcy or insolvency with respect to any borrower or any subsidiary; (vi) certain judgments for the payment of money of $10 million or more; (vii) a change of control; and (viii) certain defaults relating to the loss of FCC licenses, cessation of broadcasting and termination of material station contracts. If an event of default occurs and is continuing, the Administrative Agent and the Lenders may accelerate the amounts outstanding under the ABL Facility and may exercise remedies in respectto designate the incurrence of the collateral.

2028 Notes, and any further refinancing of 2024 Notes through the issuance of additional 2028 Notes, as permitted indebtedness thereunder and to effect related arrangements for the interests in the ABL Priority Collateral and the Notes Priority Collateral. We incurred debt issue costs of $0.6$0.9 million that were recorded as an asset and are being amortized to

non-cash
interest expense over the term of the ABL Facility using the effective interest method. During the three and nine monthnine-month periods ended September 30, 2017, $63,0002021, $27,000 and $86,000,$0.1 million, respectively, of debt issuance costs associated with the ABL was amortized to interest expense. During the three and nine-month periods ended September 30, 2020, $30,000 and $0.1 million, respectively, of debt issue costs associated with the Notes were recognized asABL was amortized to interest expense. At September 30, 2017, the blended interest rate on amounts outstanding under the ABL Facility was 2.98%.

We report outstanding balances on the ABL Facility as short-term regardless of the maturity date based on use of the ABL Facility to fund ordinary and customary operating cash needs with frequent repayments. We believe that our borrowing capacity under the ABL Facility allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve months.

Prior Term Loan B and Revolving Credit Facility

Our prior credit facility consisted

26

Table of a term loan of $300.0 million (“Term Loan B”) and a revolving credit facility of $25.0 million (“Revolver”). The Term Loan B was issued at a discount for total net proceeds of $298.5 million. The discount was amortized to non-cash interest expense over the life of the loan using the effective interest method. For each of the three months ended September 30, 2017 and 2016, approximately $0 and $51,000, respectively, of the discount associated with the Term Loan B was recognized as interest expense. For each of the nine months ended September 30, 2017 and 2016, approximately $74,000 and $155,000, respectively, of the discount associated with the Term Loan B was recognized as interest expense.

The Term Loan B had a term of seven years, maturing in March 2020. On May 19, 2017, we used the net proceeds of the Notes and a portion of the ABL Facility to fully repay amounts outstanding under the Term Loan B of $258.0 million and under the Revolver of $4.1 million. We recorded a loss on the early retirement of long-term debt of $2.1 million, which included $1.5 million of unamortized debt issuance costs on the Term Loan B and the Revolver and $0.6 million of unamortized discount on the Term Loan B.

The following payments or prepayments of the Term Loan B were made during the year ended December 31, 2016 and through the date of the termination, including interest through the payment date as follows:

Date Principal Paid  Unamortized Discount 
  (Dollars in Thousands) 
May 19, 2017 $258,000  $550 
February 28, 2017  3,000   6 
January 30, 2017  2,000   5 
December 30, 2016  5,000   12 
November 30, 2016  1,000   3 
September 30, 2016  1,500   4 
September 30, 2016  750    
June 30, 2016  441   1 
June 30, 2016  750    
March 31, 2016  750    
March 17, 2016  809   2 

Debt issuance costs were amortized to non-cash interest expense over the life of the Term Loan B using the effective interest method. For each of the three months ended September 30, 2017 and 2016, approximately $0 and $140,000, respectively, of the debt issuance costs associated with the Term Loan B were recognized as interest expense. For each of the nine months ended September 30, 2017 and 2016, approximately $203,000 and $423,000 respectively, of the debt issuance costs associated with the Term Loan B were recognized as interest expense.

Debt issuance costs associated with the Revolver were recorded as an asset in accordance with ASU 2015-15. The costs were amortized to non-cash interest expense over the five year life of the Revolver using the effective interest method based on an imputed interest rate of 4.58%. For each of the three month periods ended September 30, 2017 and 2016, we recorded amortization of deferred financing costs of approximately $0 and $17,000. For each of the nine month periods ended September 30, 2017 and 2016, we recorded amortization of deferred financing costs of approximately $26,000 and $52,000.

Summary of long-term debt obligations

Long-term debt consisted of the following:

  As of December 31, 2016  As of September 30, 2017 
  (Dollars in thousands) 
6.75% Senior Secured Notes $  $255,000 
Less unamortized debt issuance costs based on imputed interest rate of 7.08%     (6,004)
 6.75% Senior Secured Notes net carrying value     248,996 
Asset-Based Revolving Credit Facility principal outstanding     6,629 
Term Loan B principal amount  263,000    
Less unamortized discount and debt issuance costs based on imputed interest rate of 4.78%  (2,371)   
 Term Loan B net carrying value  260,629    
Revolver principal outstanding  477    
Capital leases and other loans  568   491 
Long-term debt and capital lease obligations less unamortized debt issuance costs  261,674   256,116 
Less current portion  (590)  (6,741)
Long-term debt and capital lease obligations less unamortized debt issuance costs, net of current portion $261,084  $249,375 

In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of September 30, 2017:

·Outstanding borrowings of $6.6 million under the ABL Facility, with interest payments due at LIBOR plus 1.5% to 2.0% per annum;

·$255.0 million aggregate principal amount of Notes with semi-annual interest payments at an annual rate of 6.75%; and

·Commitment fee of 0.25% to 0.375% on the unused portion of the ABL Facility.

Other Debt

We have several capital leases related to office equipment. The obligation recorded at December 31, 2016 and September 30, 2017 represents the present value of future commitments under the capital lease agreements.

Maturities of Long-Term Debt and Capital Lease Obligations

Principal repayment requirements under all long-term debt agreements outstanding at September 30, 20172021 for each of the next five years and thereafter are as follows:

  Amount 
For the Twelve Months Ended September 30, (Dollars in thousands) 
2018 $6,741 
2019  108 
2020  107 
2021  121 
2022  43 
Thereafter  255,000 
  $262,120 

   
Amount
 
For the Year Ended September 30,
  
(Dollars in thousands)
 
2022  $0   
2023   0   
2024   98,815 
2025   0   
2026   0   
Thereafter   114,731 
      
   $213,546 
      
NOTE 12. STOCK INCENTIVE PLAN

Our AmendedFAIR VALUE MEASUREMENTS

As of September 30, 2021, the carrying value of cash and Restated 1999 Stock Incentive Plan (the “Plan”) provides for grantscash equivalents, trade accounts receivables, accounts payable, accrued expenses and accrued interest approximates fair value due to the short-term nature of equity-based awards to employees, non-employee directors and officers, and advisorssuch instruments. The carrying amount of the company (“Eligible Persons”). The Plan is designedNotes at September 30, 2021 was $213.5 million compared to promote the interests of the company using equity investment interests to attract, motivate, and retain individuals.

A maximum of 5,000,000 shares of common stock are authorized under the Plan. All awards have restriction periods tied primarily to employment and/or service. The Plan allows for accelerated or continued vesting in certain circumstances as defined in the Plan including death, disability, a change in control, and termination or retirement. The Board of Directors, or a committee appointed by the Board, has discretion subject to limits defined in the Plan, to modify the terms of any outstanding award.

Under the Plan, the Board, or a committee appointed by the Board, may impose restrictions on the exercise of awards during pre-defined blackout periods. Insiders may participate in plans established pursuant to Rule 10b5-1 under the Exchange Act that allow them to exercise awards subject to pre-established criteria.

We recognize non-cash stock-based compensation expense based on the estimated fair value of awards$213.3 million, based on the prevailing interest rates and trading activity of our Notes.

We have certain assets that are measured at fair value on a
non-recurring
basis that are adjusted to fair value only when the carrying values exceed the fair values. The categorization of the framework used to price the assets is considered Level 3 due to the subjective nature of the unobservable inputs used when estimating the fair value.
The following table summarizes the fair value of our financial assets and liabilities that are measured at fair value:
   
September 30, 2021
 
     
   Carrying Value on
Balance Sheet
   Fair Value Measurement Category 
   Level 1   Level 2   Level 3 
                 
   
(Dollars in thousands)
 
Liabilities:                    
Estimated fair value of contingent
earn-out
consideration included in
accrued expenses
  $11    —      —     $11 
Long-term debt less unamortized discount and debt issuance costs   208,559    —      208,314    —   
NOTE 13. INCOME TAXES
We recognize deferred tax assets and liabilities for future tax consequences attributable to differences between our consolidated financial statement carrying amount of assets and liabilities and their respective tax bases. We measure these deferred tax assets and liabilities using enacted tax rates expected to apply in the years in which these temporary differences are expected to reverse. We recognize the effect on deferred tax assets and liabilities resulting from a change in tax rates in income in the period that includes the date of the change.
The adoption of ASU
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”
(“ASU
2019-12”)
in the current year did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.
At December 31, 2020, we had net operating loss carryforwards for federal income tax purposes of approximately $135.3 million that expire in years 2021 through 2038 and for state income tax purposes of approximately $610.8 million that expire in years 2021 through 2040. As a result of our adjusted cumulative three-year
pre-tax
book loss as of December 31, 2020, we performed an assessment of positive and negative evidence with respect to the realization of our net deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, the availability of carryforwards and estimates of projected future taxable income. The economic uncertainty from the
COVID-19
pandemic provided additional negative evidence that outweighed positive evidence resulting in our conclusion that additional deferred tax assets of $35.1 million related to federal and state net operating loss carryforwards are more likely than not to be not realized. As such, an additional valuation allowance of $35.1 million was recorded, for a total valuation allowance of $48.1 million as of the year ended December 31, 2020.
27

During the interim period ended September 30, 2021, we computed the income tax provision using the estimated effective annual rate applicable for the full year. We updated our forecast to project income for the 2021 calendar year. In accordance with the guidance under FASB ASC Topic 718 “Compensation—Stock Compensation.” Stock-based compensation expense fluctuates over time
740-270-25-4,
we measured the estimated utilization of the operating loss carryforwards and the release of the valuation allowance for both federal and state jurisdictions.
The effective tax rate differs from our statutory rate as a result of the vesting periodsforecasted change in the valuation allowance against expected operating income, permanently disallowed expenses, PPP loan forgiveness, state tax and changes to the deferred tax liability for outstanding awardsamortization of indefinite-lived intangible assets.
Given that we have a valuation allowance placed on our net operating losses, and as part of our annual effective tax rate exercise, we estimate annual taxable income for purposes of determining the numberutilization of awards that actually vest. We adopted ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”as of January 1, 2017. The adoption of this ASU did not materially impact our financial position, results of operations, or cash flows.

22

The following table reflects the components of stock-based compensation expenseoperating loss carryforwards resulting in a tax benefit recognized in the Condensed Consolidated Statementsoverall annual effective tax rate. We recognized a favorable tax adjustment attributable to the GAAP income recognition of Operationsthe PPP loan forgiveness within the quarter as a discrete adjustment for both federal and state jurisdictions where applicable given its unusual and infrequent nature.

During the three and nine month periodsquarter ended September 30, 2017 and 2016:

  

Three Months Ended

September 30,

  Nine Months Ended
September 30,
 
  2016  2017  2016  2017 
  (Dollars in thousands) 
Stock option compensation expense included in corporate expenses $94  $27  $296  $126 
Restricted stock shares compensation expense included in corporate expenses     225   24   1,100 
Stock option compensation expense included in broadcast operating expenses  19   7   67   41 
Restricted stock shares compensation expense included in broadcast operating expenses           224 
Stock option compensation expense included in digital media operating expenses  12   6   51   25 
Restricted stock shares compensation expense included in digital media operating expenses           124 
Stock option compensation expense included in publishing operating expenses  9   3   20   17 
Restricted stock shares compensation expense included in publishing operating expenses           36 
Total stock-based compensation expense, pre-tax $134  $268  $458  $1,693 
Tax benefit (expense) for stock-based compensation expense  (54)  (107)  (183)  (677)
Total stock-based compensation expense, net of tax $80  $161  $275  $1,016 

Stock Option and Restricted Stock Grants

Eligible employees2021, we refinanced $112.8 million of the 2024 Notes by exchanging $112.8 million of the 2024 Notes into $114.7 million of newly issued 2028 Notes, incurring third-party debt modification costs during the quarter. For tax purposes, we considered these debt modification costs in our operating loss utilization analysis.

The amortization of our indefinite-lived intangible assets for tax purposes, but not for book purposes, creates deferred tax liabilities. A reversal of deferred tax liabilities may receive stock option awards annuallyoccur when indefinite-lived intangibles: (1) become impaired; or (2) are sold, which would typically only occur in connection with the numbersale of sharesthe assets of a station or groups of stations or the entire company in a taxable transaction. Due to the amortization for tax purposes and type of instrument generally determined by the employee’s salary grade and performance level. Incentive and non-qualified stock option awards allow the recipient to purchase sharesnot book purposes of our common stock atindefinite-lived intangible assets, we expect to continue to generate deferred tax liabilities in future periods exclusive of any impairment losses in future periods. These deferred tax liabilities and net operating loss carryforwards result in differences between our provision for income tax and cash paid for taxes.
We review and reevaluate uncertain tax positions on a set price, notquarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an additional charge to be less than the closing market price on the datetax provision.
Valuation Allowance (Deferred Taxes)
For financial reporting purposes, we recorded a valuation allowance of award, for no consideration payable by the recipient. The related number$28.4 million as of shares underlying the stock option is fixed at the timeDecember 31, 2020 to offset $28.4 million of the grant. Options generally vest over a four-year period with a maximum term of five years fromdeferred tax assets related to the vesting date. In addition, certain managementfederal net operating loss carryforwards, and professional level employees may receive stock option awards upon the commencement of employment.

The Plan also allows for awards of restricted stock, which have been granted periodically to non-employee directors$19.7 million of the company. Awards granteddeferred tax assets related to non-employee directors are made in exchangestate net operating loss carryforwards of $15.7 million and other financial statement accrual assets of $4.0 million, for their services to the company as directors and therefore, the guidance in FASB ASC Topic 505-50 “Equity Based Payments to Non Employees” is not applicable. Restricted stock awards contain transfer restrictions under which they cannot be sold, pledged, transferred or assigned until the period specified in the award, generally from one to five years. Restricted stock awards are independenta total valuation allowance of option grants and are granted at no cost to the recipient other than applicable taxes owed by the recipient. The awards are considered issued and outstanding from the vest date of grant.

The fair value of each award is estimated as of the date of the grant using the Black-Scholes valuation model. The expected volatility reflects the consideration of the historical volatility of our common stock as determined by the closing price over a six to ten year term commensurate with the expected term of the award. Expected dividends reflect the amount of quarterly distributions authorized and declared on our Class A and Class B common stock as of the grant date. The expected term of the awards are based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rates for periods within the expected term of the award are based on the U.S. Treasury yield curve in effect during the period the options were granted. We have used historical data to estimate future forfeiture rates to apply against the gross amount of compensation expense determined using the valuation model. These estimates have approximated our actual forfeiture rates.

There were no stock options granted during the nine month period ended September 30, 2017. The weighted-average assumptions used to estimate the fair value of the stock options using the Black-Scholes valuation model were as follows$48.1 million for the three and nine month periodsyear ended September 30, 2016:

Three Months EndedNine Months Ended
September 30, 2016September 30, 2016
Expected volatilityn/a47.03%
Expected dividendsn/a5.36%
Expected term (in years)n/a7.4
Risk-free interest raten/a1.64%

Activity with respect to the company’s option awards during the nine month period ended September 30, 2017 is as follows:

Options Shares  Weighted Average
Exercise Price
  Weighted Average
Grant Date Fair Value
  Weighted Average
Remaining Contractual
Term
 Aggregate
Intrinsic
Value
 
  (Dollars in thousands, except weighted average exercise price and weighted average grant date fair value) 
Outstanding at January 1, 2017  1,720,000  $5.12  $2.89  4.5 years $2,428 
Granted               
Exercised  (122,413)  4.09   2.04       
Forfeited or expired  (143,125)  5.85   2.99       
Outstanding at September 30, 2017  1,454,462  $5.18  $2.95  3.9 years $2,292 
Exercisable at September 30, 2017  954,959  $5.63  $3.76  2.9 years $1,146 
Expected to Vest  474,278  $5.19  $2.97  3.9 years $1,115 
                   

23
December 31, 2020.

The aggregate intrinsic value represents the difference between the company’s closing stock price on September 30, 2017 of $6.60 and the option exercise price of the shares for stock options that were in the money, multiplied by the number of shares underlying such options. The total fair value of options vested during the nine month periods ended September 30, 2017 and 2016 was $0.9 million and $1.1 million, respectively.

As of September 30, 2017, there was $0.2 million of total unrecognized compensation cost related to non-vested stock option awards. This cost is expected to be recognized over a weighted-average period of 1.6 years.

On August 9, 2017, a restricted stock award of 33,066 shares was granted to an executive that vested immediately. The fair value of the restricted stock award was measured based on the grant date market price of our common shares and expensed as of the vesting date. The restricted stock award contains transfer restrictions under which they cannot be sold, pledged, transferred or assigned until three months from vesting date. The recipient of this restricted stock award is entitled to all of the rights of absolute ownership of therestricted stock from the date of grant, including the right to vote the shares and to receive dividends.Restricted stock awards are independent of option grants and are granted at no cost to the recipient other than applicable taxes owed by the recipient. The award is considered issued and outstanding from the vest date of grant.

On February 24, 2017, a restricted stock award of 178,592 shares was granted to certain members of management that vested immediately. The fair value of each restricted stock award was measured based on the grant date market price of our common shares and expensed as of the vesting date. These restricted stock awards contained transfer restrictions under which they could not be sold, pledged, transferred or assigned until three months from vesting date. Recipients of these restricted stock awards were entitled to all of the rights of absolute ownership of therestricted stock from the date of grant including the right to vote the shares and to receive dividends.Restricted stock awards are independent of option grants and are granted at no cost to the recipient other than applicable taxes owed by the recipient. The awards were considered issued and outstanding from the vest date of grant.

Activity with respect to the company’s restricted stock awards during the nine month period ended September 30, 2017 is as follows:

Restricted Stock Awards Shares  Weighted Average
Grant Date Fair Value
  Weighted Average Remaining
Contractual Term
 Aggregate
Intrinsic Value
 
  (Dollars in thousands, except weighted average exercise price and weighted average grant date fair value) 
Outstanding at January 1, 2017    $   $ 
Granted  211,658   7.01  0.2 years  1,484 
Lapse of restrictions  (178,592)  7.05    1,259 
Forfeited          
Outstanding at September 30, 2017  33,066  $6.80  0.2 years $225 

NOTE 13. EQUITY TRANSACTIONS

14. COMMITMENTS AND CONTINGENCIES

We accountenter into various agreements in the normal course of business that contain minimum guarantees. Minimum guarantees are typically tied to future events, such as future revenue earned in excess of the contractual level. Accordingly, the fair value of these arrangements is zero.
We may record contingent
earn-out
consideration representing the estimated fair value of future liabilities associated with acquisitions that may have additional payments due upon the achievement of certain performance targets. The fair value of the contingent
earn-out
consideration is estimated as of the acquisition date as the present value of the expected contingent payments as determined using weighted probabilities of the expected payment amounts. We review the probabilities of possible future payments to estimate the fair value of any contingent
earn-out
consideration on a quarterly basis over the
earn-out
period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the acquired business increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent
earn-out
consideration liability will increase or decrease, up to the contracted limit, as applicable. Changes in the estimated fair value of the contingent
earn-out
consideration are reflected in our results of operations in the period in which they are identified. Changes in the estimated fair value of the contingent
earn-out
consideration may materially impact and cause volatility in our operating results.
We and our subsidiaries, incident to our business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. We evaluate claims based on what we believe to be both probable and reasonably estimable. We maintain insurance that may provide coverage for such matters. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. We believe, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon our condensed consolidated financial position, results of operations or cash flows.
28

NOTE 15. STOCK INCENTIVE PLAN
Our Amended and Restated 1999 Stock Incentive Plan (the “Plan”) provides for grants of equity-based awards to employees,
non-employee
directors and officers, and advisors (“Eligible Persons”). A maximum of 8,000,000 shares are authorized under the Plan. Insiders may participate in plans established pursuant to Rule
10b5-1
under the Exchange Act that allow them to exercise awards subject to
pre-established
criteria.
We recognize
non-cash
stock-based compensation expense based on the estimated fair value of awards in accordance with FASB ASC Topic 718 “Compensation-Stock
Compensation—Stock Compensation
.” AsStock-based compensation expense fluctuates over time as a result $0.3 millionof the vesting periods for outstanding awards and $1.7 millionthe number of non-cashawards that actually vest. The following table reflects the components of stock-based compensation expense has been recorded to additional paid-in capitalrecognized in the Condensed Consolidated Statements of Operations for the threethree- and nine
six-
month periods ended September 30, 2017, respectively, in comparison2021 and 2020:
   
Three Months Ended

September 30,
   
Nine Months Ended

September 30,
 
         
   
2020
   
2021
   
2020
   
2021
 
                 
   
(Dollars in thousands)
   
(Dollars in thousands)
 
Stock option compensation expense included in unallocated corporate
expenses
  $30   
$
23
 
  $122   
$
75
 
Stock option compensation expense included in broadcast operating
expenses
   32   
 
31
 
   106   
 
92
 
Stock option compensation expense included in digital media operating
expenses
   12   
 
24
 
   44   
 
73
 
Stock option compensation expense included in publishing operating
expenses
   —     
 
—  
 
   1   
 
—  
 
                     
Total stock-based compensation expense,
pre-tax
  $74   
$
78
 
  $273   
$
240
 
                     
Tax expense for stock-based compensation expense   (19  
 
(20
   (71  
 
(62
                     
Total stock-based compensation expense, net of tax  $55   
$
58
 
  $202   
$
178
 
                     
Stock Option and Restricted Stock Grants
Eligible employees may receive incentive and
non-qualified
stock option awards that allow the recipient to $0.1 million and $0.5 million for the three and nine month periods ended September 30, 2016, respectively.

While we intend to pay regular quarterly distributions, the actual declarationpurchase shares of such future distributions and the establishment of the per share amount, record dates, and payment dates are subject to final determination by our Board of Directors and dependent upon future earnings, cash flows, financial and legal requirements, and other factors. The current policy of the Board of Directors is to review each of these factors oncommon stock at a quarterly basis to determine the appropriate amount, if any, to allocate toward a cash distribution. In recent years, distributions have been approximately 20% of Adjusted EBITDA less cash paid for capital expenditures, less cash paid for income taxes, and less cash paid for interest. Adjusted EBITDA is a non-GAAP financial measure defined in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations included with this quarterly report on Form 10-Q. Future distributions, if any, are likelyset price, not to be approximately 30%less than the closing market price on the date of Adjusted EBITDA less cash paidaward, for capital expenditures, less cash paid for income taxes, and less cash paid for interest.

no consideration payable by the recipient. The following table shows distributions that have been declared and paid since January 1, 2016:

Announcement Date Payment Date Amount Per Share  Cash Distributed
(in thousands)
 
September 12, 2017 September 29, 2017 $0.0650  $1,701 
June 1, 2017 June 30, 2017 $0.0650  $1,697 
March 9, 2017 March 30, 2017 $0.0650  $1,691 
December 7, 2016 December 31, 2016 $0.0650  $1,678 
September 9, 2016 September 30, 2016 $0.0650  $1,679 
June 2, 2016 June 30, 2016 $0.0650  $1,664 
March 10, 2016 April 5, 2016 $0.0650  $1,657 

Based on therelated number of shares underlying the stock option is fixed at the time of Class A and Class B currently outstanding, we expectthe grant. Options generally vest over a four-year period with a maximum term of five years from the vesting date.

The Plan also allows for awards of restricted stock that contain transfer restrictions under which they cannot be sold, pledged, transferred or assigned until the period specified in the award, generally from one to pay total annual distributions of approximately $6.8 million during the year ended December 31, 2017.

24

NOTE 14. BASIC AND DILUTED NET EARNINGS PER SHARE

Basic net earnings per share has been computed using the weighted average number of Class A and Class B shares of common stock outstanding during the period.five years. Restricted stock awards that vested immediately duringare independent of option grants and are granted at no cost to the three month period ended March 31, 2017, were included inrecipient other than applicable taxes owed by the weighted average numberrecipient. The awards are considered issued and outstanding from the date of common shares used to compute basic earnings per share because these restricted stock awards contained dividend participation and voting rights. Diluted net earnings per sharegrant.

The fair value of each award is computedestimated as of the date of the grant using the weighted average numberBlack-Scholes valuation model. The expected volatility reflects the consideration of sharesthe historical volatility of our common stock as determined by the closing price over a six to
ten-year
term commensurate with the expected term of the award. Expected dividends reflect the amount of quarterly distributions authorized and declared on our Class A and Class B common stock outstandingas of the grant date. The expected term of the awards is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rates for periods within the expected term of the award are based on the U.S. Treasury yield curve in effect during the period plus the dilutive effectsoptions were granted. We have used historical data to estimate future forfeiture rates to apply against the gross amount of compensation expense determined using the valuation model. These estimates have approximated our actual forfeiture rates.
The weighted-average assumptions used to estimate the fair value of the stock options.

Options to purchase 1,454,462options using the Black-Scholes valuation model were as follows for the three- and 1,729,000 shares of Class A common stock were outstanding atnine-month periods ended September 30, 20172021 and 2016, respectively. Diluted weighted average shares outstanding exclude outstanding2020:

   
Three Months Ended
   
Nine Months Ended
  
Three Months Ended
  
Nine Months Ended
 
   
September 30, 2020
   
September 30, 2020
  
September 30, 2021
  
September 30, 2021
 
Expected volatility   n/a    53.96  79.99  75.98
Expected dividends   n/a    7.30  0.00  0.00
Expected term (in years)   n/a    7.6   8.0   7.8 
Risk-free interest rate   n/a    1.14  1.27   1.03
29

Activity with respect to the company’s option awards during the nine-month period ended September 30, 2021 is as follows:
Options  Shares  Weighted
Average
Exercise Price
   Weighted Average
Grant Date
Fair Value
   Weighted Average
Remaining
Contractual Term
   Aggregate
Intrinsic
Value
 
                    
   
(Dollars in thousands, except weighted average exercise price and weighted average grant date fair value)
 
Outstanding at January 1, 2021   2,291,020  $ 3.23   $ 1.52    4.3 years   $—   
Granted   270,000   2.14    1.55         —   
Exercised   (192,507  2.11    0.97         200 
Forfeited or expired   (157,446  6.73    4.74         —   
                         
Outstanding at September 30, 2021
  
 
2,211,067
 
 
$
2.95
 
  
$
1.34
 
  
 
4.4 years
 
  
$
 2,484
 
                         
Exercisable at September 30, 2021
  
 
1,209,942
 
 
$
3.84
 
  
$
1.75
 
  
 
2.6 years
 
  
$
640
 
                         
Expected to Vest
  
 
950,568
 
 
$
2.97
 
  
$
1.35
 
  
 
4.3 years
 
  
$
2,391
 
                         
Activity with respect to the company’s restricted stock options whoseawards during the nine-month period ended September 30, 2021 is as follows:
Restricted Stock Awards  Shares   Weighted Average
Grant Date
Fair Value
   Weighted Average
Remaining Contractual Term
   Aggregate
Intrinsic Value
 
                 
   
(Dollars in thousands, except weighted average exercise price and weighted average
grant date fair value)
 
Outstanding at January 1, 2021   107,990   $1.85    1.67 years   $ 112 
Granted   —      —      —      —   
Lapsed   (41,323   2.42    —      100 
Forfeited   —      —      —      —   
                     
Outstanding at September 30, 2021  
 
66,667
 
  
$
1.50
 
  
 
0.02 years
 
  
$
247
 
                     
The aggregate intrinsic value represents the difference between the company’s closing stock price on September 30, 2021 of $3.71 and the option exercise price is in excess of the average price of the company’sshares for stock price. These options are excluded fromthat were in the respective computationsmoney, multiplied by the number of diluted net income or loss per share because their effect would be anti-dilutive. shares underlying such options. The total fair value of options vested during the periods ended September 30, 2021 and 2020 was $0.3 million and $0.4 million, respectively.
As of September 30, 2017 and 20162021, there were 335,682 and 367,940 dilutive shares, respectively.

NOTE 15. DERIVATIVE INSTRUMENTS

We are exposedwas $22,000 of total unrecognized compensation cost related to fluctuations in interest rates. We actively monitor these fluctuations and use derivative instruments from time

non-vested
stock option awards. This cost is expected to time to manage the related risk. In accordance with our risk management strategy, we may use derivative instruments only for the purpose of managing risk associated with an asset, liability, committed transaction, or probable forecasted transaction that is identified by management. Our use of derivative instruments may result in short-term gains or losses that may increase the volatility of our earnings.

Under FASB ASC Topic 815, “Derivatives and Hedging,” the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument shall be reported as a component of other comprehensive income (outside earnings) and reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. The remaining gain or loss on the derivative instrument, if any, shall be recognized currently in earnings.

On March 27, 2013, we entered into an interest rate swap agreement with Wells Fargo that began on March 28, 2014 withover a notional principal amountweighted-average period of $150.0 million. The agreement was entered to offset risks associated with the variable interest rate on the Term Loan B. Payments on the swap are due on a quarterly basis with a LIBOR floor of 0.625%. Pursuant to the terms, the swap was set to expire on March 28, 2019 at a fixed rate of 1.645%. The interest rate swap agreement was not designated as a cash flow hedge, and as a result, all changes in the fair value were recognized in the current period statement of operations rather than through other comprehensive income. On May 19, 2017, in connection with our Refinancing, we paid $0.8 million to terminate the interest rate swap.

The following table summarizes the fair value of our derivative instruments that are measured at fair value:

  As of December 31, 2016  As of September 30, 2017 
  (Dollars in thousands) 
Fair value of interest rate swap $514  $ 

NOTE 16. FAIR VALUE MEASUREMENTS

FASB ASC Topic 820 “Fair Value Measurements and Disclosures,” established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring fair value. This framework defines three levels of inputs to the fair value measurement process and requires that each fair value measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three broad levels of inputs defined by the FASB ASC Topic 820 hierarchy are as follows:

Level 1 Inputs—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;
Level 2 Inputs—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability; and
Level 3 Inputs—unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).

As of September 30, 2017, the carrying value of cash and cash equivalents, trade accounts receivables, accounts payable, accrued expenses and accrued interest approximates fair value due to the short-term nature of such instruments.

We have certain assets that are measured at fair value on a non-recurring basis that are adjusted to fair value only when the carrying values exceed the fair values. The categorization of the framework used to price the assets is considered Level 3 due to the subjective nature of the unobservable inputs used when estimating the fair value.

25
2.3 years.

The following table summarizes the fair value of our financial assets and liabilities that are measured at fair value:

  September 30, 2017 
  Total Fair Value
and Carrying
Value on Balance
  Fair Value Measurement Category 
  Sheet  Level 1  Level 2  Level 3 
  (Dollars in thousands) 
Assets                
Estimated fair value of other indefinite-lived intangible assets $313        $313 
Liabilities:                
Estimated fair value of contingent earn-out consideration included in accrued expenses  38         38 
Long-term debt and capital lease obligations less unamortized debt issuance costs  256,116      256,116    

NOTE 17. INCOME TAXES

We recognize deferred tax assets and liabilities for future tax consequences attributable to differences between our consolidated financial statement carrying amount of assets and liabilities and their respective tax bases. We measure these deferred tax assets and liabilities using enacted tax rates expected to apply in the years in which these temporary differences are expected to reverse. We recognize the effect on deferred tax assets and liabilities resulting from a change in tax rates in income in the period that includes the date of the change. We recorded no adjustments to our unrecognized tax benefits as of September 30, 2017 and 2016.

We prospectively adopted ASU 2015-17, “Income Taxes, Balance Sheet Classification of Deferred Taxes”as of January 1, 2017. ASU 2015-17 requires that deferred tax assets and liabilities be classified as non-current on the balance sheet instead of separating the deferred tax assets and liabilities into current and non-current amounts. Our Condensed Consolidated Balance Sheet as of March 31, 2017 reflects the adoption of this guidance with a $9.4 million reduction in current deferred income tax assets, a $1.9 million increase in non-current deferred income tax assets and a $7.5 million reduction in non-current deferred income tax liabilities.Other than this revised presentation, the adoption of this ASU had no impact on our financial position, results of operations, or cash flows.

At December 31, 2016, we had net operating loss carryforwards for federal income tax purposes of approximately $150.7 million that expire in 2020 through 2034 and for state income tax purposes of approximately $1,021.2 million that expire in years 2017 through 2036. For financial reporting purposes at December 31, 2016 we had a valuation allowance of $4.5 million, net of federal benefit, to offset $4.2 million of the deferred tax assets related to the state net operating loss carryforwards and $0.3 million associated with asset impairments. Our evaluation was performed for tax years that remain subject to examination by major tax jurisdictions, which range from 2013 through 2016.

The amortization of our indefinite-lived intangible assets for tax purposes but not for book purposes creates deferred tax liabilities. A reversal of deferred tax liabilities may occur when indefinite-lived intangibles: (1) become impaired; or (2) are sold, which would typically only occur in connection with the sale of the assets of a station or groups of stations or the entire company in a taxable transaction. Due to the amortization for tax purposes and not book purposes of our indefinite-lived intangible assets, we expect to continue to generate deferred tax liabilities in future periods exclusive of any impairment losses in future periods. These deferred tax liabilities and net operating loss carryforwards result in differences between our provision for income tax and cash paid for taxes.

Valuation Allowance (Deferred Taxes)

For financial reporting purposes, we recorded a valuation allowance of $4.5 million as of September 30, 2017 to offset a portion of the deferred tax assets related to the state net operating loss carryforwards. We regularly review our financial forecasts in an effort to determine our ability to utilize the net operating loss carryforwards for tax purposes. Accordingly, the valuation allowance is adjusted periodically based on our estimate of the benefit the company will receive from such carryforwards.

NOTE 18. COMMITMENTS AND CONTINGENCIES

16. EQUITY TRANSACTIONS

In April 2021, we filed a prospectus supplement to our shelf registration statement on Form
S-3
with the SEC covering the offering, issuance and sale of up to $15.0 million of our Class A Common Stock pursuant to an
at-the-market
facility, with B. Riley Securities, Inc. acting as sales agent. No Common Stock transactions have taken place under the facility.
We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “
Compensation-Stock Compensation
.” As a result, $0.1 million and $0.2 million of
non-cash
stock-based compensation expense has been recorded to additional
paid-in
capital for the three- and nine-month periods ended September 30, 2021, respectively, in comparison to $0.1 million and $0.3 million of
non-cash
stock-based compensation expense having been recorded to additional
paid-in
capital for the three- and nine-month periods ended September 30, 2020, respectively.
Our dividend policy is based upon our Board of Directors’ current assessment of our business and the environment in which we operate. The Company enters into various agreements indeclaration of any future distributions and the normal course of business that contain minimum guarantees. These minimum guarantees are often tied to future events, such as future revenue earned in excessestablishment of the contractual level. Accordingly, the fair valueper share amount, record dates, and payment dates are subject to final determination by our Board of these arrangements is zero.

The Company also records contingent earn-out consideration representing the estimated fair valueDirectors and dependent upon future earnings, cash flows, financial and legal requirements, and other factors. On May 6, 2020, our Board of future liabilities associated with acquisitions that may have additional paymentsDirectors voted to discontinue equity distributions until further notice due upon the achievement of certain performance targets. The fair value of the contingent earn-out consideration is estimated as of the acquisition date as the present value of the expected contingent payments as determined using weighted probabilities of the expected payment amounts. We review the probabilities of possible future payments to estimate the fair value of any contingent earn-out consideration on a quarterly basis over the earn-out period. Actual results are compared to the estimates and probabilitiesadverse economic impact of achievement used inthe

COVID-19
pandemic on our forecasts.  Should actual results of the acquired business increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent earn-out consideration liability will increase or decrease, up to the contracted limit, as applicable. Changes in the estimated fair value of the contingent earn-out consideration are reflected in ourfinancial position, results of operations, in the period in which they are identified. Changes in the estimated fair value of the contingent earn-out consideration may materially impact and cause volatility in our operating results.

26
cash flows.

The Company and its subsidiaries, incident to its business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. We evaluate claims based on what we believe to be both probable and reasonably estimable. With the exception of the matter described below, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. The company maintains insurance that may provide coverage for such matters.

In April 2016, pursuant to a counterclaim to a collection suit initiated by Salem, an award was issued against Salem for breach of contract and attorney fees. We filed an appeal against the award as well as a malpractice lawsuit against the lawyer that represented Salem in the collection lawsuit. A legal reserve of $0.5 million was recorded representing the total possible loss contingency without third party recoveries from our appeal, malpractice lawsuit or insurance claims. In March 2017, the case and all counterclaims were settled for a net amount of $0.3 million.

NOTE 19.17. SEGMENT DATA

FASB ASC Topic 280, “
Segment Reporting
, requires companies to provide certain information about their operating segments. We have three3 operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing. Unallocated corporate expenses include shared services, suchPublishing, which also qualify as accounting and finance, human resources, legal, tax and treasury that are not directly attributable to any one of our operatingreportable segments.

During the third quarter of 2016, we reclassed Salem Consumer Products, our e-commerce business that sells books, DVD’s and editorial content developed by our on-air personalities, from our Digital Media segment to our Broadcast segment. With this reclassification, all revenue and expenses generated by on-air hosts, including broadcast programs and e-commerce product sales are consolidated to assess the financial performance of each network program.

Our operating segments reflect howourchief operating decision makers, which we define as a collective group of senior executives, assessassesses the performance of each operating segment and determinedetermines the appropriate allocations of resources to each segment. We continue tocontinually review our operating segment classifications to align with operational changes in our business and may make future changes as necessary.

30

We measure and evaluate our operating segments based on operating income and operating expenses that do not include allocations of costs related to corporate functions, such as accounting and finance, human resources, legal, tax and treasury; nor do they includetreasury, which are reported as unallocated corporate expenses in our condensed consolidated statements of operations included in this quarterly report on Form
10-Q.
We also exclude costs such as amortization, depreciation, taxes orand interest expense. Changes to our operating segments did not impact the reporting units used to test non-amortizable assets for impairment. All prior periods presented are updated to reflect the new composition of our operating segments.
Segment performance, as defined by Salem, is not necessarily comparable to other similarly titled captions of other companies.

Broadcasting
Our foundational business is radio broadcasting, which includes the ownership and operation of radio stations in large metropolitan markets. Our broadcasting segment includes our national networks and national sales firms. National companies often prefer to advertise across the United States as an efficient and cost-effective way to reach their target audiences. Our national platform under which we offer radio airtime, digital campaigns and print advertisements can benefit national companies by reaching audiences throughout the United States.
Salem Radio Network
TM
(“SRN
TM
”), based in Dallas, Texas, develops, produces and syndicates a broad range of programming specifically targeted to Christian and family-themed talk stations, music stations and News Talk stations. SRN
TM
delivers programming via satellite to approximately 3,100 affiliated radio stations throughout the United States, including several of our Salem-owned stations. SRN
TM
operates five divisions, SRN
TM
Talk, SRN
TM
News, SRN
TM
Websites, SRN
TM
Satellite Services and Salem Music Network that includes Today’s Christian Music (“TCM”).
Salem Media Representatives (“SMR”) is our national advertising sales firm with offices in 12 U.S. cities. SMR specializes in placing national advertising on Christian and talk formatted radio stations as well as other commercial radio station formats. SMR sells commercial airtime to national advertisers on our radio stations and through our networks, as well as for independent radio station affiliates. SMR also contracts with independent radio stations to create custom advertising campaigns for national advertisers to reach multiple markets.
Salem Surround, our multimedia advertising agency with locations in 33 markets across the United States, 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.
Digital Media
Our digital media-based businesses provide Christian, conservative, investing content,
e-commerce,
audio and video streaming, and other resources digitally through the web. Salem Web Network (“SWN”) websites include Christian content websites; BibleStudyTools.com, Crosswalk.com
®
, GodVine.com, iBelieve.com, GodTube
®
.com, OnePlace
.com, Christianity.com, GodUpdates.com, CrossCards
.com, ChristianHeadlines.com, LightSource.com, AllCreated.com, ChristianRadio.com, CCMmagazine.com, SingingNews
®
.com and SouthernGospel.com and our conservative opinion websites; collectively known as Townhall Media, include Townhall.com
®
, HotAir
.com, Twitchy
®
.com, RedState
®
.com, BearingArms.com, ConservativeRadio.com and pjmedia.com. We also publish digital newsletters through Eagle Financial Publications, which provide market analysis and
non-individualized
investment strategies from financial commentators on a subscription basis.
Our church
e-commerce
websites, including SermonSearch
.com, ChurchStaffing.com, WorshipHouseMedia.com, SermonSpice
.com, WorshipHouseKids.com, Preaching.com, ChristianJobs.com, Youthworker.com, JourneyBoxMedia.com, Playblackmedia.com, and HyperPixelsMedia.com, offer a variety of digital resources including videos, song tracks, sermon archives and job listings to pastors and Church leaders.
Our web content is accessible through all of our radio station websites that feature content of interest to local audiences throughout the United States.
Publishing
Our publishing operating segment includes three businesses: (1) Regnery
®
Publishing and Salem Books, traditional book publishers that have published dozens of bestselling books by leading conservative and Christian authors and personalities and (2) Salem Author Services, a self-publishing service for authors through Xulon Press and Mill City Press.
31

The table below presents financial information for each operating segment as of September 30, 20172021 and 20162020 based on the newcomposition of our operating segments:

  Broadcast  Digital
Media
  Publishing  Unallocated
Corporate
Expenses
  Consolidated 
  (Dollars in thousands) 
Three Months Ended September 30, 2017                    
Net revenue $48,424  $10,446  $6,563  $  $65,433 
Operating expenses  37,040   8,169   6,686   4,233   56,128 
Net operating income (loss) before depreciation, amortization, change in the estimated fair value of contingent earn-out consideration and net (gain) loss on the sale or disposal of assets $11,384  $2,277  $(123) $(4,233) $9,305 
Depreciation  1,920   792   159   211   3,082 
Amortization  11   860   264      1,135 
Change in the estimated fair value of contingent earn-out consideration     (12)        (12)
Net (gain) loss on the sale or disposal of assets  97         (2)  95 
Net operating income (loss) $9,356  $637  $(546) $(4,442) $5,005 
                     
Three Months Ended September 30, 2016                    
Net revenue $51,052  $11,999  $8,221  $  $71,272 
Operating expenses  37,434   9,172   8,020   4,147   58,773 
Net operating income (loss) before depreciation, amortization, change in the estimated fair value of contingent earn-out consideration and net (gain) loss on the sale or disposal of assets $13,618  $2,827  $201  $(4,147) $12,499 
Depreciation  1,753   840   174   209   2,976 
Amortization  22   1,091   228      1,341 
Change in the estimated fair value of contingent earn-out consideration     (13)  (183)     (196)
Net (gain) loss on the sale or disposal of assets  (633)  176         (457)
Net operating income (loss) $12,476  $733  $(18) $(4,356) $8,835 

27
segments:

  Broadcast  Digital
Media
  Publishing  Unallocated
Corporate
Expenses
  Consolidated 
  (Dollars in thousands) 
Nine Months Ended September 30, 2017                    
Net revenue $145,479  $31,998  $19,048  $  $196,525 
Operating expenses  108,807   25,241   18,705   13,183   165,936 
Net operating income (loss) before depreciation, amortization, change in the estimated fair value of contingent earn-out consideration, impairments and net (gain) loss on the sale or disposal of assets $36,672   6,757  $343  $(13,183) $30,589 
Depreciation  5,668   2,389   515   599   9,171 
Amortization  46   2,494   879   1   3,420 
Change in the estimated fair value of contingent earn-out consideration     (54)        (54)
 Impairment of indefinite-lived long-term assets other than goodwill        19      19 
Net (gain) loss on the sale or disposal of assets  (399)     (9)  (2)  (410)
Net operating income (loss) $31,357  $1,928  $(1,061) $(13,781) $18,443 
                     
Nine Months Ended September 30, 2016                    
Net revenue $149,768  $34,056  $19,802  $  $203,626 
Operating expenses  109,455   26,815   19,951   11,928   168,149 
Net operating income (loss) before depreciation, amortization, change in the estimated fair value of contingent earn-out consideration, impairments and net (gain) loss on the sale or disposal of assets $40,313  $7,241  $(149) $(11,928) $35,477 
Depreciation  5,431   2,392   489   638   8,950 
Amortization  67   3,233   372   1   3,673 
Change in the estimated fair value of contingent earn-out consideration     (119)  (339)     (458)
Impairment of long-lived assets  700            700 
Net (gain) loss on the sale or disposal of assets  (2,175)  182   (21)  6   (2,008)
Net operating income (loss) $36,290  $1,553  $(650) $(12,573) $24,620 

  Broadcast  Digital
Media
  Publishing  Unallocated
Corporate
  Consolidated 
  (Dollars in thousands) 
As of September 30, 2017                    
Inventories, net $  $327  $482  $  $809 
Property and equipment, net  86,187   6,603   1,326   8,087   102,203 
Broadcast licenses  388,720            388,720 
Goodwill  3,594   20,946   1,888   8   26,436 
Other indefinite-lived intangible assets        313      313 
Amortizable intangible assets, net  361   10,720   3,190   5   14,276 
                     
As of December 31, 2016                    
Inventories, net $  $300  $370  $  $670 
Property and equipment, net  86,976   6,634   1,779   7,401   102,790 
Broadcast licenses  388,517            388,517 
Goodwill  3,581   20,136   1,888   8   25,613 
Other indefinite-lived intangible assets        332      332 
Amortizable intangible assets, net  407   9,927   4,069   5   14,408 
   
Broadcast
  
Digital
Media
  
Publishing
  
Unallocated
Corporate
Expenses
  
Consolidated
 
                 
   
(Dollars in thousands)
 
Three Months Ended September 30, 2021
                     
Net revenue  
$
49,591
 
 
$
10,645
 
 
$
5,747
 
 
$
—  
 
 
$
65,983
 
Operating expenses  
 
37,463
 
 
 
8,269
 
 
 
5,213
 
 
 
4,284
 
 
 
55,229
 
                      
Net operating income (loss) before depreciation, amortization, and net (gain) loss
on the disposition of assets
  
$
12,128
 
 
$
2,376
 
 
$
534
 
 
$
(4,284
 
$
10,754
 
                      
Debt modification costs  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
2,347
 
 
 
2,347
 
Depreciation  
 
1,539
 
 
 
965
 
 
 
43
 
 
 
241
 
 
 
2,788
 
Amortization  
 
4
 
 
 
375
 
 
 
48
 
 
 
—  
 
 
 
427
 
Net (gain) loss on the disposition of assets  
 
(10,505
 
 
(148
 
 
22
 
 
 
24
 
 
 
(10,607
                      
Net operating income (loss)  
$
21,090
 
 
$
1,184
 
 
$
421
 
 
$
(6,896
 
$
15,799
 
                      
Three Months Ended September 30, 2020
                     
Net revenue  $45,391  $9,808  $5,442  $—    $60,641 
Operating expenses   34,283   7,144   5,814   3,849   51,090 
                      
Net operating income (loss) before depreciation, amortization, change in the
estimated fair value of contingent
earn-out
consideration, impairments, and net
(gain) loss on the disposition of assets
  $11,108  $2,664  $(372 $(3,849 $9,551 
                      
Depreciation   1,626   746   70   235   2,677 
Amortization   4   537   210   —     751 
Change in the estimated fair value of contingent
earn-out
consideration
   —     (10  —     —     (10
Net (gain) loss on the disposition of assets   1,380   —     1   —     1,381 
                      
Net operating income (loss)  $8,098  $1,391  $(653 $(4,084 $4,752 
                      
   
Broadcast
  
Digital
Media
  
Publishing
  
Unallocated
Corporate
Expenses
  
Consolidated
 
                 
   
(Dollars in thousands)
 
Nine Months Ended September 30, 2021
                     
Net revenue  
$
140,422
 
 
$
30,603
 
 
$
18,093
 
 
$
—  
 
 
$
189,118
 
Operating expenses  
 
106,968
 
 
 
25,280
 
 
 
16,844
 
 
 
12,764
 
 
 
161,856
 
                      
Net operating income (loss) before depreciation, amortization, change in the
estimated fair value of contingent
earn-out
consideration, impairments, and net
(gain) loss on the disposition of assets
  
$
33,454
 
 
$
5,323
 
 
$
1,249
 
 
$
(12,764
 
$
27,262
 
                      
Debt modification costs  
 
—  
 
 
 
—  
 
 
 
—  
 
 
��
2,347
 
 
 
2,347
 
Depreciation  
 
4,667
 
 
 
2,606
 
 
 
134
 
 
 
711
 
 
 
8,118
 
Amortization  
 
12
 
 
 
1,204
 
 
 
337
 
 
 
—  
 
 
 
1,553
 
Net (gain) loss on the disposition of assets  
 
(10,187
 
 
(83
 
 
(306
 
 
24
 
 
 
(10,552
                      
Net operating income (loss)  
$
38,962
 
 
$
1,596
 
 
$
1,084
 
 
$
(15,846
 
$
25,796
 
                      
Nine Months Ended September 30, 2020
                     
Net revenue  $130,041  $28,355  $13,366  $—    $171,762 
Operating expenses   104,704   23,123   16,443   11,909   156,179 
                      
Net operating income (loss) before depreciation, amortization, change in the
estimated fair value of contingent
earn-out
consideration, impairments, and net
(gain) loss on the disposition of assets
  $25,337  $5,232  $(3,077 $(11,909 $15,583 
                      
Depreciation   4,912   2,284   212   700   8,108 
Amortization   18   1,928   631   1   2,578 
Change in the estimated fair value of contingent
earn-out
consideration
   —     (12  —     —     (12
Impairment of indefinite-lived long-term assets other than goodwill   16,994   —     260   —     17,254 
Impairment of goodwill   184   10   105   8   307 
Net (gain) loss on the disposition of assets   1,489   —     1   4   1,494 
                      
Net operating income (loss)  $1,740  $1,022  $(4,286 $(12,622 $(14,146
                      
32

   
Broadcast
   
Digital
Media
   
Publishing
   
Unallocated
Corporate
   
Consolidated
 
                     
   
(Dollars in thousands)
 
As of September 30, 2021
                         
Inventories, net  
$
—  
 
  
$
—  
 
  
$
907
 
  
$
—  
 
  
$
907
 
Property and equipment, net  
 
60,502
 
  
 
8,619
 
  
 
723
 
  
 
8,581
 
  
 
78,425
 
Broadcast licenses  
 
320,008
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
320,008
 
Goodwill  
 
2,750
 
  
 
19,790
 
  
 
1,446
 
  
 
—  
 
  
 
23,986
 
Amortizable intangible assets, net  
 
233
 
  
 
2,552
 
  
 
—  
 
  
 
—  
 
  
 
2,785
 
As of December 31, 2020
                         
Inventories, net  $—     $—     $495   $—     $495 
Property and equipment, net   64,231    6,221    741    7,929    79,122 
Broadcast licenses   319,773    —      —      —      319,773 
Goodwill   2,746    19,565    1,446    —      23,757 
Amortizable intangible assets, net   246    3,434    337    —      4,017 

NOTE 20.18. SUBSEQUENT EVENTS

The following additional repurchases of the 2024 Notes were made after September 30, 2021:
Date
 
Principal
Repurchased
   
  Cash  
Paid
  
 % of Face 
Value
  
 Bond Issue 
Costs
  
    Net Loss    
 
  
(Dollars in thousands)
 
October 25, 2021
 $ 2,000   $ 2,020   101.00 $ 19  $ 39 
October 12, 2021
  250    251   100.38  2   3 
October 5, 2021
  763    766   100.38  7   10 
October 4, 2021
  628    629   100.13  6   7 
  
 
 
   
 
 
      
 
 
  
 
 
 
  $3,641   $3,666      $34   59 
  
 
 
   
 
 
      
 
 
  
 
 
 
Subsequent events reflect all applicable transactions through the date of the filing.

28

33

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

GENERAL

General
Salem Media Group, Inc. is a domestic multimedia company specializing in Christian and conservative content, with media properties comprising radio broadcasting, digital media, and publishing. Our content is intended for audiences interested in Christian and family-themed programming and conservative news talk. We maintain a website at www.salemmedia.com. Our annual reports on Form
10-K,
quarterly reports on Form
10-Q,
current reports on Form
8-K,
and any amendments to these reports are available free of charge through our website as soon as reasonably practicable after those reports are electronically filed with or furnished to the SEC.
The information on our website is not a part of or incorporated by reference into this or any other report of the company filed with, or furnished to, the SEC.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and related notes included elsewhere in this report on Form
10-Q
and our audited Consolidated Financial Statements in our Annual Report on Form
10-K
for the year ended December 31, 2016. This discussion, as well as various other sections of this quarterly report, contains and refers to statements that constitute
forward-looking statements, as defined under the Private Securities Litigation Reform Act of 1995.Such statements relate to our intent, belief or current expectations with respect to our future operating, financial and strategic performance that involve risks and uncertainties and2020. Our Condensed Consolidated Financial Statements are not guaranteesdirectly comparable from period to period due to acquisitions and dispositions. Refer to Note 3 of future performance.

our Condensed Consolidated Financial Statements on Form

10-Q
for details of each of these transactions.
Historical operating results are not necessarily indicative of future operating results. Actual future results may differ from those contained in or implied by the forward-looking statements as a result of various factors. These factors include, but are not limited to, to:
the coronavirus
(“COVID-19”)
is adversely impacting our business,
risks and uncertainties relating to the need for additional funds to service our debt,
risks and uncertainties relating to the need for additional funds to execute our business strategy,
our ability to access borrowings under our ABL Facility,
reductions in revenue forecasts,
our ability to renew our broadcast licenses,
changes in interest rates,
the timing of our ability to complete any acquisitions or dispositions,
costs and synergies resulting from the integration of any completed acquisitions,
our ability to effectively manage costs,
our ability to drive and manage growth,
the popularity of radio as a broadcasting and advertising medium,
changes in consumer tastes,
the impact of general economic conditions in the United States or in specific markets in which we do business,
industry conditions, including existing competition and future competitive technologies and cancellation,
disruptions or postponements of advertising schedules and programming in response to national or world events,
our ability to generate revenues from new sources, including local commerce and technology-based initiatives,
the impact of regulatory rules or proceedings that may affect our business from time to time, and the future write off of any material portion of the fair value of our FCC broadcast licenses and goodwill, and other riskgoodwill.
Because these factors describedcould cause actual results or outcomes to differ materially from time to timethose expressed in any forward-looking statements made by us or on our filings with the Securities and Exchange Commission, including our Annual Reportbehalf, you should not place undue reliance on Form 10-K for the year ended December 31, 2016 and any subsequently filed Forms 10-Q and Forms 8-K. Many of these risksforward-looking statements. In addition, any forward-looking statement speaks only as of the date on which it is made, and uncertainties are beyond our control, and the unexpected occurrencewe undertake no obligation to update any forward-looking statement or failurestatements to occur of any suchreflect events or matters could significantly alter our actual resultscircumstances after the date on which the statement is made, to reflect the occurrence of operationsunanticipated events or financial condition.

Our Condensed Consolidated Financial Statements are not directly comparable from period to period due to acquisitions and dispositionsotherwise, except as required by law.

34

Overview
We have three operating segments:segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which alsoqualify as reportable segments. Our operating segments reflect howourchief operating decision makers, which we define as a collective group of senior executives, assess the performance of each operating segment and determine the appropriate allocations of resources to each segment. We continually review our operating segment classifications to align with operational changes in our business and may make changes as necessary.

During the third quarter of 2016, we reclassed Salem Consumer Products, our e-commerce business that sells books, DVD’s and editorial content developed by our on-air personalities, from Digital Media to Broadcast to assess the performance of each network program based on all revenue sources. Changes to our operating segments did not impact the reporting units used to test non-amortizable assets for impairment. All prior periods presented are updated to reflect the new composition of our operating segments. Refer to Note 19 – Segment Data in the notes to our Condensed Consolidated financial statements contained in Item 1 of this quarterly report on Form 10-Q for additional information.

We measure and evaluate our operating segments based on operating income and operating expenses that exclude costs related to corporate functions, such as accounting and finance, human resources, legal, tax and treasury. We also exclude costs such as amortization, depreciation, taxes and interest expense when evaluating the performance of our operating segments.

Our principal sources of broadcast revenue include:

·
the sale of block program time to national and local program producers;
the sale of advertising time on our radio stations to national and local advertisers;
the sale of banner advertisements on our station websites or on our mobile applications;
the sale of digital streaming advertisements on our station websites or on our mobile applications;
the sale of advertisements included in digital newsletters;
fees earned for the creation of custom web pages and custom digital media campaigns for our advertisers through Salem Surround;
the sale of advertising time on our national network;
the syndication of programming on our national network;
the sale of advertising time through podcasts and
video-on-demand
services;
product sales and royalties for
on-air
host materials, including podcasts and programs; and
other revenue such as events, including ticket sales and sponsorships, listener purchase programs, where revenue is generated from special discounts and incentives offered to our listeners from our advertisers; talent fees for voice-overs or custom endorsements from our
on-air
personalities and production services, and rental income for studios, towers or office space.
Our principal sources of digital media revenue include:
the sale of digital banner advertisements on our websites and mobile applications;
the sale of digital streaming advertisements on websites and mobile applications;
the support and promotion to stream third-party content on our websites;
the sale of advertisements included in digital newsletters;
the digital delivery of newsletters to subscribers; and
the sale of video and graphic downloads.
Our principal sources of publishing revenue include:
the sale of books and
e-books;
publishing fees from authors;
the sale of digital advertising on our magazine websites and digital newsletters;
subscription fees for our print magazine; and
the sale of print magazine advertising.
35

In each of our operating segments, the sale of block program time to national and local program producers;
·the sale of advertising time on our radio stations to national and local advertisers;
·the sale of advertising time on our national network;
·the syndication of programming on our national network;
·product sales and royalties for on-air host materials, including podcasts and programs;
·the sale of banner advertisements on our station websites or on our mobile applications;
·the sale of digital streaming advertisements on our station websites or on our mobile applications;
·the sale of advertisements included in digital newsletters;
·fees earned for creating custom web pages or social media promotions on behalf of our advertisers;
·revenue from station events, including ticket sales and sponsorships; and
·listener purchase programs, often called non-traditional revenue, where revenue is generated by promoting discounted goods and services to our listeners from special discounts and incentives offered to our listeners.

The rates we are able to charge for broadcast air timeairtime, advertising and other advertisementsproducts and services are dependent upon several factors, including:

·audience share;
·how well our stations and digital platform perform for our clients;
·the size of the market and audience reached;
·the number of impressions delivered;
·the number of page views achieved;
·the number of events held, the number of event sponsorships sold and the attendance at each event;
·the general economic conditions in each market; and
·supply and demand on both a local and national level.

29

Our principal sources

audience share;
how well our programs and advertisements perform for our clients;
the size of digital media revenue include:

·the sale of digital banner advertisements on our websites and mobile applications;
·the sale of digital streaming advertisements on websites and mobile applications;
·the support and promotion to stream third-party content on our websites;
·the sale of advertisements included in digital newsletters;
·the digital delivery of newsletters to subscribers;
·the market and audience reached;
the number of video and graphic downloads; and
·the sale and delivery of wellness products.

Our principal sources of publishing revenue include:

·the sale of books and e-books;
·subscription fees for our print magazine;
·the sale of print magazine advertising;
·the sale of digital advertising on our magazine websites and digital newsletters; and
·publishing fees from authors.

impressions delivered;

the number of advertisements and programs streamed;
the number of page views achieved;
the number of downloads completed;
the number of events held, the number of event sponsorships sold and the attendance at each event;
demand for books and publications;
general economic conditions; and
supply and demand for airtime on a local and national level.
Broadcasting

Our foundational business is radio broadcasting, which includes the ownership and operation of radio stations in large metropolitan markets. We also ownmarkets, our national networks and operateour national sales firms including Salem Radio Network® (“SRN”), SRN News Network (“SNN”), Today’s Christian Music (“TCM”), Singing News Network (formerly Solid Gospel Network), and Salem Media RepresentativesTM (“SMR”). SRN, SNN, TCM and Singing News Network are networks that develop, produce and syndicate a broad range of programming specifically targeted to Christian and family-themed talk stations, music stations and News Talk stations throughout the United States, including Salem-owned and operated stations. SMR, a national advertising sales firm with offices in ten U.S. cities, specializes in placing national advertising on religious and other format commercial radio stations.

Our five main formats are (1) Christian Teaching and Talk, (2) News Talk, (3) Contemporary Christian Music, (4) Spanish Language Christian Teaching and Talk and (5) Business.

Christian Teaching and Talk.We currently program 43 of our radio stations in our foundational format, Christian Teaching and Talk, which is talk programming emphasizing Christian and family themes. Through this format, a listener can hear Bible teachings and sermons, as well as gain insight to questions related to daily life, such as raising children or religious legal rights in education and in the workplace. This format uses block programming time to offer a learning resource and a source of personal support for listeners. Listeners often contact our programmers to ask questions, obtain materials on a subject matter or receive study guides based on what they have learned on the radio.

Block Programming.We sell blocks of airtime on our Christian Teaching and Talk format stations to a variety of national and local religious and charitable organizations that we believe create compelling radio programs. Historically, more than 95% of these religious and charitable organizations renew their annual programming relationships with us. Based on our historical renewal rates, we believe that block programming provides a steady and consistent source of revenue and cash flows. Our top ten programmers have remained relatively constant and average more than 30 years on-air. Over the last five years, block-programming revenue has generated 40% to 43% of our total net broadcast revenue.

Satellite Radio.We program SiriusXM Channel 131, the exclusive Christian Teaching and Talk channel on SiriusXM, reaching the entire nation 24 hours a day, seven days a week.

News Talk.We currently program 33 of our radio stations in a News Talk format. Our research shows that our News Talk format is highly complementary to our core Christian Teaching and Talk format. As programmed by Salem, both of these formats express conservative views and family values. Our News Talk format also provides for the opportunity to leverage syndicated talk programming produced by SRN to radio stations throughout the United States. Syndication of our programs allows Salem to reach audiences in markets in which we do not own or operate radio stations.

Contemporary Christian Music.We currently program 13 radio stations in a Contemporary Christian Music (“CCM”) format, branded The FISH® in most markets. Through the CCM format, we are able to bring listeners the words of inspirational recording artists, set to upbeat contemporary music. Our music format, branded “Safe for the Whole Family®”, features sounds that listeners of all ages can enjoy and lyrics that can be appreciated. The CCM genre continues to be popular. We believe that the listener base for CCM is underserved in terms of radio coverage, particularly in larger markets, and that our stations fill an otherwise void area in listener choices.

Spanish Language Christian Teaching and Talk. We currently program eight of our radio stations in a Spanish Language Christian Teaching and Talk format. This format is similar to our core Christian Teaching and Talk format in that it broadcasts biblical and family-themed programming, but the programming is specifically tailored for Spanish-speaking audiences. Additionally, block programming on our Spanish Language Christian Teaching and Talk stations is primarily local while Christian Teaching and Talk stations are primarily national.

30

Business. We currently program 13 of our radio stations in a business format. Our business format features financial commentators, business talk, and nationally recognized Bloomberg programming. The business format operates similar to our Christian Teaching and Talk format in that it features long-form block programming.

Each of our radio stations has a website specifically designed for that station. The station websites have digital banner advertisements, streaming, links to purchase goods featured by on-air advertisers, and links to our other digital media sites.

Surround. Revenues generated from our radio stations, networks and sales firms are reported as broadcast media revenue in our Condensed Consolidated financial statementsFinancial Statements included in Part 1 of this quarterly report on Form

10-Q.
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.
Broadcast revenues are impacted by the rates radio stations can charge for programming and advertising time, the level of airtime sold to programmers and advertisers, the number of impressions delivered or downloads made, and the number of events held, including the size of the event and the number of attendees. Block programming rates are based upon our stations’ ability to attract audiences that will support the program producers through contributions and purchases of their products. Advertising rates are based upon the demand for advertising time, which in turn is based on our stations and networks’ ability to produce results for their advertisers. We market ourselves to advertisers based on the responsiveness of our audiences. We do not subscribe to traditional audience measuring services for most of our radio stations. In select markets, we subscribe to Nielsen Audio, which develops quarterlymonthly reports measuring a radio station’s audience share in the demographic groups targeted by advertisers. Each of our radio stations and our networks has a
pre-determined
level of time available for block programming and/or advertising, which may vary at different times of the day.

Nielsen Audio uses the Portable People Meter
TM(“
(“PPM
) technology to collect data for its ratings service. PPM is a small device that is capable of automatically measuring radio, television, Internet, satellite radio and satellite television signals encoded by the broadcaster. The PPM offers a number of advantages over traditional diary ratings collection systems, including ease of use, more reliable ratings data, shorter time periods between when advertising runs and actual listening data, and little manipulation of data by users. A disadvantage of the PPM includes data fluctuations from changes to the “panel” (a group of individuals holding PPM devices). This makes all stations susceptible to some inconsistencies in ratings that may or may not accurately reflect the actual number of listeners at any given time.

We subscribe to Nielsen Audio for ratings services in 7 of our broadcast markets.

Our results are subject to seasonal fluctuations. As is typical in the radio broadcasting industry, our second and fourth quarter advertising revenue generallytypically exceeds our first and third quarter advertising revenue. This seasonal fluctuationSeasonal fluctuations in advertising revenue correspondscorrespond with quarterly fluctuations in the retail advertising industry. Additionally, we experience increased demand for political advertising during election, or even numbered years, by wayover
non-election
or odd numbered years. Political advertising revenue varies based on the number and type of political advertisements. Quarterly revenue fromcandidates as well as the salenumber and type of block programming time does not tend to vary significantly because program rates are generally set annually and are recognized on a per program basis.

debated issues.

Our cash flows from broadcasting are affected by transitional periods experienced by radio stations when, based on the nature of the radio station, our plans for the market and other circumstances, we find it beneficial to change the station format. During this transitional period, when we develop a radio station’s listener and customer base, the station may generate negative or insignificant cash flow.

Trade

36

In broadcasting, trade or barter agreements are common in the broadcast industry. Our radio stations utilizecommonly 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 in lieu of cash. We enter barter agreements if the goods or services to be receivedthat can be used in our business or that can be sold to our audience under listener purchase programs. We minimize the useListener Purchase Programs. The terms of these barter agreements with our general policy being notpermit us to preempt the barter airtime paidor 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 cash for airtime sold underrevenue in an amount equal to the fair value of the goods or services we receive. Each transaction is 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 barter agreement.gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency. During the nine month periodmonths ended September 30, 2017,2021 and 2020, 99% and 98%, respectively of our broadcast revenue was sold for cash compared to 97% during the same period of the prior year.

cash.

Broadcast operating expenses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as rentlease cost and utilities, (iii) marketing and promotional expenses, (iv) production and programming expenses, and (v) music license fees. In addition to these expenses, our network incurs programming costs and lease expenses for satellite communication facilities.

Digital Media

Web-based and digital content has been a growth area for Salem and continues to be a focus of future development.

Our digital media-basedmedia based businesses provide Christian, conservative, investing, and health-themed content,
e-commerce,
audio and video streaming, and other resources digitally through the web. Salem Web Network™ (“SWN”)Refer to Item 1. Business of our annual report on Form
10-K
for the year ended December 31, 2020 for a description of each of our digital media websites include Christian content websites: OnePlace.com, Christianity.com, Crosswalk.com®, GodVine.com, GodTube.com, CrossCards.com, LightSource.com, Jesus.org, BibleStudyTools.com, iBelieve.com, CCMmagazine.com and ChristianHeadlines.com. Our conservative opinion websites, collectively known as Townhall Media, include Townhall.com™, HotAir.com, Twitchy.com, HumanEvents.com, RedState.com, and BearingArms.com. We also publish digital newsletters through Eagle Financial Publications, which provide market analysis and non-individualized investment strategies from financial commentators on a subscription basis.

Our church e-commerce websites, including WorshipHouseMedia.com, SermonSpice.com, SermonSearch.com, ChurchStaffing.com, and ChristianJobs.com, offer a variety of digital resources including videos, song tracks, sermon archives and job listings to pastors and Church leaders.

31

E-commerce also includes Eagle Wellness, which is a seller of nutritional supplements.

The revenuesoperations. Revenue generated from this segment areis reported as digital media revenue in our Condensed Consolidated Financial Statements of Operations included in Part 1 of this quarterly report on Form

10-Q.
Digital media revenues arerevenue is impacted by the rates our sites can charge for advertising time, the level of advertisements sold, the number of impressions delivered or the number of products sold and the number of digital subscriptions sold. Like our broadcasting segment, our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertising revenue. This seasonal fluctuation in advertising revenue corresponds with quarterly fluctuations in the retail advertising industry. We also experience fluctuations in quarter-over-quarter comparisons based on the date on which the Easter holiday is observed, as this holiday generates a higher volume of product downloads from our church product sites.websites. Additionally, we experience increased demand for advertising time and placement during election years for political advertisements.

The primary operating expenses incurred by our digital media businesses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as rentlease expense and utilities, (iii) marketing and promotional expenses, (iv) royalties, (v) streaming costs, and (vi) cost of goods sold associated with
e-commerce
sites.

Publishing

Our publishing operations include book publishing through Regnery
®
Publishing, a print magazinesmagazine and our self-publishing services. Regnery Publishing has published dozens of bestselling books by leading conservative authors and personalities, including Ann Coulter, Newt Gingrich, David Limbaugh, Ed Klein, Mark Steyn and Dinesh D’Souza. Books are sold in traditional printed form and as eBooks.

Salem Publishing™ produces and distributes theSinging News® magazine and operates a website specifically designed for this print magazine. The website has digital banner advertisements, streaming, links to purchase goods featured by advertisers, and links to our other digital media sites. Salem Author Services includes Xulon Press™ and Mill City Press which offer print-on-demand self-publishing services for authors. We acquired Mill City Press from Hillcrest Publishing Group, Inc., on August 1, 2016. Xulon Press™ publishes books for Christian authors while Mill City Press publishes books for all general market publications.

The revenuesRevenues generated from this segment are reported as publishing revenue in our Condensed Consolidated Financial Statements of Operations included in Part 1 of this quarterly report on Form

10-Q.
Publishing revenue is impacted by the number and the retail price of books and
e-books the number of books sold, the number and retail price of e-books
sold, the number and rate of print magazine subscriptions sold, the rate and number of pages of advertisements sold in each print magazine, and the number and rate at which self-published books are published. Regnery
®
Publishing revenue is impacted by elections as it generates higher levels of interest and demand for publications containing conservative and political based opinions.

The primary

Publishing operating expenses incurred by our Publishing businesses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as rentlease costs and utilities, (iii) marketing and promotional expenses; and (iv) cost of goods sold that includes printing and production costs, fulfillment costs, author royalties and inventory reserves.

KNOWN TRENDS AND UNCERTAINTIES

Broadcastobsolescence charges.

Known Trends and Uncertainties
The
COVID-19
global pandemic that began in March 2020 materially impacted our business. 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 were 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.
37

While we see progress being made in revenue returning to
pre-pandemic
levels, the
COVID-19
pandemic continues to create significant uncertainty and disruption in the economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for doubtful accounts, impairments and
right-of-use assets.
As a result, many estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
The growth of broadcast revenue associated with the sale of airtime remains challenged, which wechallenged. We believe this is due to several factors, including increasingincreased competition from other forms of content distribution and the length of time spent listening byto audio streaming services, podcasts and satellite radio. This increaseIncreases in competition and the mix of radioin listening time may lead advertisers to conclude that the effectiveness of radio has diminished. To minimizereduce the impact of these factors, we continue to enhance our digital assets to complement our broadcast content. We also support industry initiativesThe increased use of voice activated platforms, or smart speakers, that provide audiences with the ability to increase the number of smartphonesaccess AM and other wireless devices that contain an enabled FM tuner as well as provide initiativesradio stations show increased potential for wireless carriers in the United Statesbroadcasters to permit these FM tuners to receive the free over-the-air local radio stations.

32
reach audiences.

Our broadcast revenues arespot advertising revenue is particularly dependent on advertising from our Los Angeles and Dallas markets, which generated 15.3%13.8% and 19.3%21.8%, respectively, of our total net broadcast spot advertising revenue forduring the nine monthnine-month period ended September 30, 2017.

Revenues from print magazines, including2021 compared to 14.3% and 22.1%, respectively, of our total net broadcast spot advertising revenue and subscription revenues, are challenged both economically and byduring the increasing usesame period of other mediums that deliver comparable information. Book sales are contingent upon overall economic conditions and our ability to attract and retain authors. Because digital media has been a growth area for us, decreases in digital revenue streams could adversely affect our operating results, financial condition and results of operations. the prior year.

Digital revenue is impacted by the nature and delivery of page views.views and the number of advertisements per page. We have experienced a shift in the number of page views from desktop devices to mobile devices. While mobile page views have increased dramatically, they carry a lower number of advertisements per page whichand are generally sold at lower rates. Digital media revenue is impacted by page views and the number of advertisements per page. Declines inA shift from desktop page views impactto mobile device views negatively impacts revenue as mobile devices carry lower rates and less advertisement per page. Decreases in digital revenue could adversely affect our operating results, financial condition and results of operations. To minimize the impact that any one of these areas could have, we continue to explore opportunities to cross-promote our brands and our content, and to strategically monitor costs.

Key Financial Performance Indicators –SAME STATION DEFINITION

Same-Station Definition

In the discussion of our results of operations below, we compare our broadcast operating results between periods on an
as-reported
basis, which includes the operating results of all radio stations and networks owned or operated at any time during either period and on a Same-StationSame Station basis. Same Station is a
Non-GAAP
financial measure used both in presenting our results to stockholders and the investment community as well as in our internal evaluations and management of the business. We believe that Same Station Operating Income provides a meaningful comparison of period over period performance of our core broadcast operations as this measure excludes the impact of new stations, the impact of stations we no longer own or operate, and the impact of stations operating under a new programming format. Our presentation of Same Station Operating Income is not intended to be considered in isolation or as a substitute for the most directly comparable financial measures reported in accordance with GAAP. Our definition of Same Station Operating Income is not necessarily comparable to similarly titled measures reported by other companies. Refer to “NON-GAAP
“NON-GAAP
FINANCIAL MEASURES” presented after our results of operationsbelow for a reconciliation of these
non-GAAP
performance measures to the most comparable GAAP measures.

We define Same Station net broadcast revenue as net broadcast revenue from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. We define Same Station broadcast operating expenses as broadcast operating expenses from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. Same Station Operating Income includes those stations we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. Same Station Operating Income for a full calendar year is calculated as the sum of the Same Station results for each of the four quarters of that year.

Reclassifications

During the three months ended September 30, 2017, we reclassified certain revenue streams within our digital media operating segment and certain revenue streams within our publishing operating segment to conform to the current period presentation.

RESULTS OF OPERATIONS

Three months ended September 30, 2017 compared to the three months ended September 30, 2016

The following factors affected our results of operations and cash flows for the three months ended September 30, 2017 as compared to the same period of the prior year:

Financing

·On May 19, 2017, we closed on a private offering of $255.0 million aggregate principal amount of 6.75% senior secured notes due 2024 (the “Notes”) and concurrently entered into a five-year $30.0 million senior secured asset-based revolving credit facility. The net proceeds from the offering of the Notes, together with borrowings under the ABL Facility, were used to repay outstanding borrowings, including accrued and unpaid interest, on our previously existing senior credit facilities consisting of a term loan (“Term Loan B”) and a revolving credit facility of $25.0 million (“Revolver”), and to pay fees and expenses incurred in connection with the Notes offering and the ABL Facility (collectively, the “Refinancing”). As a result of this refinancing, we made no prepayments of principal during the three month period ended September 30, 2017, as compared to the same period of the prior year.

Acquisitions

·On September 15, 2017, we closed on the acquisition of real property, including the land, towers and facilities, of radio station WSPZ-AM in Bethesda, Maryland for $1.5 million in cash.

·On August 31, 2017, we acquired the TeacherTube.com website and related assets for $1.1 million in cash.

·On August 31, 2017, we acquired the Intelligence Report newsletter and related assets valued at $2.5 million and we assumed deferred subscription liabilities of $2.9 million. We paid no cash to the seller upon closing.

33

Non-GAAP

·On July 24, 2017, we closed on the acquisition of the FM translator construction permit in Eaglemount, Washington, for $40,000 in cash. The FM translator will be relocated to the Portland, Oregon market for use by our KDZR-AM radio station.

·On July 6, 2017, we acquired the TradersCrux.com website and related assets for $0.3 million in cash. As part of the purchase agreement, we may pay up to an additional $0.1 million in contingent earn-out consideration within one year upon the achievement of income benchmarks. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of TradersCrux.com to achieve the income targets at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $18,750, which approximates the discounted present value due to the earn-out of less than one year.

Net Broadcast Revenue

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Net Broadcast Revenue $51,052  $48,424  $(2,628)  (5.1)%  71.6%  74.0%
Same Station Net Broadcast Revenue $50,670  $48,321  $(2,349)  (4.6)%        

The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source.

  Three Months Ended September 30, 
  2016  2017 
  (Dollars in thousands) 
Block program time:                
National $12,425   24.3% $12,014   24.8%
Local  9,137   17.9   8,640   17.8 
   21,562   42.2   20,654   42.6 
Broadcast Advertising:                
National  3,300   6.5   3,325   6.9 
Local  16,098   31.5   14,341   29.6 
   19,398   38.0   17,666   36.5 
Station Digital  1,734   3.4   1,639   3.4 
Infomercials  741   1.5   605   1.2 
Network  4,723   9.2   4,558   9.4 
Other Revenue  2,894   5.7   3,302   6.8 
Net Broadcast Revenue $51,052   100.0% $48,424   100.0%

In late August 2017, our Houston broadcast market was impacted by Hurricane Harvey followed by Hurricane Irma in early September that impacted our Miami, Tampa and Orlando broadcast markets. We estimate total lost revenues from both storms to be approximately $0.1 million across all broadcast markets impacted, which includes orders that were cancelled in anticipation of the storms and losses for programs and advertisements that could not broadcast due to the loss of power.

The net decline in block programming revenue of $0.9 million includes a $0.6 million decline in programming on our Christian Teaching stations, a $0.3 million decline in programming on our Business format stations, and a decline of $0.2 million decline in programming previously generated from our Louisville market, that was partially offset by a $0.2 million increase in programming on our News Talk format stations. Declines in programming, particularly at the local level, resulted from program cancellations that we believe are due to increased competition from other broadcasters. Declines in national programming revenue reflect the non-renewal of a program that was featured on 19 of our Christian Teaching and Talk stations and declines in business programs as they pursue content that remains in compliance with securities rules and regulations. There were no changes in programming rates as compared to the same period of the prior year, however our programming rates may be impacted in the future due to this increased competition.

Advertising revenue, net of agency commissions, declined by $1.7 million, of which $0.6 million was due to political advertising that was recognized during the third quarter of 2016 based on the elections cycle. The remaining $1.1 million decline includes a $1.0 million decline in local advertising on our CCM stations, particularly in our Dallas market, due to lower ratings and an increase in competition from other advertisers and a $0.2 million decline in local advertising on our Christian Teaching and Talk format stations. These declines resulted from increased competition from other broadcasters and agencies that reduce the number of advertisements placed. This can, in turn, create lower demand and lower rates. We have undertaken efforts to retool our music, image and promotions to capture a younger demographic that we believe will improve the ratings for our CCM stations in the Dallas market. We are beginning to see some improved ratings but it will take additional time to turn the improved ratings into improved revenue.

Digital revenue generated from our radio station and network websites declined by $0.1 million due to the number of political related digital campaigns during the third quarter of 2016 based on the elections cycle. Rates charged were consistent with those during the same period of the prior year.

Declines in infomercial revenue reflect our effort to feature programming that is tailored to our audience and consistent with our company values. We continue to seek alternatives to infomercial programs that we believe are not of interest to our audience.

Network revenue decreased $0.2 million due to due to the number of political related campaigns during the third quarter of 2016 based on the elections cycle. Rates charged were consistent with those during the same period of the prior year.

34
Financial Measures

Other revenue increased $0.4 million due to a $0.2 million increase in event revenue due to higher attendance and ticket sales for local events such as concerts and speaking events, a $0.1 million increase in listener purchase program revenue from a higher audience demand with respect to participation in sales incentives and discount programs and $0.1 million increase in broadcast tower rental fees.

On a Same Station basis, net broadcast revenue decreased $2.3 million, which reflects these items net of the impact of stations that were acquired or are operating under different formats.

Net Digital Media Revenue 

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Net Digital Media Revenue $11,999  $10,446  $(1,553)  (12.9)%  16.8%  16.0%

35

The following table shows the dollar amount and percentage of net digital media revenue for each digital media revenue source. 

  Three Months Ended September 30, 
  2016  2017 
  (Dollars in thousands) 
Digital Advertising, net $7,305   60.9% $6,111   58.5%
Digital Streaming  1,103   9.2   1,107   10.6 
Digital Subscriptions  1,561   13.0   1,646   15.8 
Digital Downloads  1,111   9.2   950   9.1 
e-commerce  600   5.0   545   5.2 
Other Revenues  319   2.7   87   0.8 
Net Digital Media Revenue $11,999   100.0% $10,446   100.0%

Digital advertising revenue, net of agency commissions, declined by $1.2 million on a consolidated basis. This decline was attributable to lower page views on our conservative opinion websites, primarily Townhall Media, as compared to the same period of the prior year due to the timing of the 2016 election and a reduction in political advertisements. Page views for conservative opinion websites are typically higher during election years due to higher level of interest in content, for both desktop and mobile devices. Changes in the Facebook newsfeed algorithm have negatively impacted the volume of our desktop page views. Page views from Facebook declined 22.0% as compared to the same period of the prior year. To offset declines in page views generated from Facebook, we have continued to develop and promote the use of mobile applications, particularly for our Christian mobile applications. As mobile page views carry fewer advertisements and typically have shorter site visits, our growth in mobile application generated traffic is larger than our growth in revenue.

Digital streaming revenue was consistent with that of the same period of the prior year with no changes in sales volume or rates.

Digital subscription revenue increased $0.1 million due to higher distribution levels including additional subscriptions from acquisitions including Turner Investment Products in September of 2016 and Intelligence Reporter in August of 2017 that were partially offset by declines in the number of subscribers to Skousen’s Five Star Trader and Fast Money Alert newsletters. There were no changes in subscription rates as compared to the same period of the prior year.

Digital download revenue decreased $0.2 million due to a lower volume of downloads as compared to the same period of the prior year due in part to content featured during 2016 that covered the 15th anniversary of the September 11th terrorist attacks. There were no changes in rates charged to our customers for digital downloads as compared to the same period of the prior year.

E-commerce revenue declined by $0.1 million due to discounts offered on products sold through our wellness website. The average price per unit declined 17% while the number of products sold increased 10.0%. The discounts result from increased competition in the online market place that is driving prices down.

Other revenue includes miscellaneous sources such as event revenue, revenue sharing arrangements for purchases made from applications, and mail list rentals. The decrease of $0.2 million reflects the impact of a Townhall and Red State Gathering event held during third quarter of 2016 leading up to the presidential election.

Net Publishing Revenue

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Net Publishing Revenue $8,221  $6,563  $(1,658)  (20.2)%  11.5%  10.0%

The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source. 

  Three Months Ended September 30, 
  2016  2017 
  (Dollars in thousands) 
Book Sales $6,410   78.0% $5,633   85.8%
Estimated Sales Returns & Allowances  (1,645)  (20.0)  (1,595)  (24.3)
E-Book Sales  755   9.2   621   9.5 
Self-Publishing Fees  1,634   19.9   1,096   16.7 
Print Magazine Subscriptions  327   4.0   287   4.4 
Print Magazine Advertisements  272   3.3   183   2.8 
Digital Advertising  217   2.6   106   1.6 
Other Revenue  251   3.0   232   3.5 
Net Publishing Revenue $8,221   100.0% $6,563   100.0%

On a consolidated basis, book sales declined by $0.8 million due to a reduction in the number of print books sold by Regnery Publishing based on a lower number of release dates within the period. Book sales from Salem Author Services, our self-publishing operations of Xulon Press and Mill City Press, were consistent with the same period of the prior year. The decrease in sales from Regnery Publishing reflects a 17% reduction in sales volume that was partially offset by a 4% increase in the average price per unit sold. Within Salem Author Services, consolidated sales includes a $0.2 million increase in sales from Mill City Press offset by a $0.2 million decline in sales from Xulon Press™. These results include the impact of Hurricane Irma, which resulted in delays in production due to the loss of power in the Orlando area. We estimate the impact to be approximately $0.2 million of revenue for the three months ended September 30, 2017. There were no changes in rates charged as compared to the same period of the prior year. Sales of Regnery Publishing books are directly attributable to the composite mix of titles released and available in each period. Revenues can vary significantly based on the book release date and the number of titles that achieve bestseller lists, which can increase awareness and demand for a book.

36

The $0.1 million decrease in estimated sales returns and allowances resulted from lower sales of Regnery Publishing print books, a reduction in the historical average return rate for Regnery Political books, and a reduction to the reserve for backlist titles.

Regnery Publishing e-book sales decreased $0.1 million due to a 30% decrease in the average sales price per unit in addition to a 33% decrease in the number of books sold. E-book sales can also vary based on the composite mix of titles released and available in each period. Revenues vary significantly based on the book release date and the number of titles that achieve bestseller lists, which can increase awareness and demand for the book.

Self-publishing fees decreased overall by $0.5 million due to a decline of $0.6 million from a lower sales volume for Xulon Press™ that was offset by a $0.1 million increase in volume from Mill City Press, which was acquired on August 1, 2016. There were no changes in fees charged to our customers as compared to the same period of the prior year. We believe that our ability to cross-promote our self-publishing services to authors interested in Regnery Publishing provides us with ongoing growth potential.

Declines in print magazine subscription and print magazine advertising revenue are due to the continual decline within this business and our planned reduction in the number of print publications produced. We ceased publishing Preaching Magazine, YouthWorker Journal, FaithTalk Magazine and Homecoming® The Magazine as of the May 2017 publication due to continual declines in the number of subscribers. Lower demand and distribution levels resulted in corresponding declines in advertising revenues.

Digital adverting revenue decreased $0.1 million due to the closure of the Salem Publishing Homecoming website and transfer of the Preaching.com and Youthworker.com websites to our Salem Web Network division with the ceasing of publications of these print magazines. There were no changes in sales volume or rates.

Broadcast Operating Expenses

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Broadcast Operating Expenses $37,434  $37,040  $(394)  (1.1)%  52.5%  56.6%
Same Station Broadcast Operating Expenses $37,013  $36,938  $(75)  (0.2)%        

Broadcast operating expenses declined by $0.4 million including a $0.7 million reduction in employee related expenses including sales-based commissions and incentives consistent with lower revenues that was offset by a $0.3 million increase in bad debt expense.

On a same-station basis, broadcast operating expenses decreased by $0.1 million. The decrease in broadcast operating expenses on a same station basis reflects these items net of the impact of start-up costs associated with acquisitions of $0.1 million and $0.4 million associated with the Louisville market.

Digital Media Operating Expenses

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Digital Media Operating Expenses $9,172  $8,169  $(1,003)  (10.9)%  12.9%  12.5%

Digital media operating expense declined by $1.0 million due to a $0.3 million reduction in sales-based commissions and incentives consistent with lower revenues, a $0.2 million decline royalty fees, a $0.2 million reduction in travel and entertainment costs, a $0.1 million decrease in professional services, and a $0.1 million combined reduction in facility related expenses and advertising costs.

Publishing Operating Expenses

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Publishing Operating Expenses $8,020  $6,686  $(1,334)  (16.6)%  11.3%  10.2%

Publishing operating expenses declined by $1.3 million of which $0.6 million was due to lower payroll related expenses and $0.6 million related to a lower consolidated cost of goods sold. Cost of goods sold includes a $0.7 million decline for Regnery Publishing based on a reduction in the number of books sold and a $0.1 million decline for Salem Publishing, which reduced the number of print publications produced, offset by a $0.2 million increase from a higher sales volume for Salem Author Services. The gross profit margin for Regnery Publishing was 55% for the three months ended September 30, 2017 as compared to 49% for the same period of the prior year as declines in sales volume resulted in comparable savings in material costs. Regnery Publishing margins are impacted by the volume of e-book sales, which have higher margins due to the nature of delivery and lack of sales returns and allowances. The gross profit margin for our self-publishing entities was 20% for the three months ended September 30, 2017, as compared to 36% for the same period of the prior year due to higher material costs, including paper costs associated with sales of print-on-demand books.

37

Unallocated Corporate Expenses

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Unallocated Corporate Expenses $4,147  $4,233  $86   2.1%  5.8%  6.5%

Unallocated corporate expenses include shared services, such as accounting and finance, human resources, legal, tax and treasury, that are not directly attributable to any one of our operating segments. The increase of $0.1 million reflects the non-cash stock-based compensation charge associated with a restricted stock award and a $0.1 million increase in net payroll related costs associated with higher staffing levels and annual pay increases that were offset by a $0.1 million decline in legal fees.

Depreciation Expense

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Depreciation Expense $2,976  $3,082  $106   3.6%  4.2%  4.7%

Depreciation expense increased $0.1 million compared to the same period of the prior year. The increase reflects the impact of recent capital expenditures associated with computer software and office equipment that have shorter estimated useful lives than towers and broadcast assets. There were no changes in our depreciation methods or in the estimated useful lives of our asset groups.

Amortization Expense

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Amortization Expense $1,341  $1,135  $(206)  (15.4)%  1.9%  1.7%

Amortization expense decreased by $0.2 million compared to the same period of the prior year. Increases in amortization associated with acquisitions, including Cycle Prophet and Mill City Press in September 2016, were offset with a reductions due to intangible assets acquired with Eagle Publishing and WorshipHouseMedia.com that were fully amortized as of June 30, 2017. There were no changes in our amortization methods or the estimated useful lives of our intangible asset groups.

Change in the Estimated Fair Value of Contingent Earn-Out Consideration

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Change in the Estimated Fair Value of Contingent Earn-Out Consideration $(196) $(12) $184   (93.9)%  (0.3)%  %

Acquisitions may include contingent earn-out consideration as part of the purchase price under which we will make future payments to the seller upon the achievement of certain benchmarks. We review the probabilities of possible future payments to estimate the fair value of any contingent earn-out consideration on a quarterly basis over the earn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the acquired business increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent earn-out consideration liability will increase or decrease, up to the contracted limit, as applicable.

During the three month period ended September 30, 2017, we decreased the estimated fair value of our contingent earn-out liabilities by $12,000 compared to a net decrease of $196,000 during the same period of the prior year. These changes are based on actual results as compared to the estimates used in our probability analysis for each contingency. Refer to Note 5 of our Condensed Consolidated financial statements for a detailed analysis of the changes in our assumptions and the impact for each contingency.

Changes in the estimated fair value of the contingent earn-out consideration are reflected in our results of operations in the period in which they are identified. Changes in the estimated fair value of the contingent earn-out consideration may materially impact and cause volatility in our operating results.

Net (Gain) Loss on the Sale or Disposal of Assets

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Net (Gain) Loss on the Sale or Disposal of Assets $(457) $95  $552   (120.8)%  (0.6)%  0.1%

The net loss on the sale or disposal of assets of $0.1 million for the three month period ended September 30, 2017 includes $77,000 related to transmitter equipment in Dallas, Texas that is no longer in use and in addition to various other fixed asset disposals. We recorded a net loss of $2,000 for equipment damaged in our Tampa, Florida market as a result of hurricane Irma in September 2017.

The net gain on the sale or disposal of assets of $0.5 million for the three month period ended September 30, 2016 includes a $0.7 million gain from a land easement in our South Carolina market offset by $0.2 million in various fixed asset disposals.

38

Other Income (Expense)

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Interest Income $1  $1  $   %  %  %
Interest Expense  (3,726)  (4,802)  (1,076)  28.9%  (5.2)%  (7.3)%
Change in the Fair Value of Interest Rate Swap  856      (856)  (100.0)%  1.2%  %
Loss on Early Retirement of Long-Term Debt  (18)     18   (100.0)%  %  %
Net Miscellaneous Income and (Expenses)  7   (80)  (87)  (1,242.9)%  %  (0.1)%
                         

Interest income represents earnings on excess cash and interest due under promissory notes.

Interest expense includes interest due on outstanding debt balances, interest due on our swap agreement prior to termination, and non-cash accretion associated with deferred installments and contingent earn-out consideration associated with our acquisition activity. The increase of $1.1 million reflects the Notes and ABL outstanding as of the period ending September 30, 2017 with interest payable in December 2017, as compared to the Term Loan B and Revolver during the same period of the prior year.

The $0.9 million decline in the fair value of interest rate swap reflects the termination of our swap agreement on May 19, 2017, as comparted to the mark-to-market fair value adjustment during the same period of the prior year.

There was no loss on early retirement of long-term debt as compared to the same period of the prior year when a repayment was made on our then outstanding Term Loan B.

Net miscellaneous income and expenses includes royalty income and usage fees for real estate properties. During the three months ending September 30, 2017, we recorded a non-recurring loss of $78,000 on an investment.

Provision for Income Taxes

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Provision for Income Taxes $3,763  $170  $(3,593)  (95.5)%  5.3%  0.3%

Our provision for income taxes decreased $3.6 million to $0.2 million from $3.8 million for the same period of the prior year due to the $1.6 million out-of-period adjustment recognized at September 30, 2016 and the impact of our current period tax analysis that reflects pre-tax operating income of $0.1 million. The provision for income taxes as a percentage of income before income taxes, or the effective tax rate was 137.9% for the three months ended September 30, 2017 compared to 63.2% for the same period of the prior year. The effective tax rate for each period differs from the federal statutory income rate of 35.0% due to the effect of state income taxes, certain expenses that are not deductible for tax purposes, and changes in the valuation allowance from the utilization of certain state net operating loss carryforwards. The effective tax rate for the current period of 137.9% is based on the operating results and the impact of non-deductible expenses, changes in the valuation allowance and discrete tax items. Net income before income taxes for the three months ended September 30, 2017 was $0.1 million; the tax adjustments (excluding discrete tax items) amounted to $117,000; and discrete items including incentive stock options, non-qualified stock options, and restricted stock, amounted to $53,000.

Net Income (Loss)

  Three Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Net Income (Loss) $2,192  $(46) $(2,238)  (102.1)%  3.1%  (0.1)%

We recognized a net loss of $46,000 for the three month period ended September 30, 2017 compared to net income $2.2 million during the same period of the prior year. Net operating income decreased by $3.8 million due to a $5.8 million decline in net revenue that was offset by a $2.0 million decline in operating expenses. The impact of our operating results resulted in a $3.6 million decrease in our provision for income taxes that was offset by a $1.1 million increase in interest expense and the $0.8 million favorable impact of our interest rate swap on the prior year.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016

The following factors affected our results of operations and cash flows for the nine months ended September 30, 2017 as compared to the same period of the prior year:

Financing

·

On May 19, 2017, we closed on a private offering of Notes and concurrently entered into the ABL Facility. The net proceeds from the offering of the Notes, together with borrowings under the ABL Facility, were used to repay outstanding borrowings, including accrued and unpaid interest, on our previously existing senior credit facilities consisting of the Term Loan B Revolver, and to pay fees and expenses incurred in connection with the Notes offering and the ABL Facility.

39

·On February 28, 2017, we repaid $3.0 million in principal on the Term Loan B and paid interest due as of that date. We recorded a $6,200 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and $18,000 in unamortized debt issuance costs associated with the principal repayment.

·On January 30, 2017, we repaid $2.0 million in principal on the Term Loan B and paid interest due as of that date. We recorded a $4,500 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and $12,000 in unamortized debt issuance costs associated with the principal repayment.

Acquisitions

·On September 15, 2017, we closed on the acquisition of real property, including the land, towers and facilities, of radio station WSPZ-AM in Bethesda, Maryland for $1.5 million in cash.

·On August 31, 2017, we acquired the TeacherTube.com website and related assets for $1.1 million in cash.

·On August 31, 2017, we acquired the Intelligence Report newsletter and related assets valued at $2.5 million and we assumed deferred subscription liabilities of $2.9 million. We paid no cash to the seller upon closing.

·On July 24, 2017, we closed on the acquisition of the FM translator construction permit in Eaglemount, Washington, for $40,000 in cash. The FM translator will be relocated to the Portland, Oregon market for use by our KDZR-AM radio station.

·On July 6, 2017, we acquired the TradersCrux.com website and related assets for $0.3 million in cash. As part of the purchase agreement, we may pay up to an additional $0.1 million in contingent earn-out consideration within one year upon the achievement of income benchmarks. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of TradersCrux.com to achieve the income targets at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $18,750, which approximates the discounted present value due to the earn-out of less than one year.

·On June 28, 2017, we closed on the acquisition of an FM translator construction permit in Festus, Missouri for $40,000 in cash. The FM translator will be relocated to the St. Louis, Missouri market for use by our KXFN-FM radio station.

·On June 8, 2017, we acquired a Portuguese Bible mobile application for $85,000 in cash. We may pay up to an additional $20,000 in contingent earn-out consideration over the next twelve months based on the achievement of certain revenue benchmarks.

·On March 15, 2017, we acquired the website prayers-for-special-help.com for $0.2 million in cash.

·On March 14, 2017, we closed on the acquisition of an FM translator construction permit in Quartz Site, Arizona for $20,000 in cash. The FM translator will be relocated to the San Diego, California market for use by our KPRZ-AM radio station.

·On March 1, 2017, we closed on the acquisition of an FM translator construction permit in Roseburg, Oregon for $45,000 in cash. The FM translator will be relocated to the Portland, Oregon market for use by our KPDQ-AM radio station.

·On January 16, 2017, we closed on the acquisition of an FM translator in Astoria, Oregon for $33,000 in cash. The FM translator will be relocated to the Seattle, Washington market for use by our KGNW-AM radio station.

·On January 6, 2017, we closed on the acquisition of an FM translator construction permit in Mohave Valley, Arizona for $20,000 in cash. The FM translator will be relocated to the San Diego, California market for use by our KCBQ-AM radio.

Net Broadcast Revenue

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Net Broadcast Revenue $149,768  $145,479  $(4,289)  (2.9)%  73.6%  74.0%
Same Station Net Broadcast Revenue $148,523  $144,848  $(3,675)  (2.5)%        

40

The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source.

  Nine Months Ended September 30, 
  2016  2017 
  (Dollars in thousands) 
Block program time:                
National $36,881   24.6% $36,439   25.0%
Local  27,151   18.1   25,852   17.8 
   64,032   42.7   62,291   42.8 
Broadcast Advertising:                
National  9,724   6.5   9,961   6.8 
Local  47,792   31.9   43,365   29.8 
   57,516   38.4   53,326   36.6 
Station Digital  5,036   3.4   5,239   3.6 
Infomercials  1,957   1.3   1,821   1.3 
Network  12,930   8.6   13,198   9.1 
Other Revenue  8,297   5.6   9,604   6.6 
Net Broadcast Revenue $149,768   100.0% $145,479   100.0%

In late August 2017, our Houston broadcast market was impacted by Hurricane Harvey followed by Hurricane Irma in early September that impacted our Miami, Tampa and Orlando broadcast markets. We estimate total lost revenues from both storms to be approximately $0.1 million across all broadcast markets impacted, which includes orders cancelled in anticipation of the storms and losses for programs and advertisements that could not broadcast due to the loss of power.

The net decline in block programming revenue of $1.7 million includes a $1.3 million decline in programming on our Christian Teaching and Talk stations, a $0.5 million decline in programming on our Business stations and a $0.6 million decline programming previously generated from our Louisville market, which was offset by a $0.8 million increase programming on our News Talk stations. Declines, particularly from local programming, resulted from cancellations that we believe are due to increased competition from other broadcasters. Declines in national programming revenue reflect the non-renewal of a program that was featured on 19 of our Christian Teaching and Talk stations and declines in business programs as they pursue content that remains in compliance with securities rules and regulations. There were no changes in programming rates as compared to the same period of the prior year, however rates may be impacted in the future due to this increased competition for programming dollars.

Advertising revenue, net of agency commissions, decreased by $4.2 million of which $1.5 million was due to political advertising that was recognized during 2016 based on the elections cycle. The remaining $2.7 million decrease includes a $2.2 million decline in local advertising on our CCM stations, particularly in our Dallas market due to lower ratings and from higher competition from other broadcasters and a $0.6 million decrease in local advertising on our Christian Teaching and Talk stations. Higher competition from other broadcasters and agencies reduce the number of advertisements placed that in turns creates lower demand and lower rates, particularly for unsold spots. We have undertaken efforts to retool our music, image and promotions to capture a younger demographic that we believe will improve the ratings for our CCM stations in the Dallas market. We are beginning to see some improved ratings but it will take additional time to turn the improved ratings into improved revenue.

Digital revenue generated from our radio station and network websites increased $0.2 million, which reflects an increase in sales of licensed products through Salem Consumer Products. There were no changes in rates as compared to the same period of the prior year.

Declines in infomercial revenue reflect our effort to feature programming that is tailored to our audience and consistent with our company values. We continue to seek alternatives to infomercial programs that we believe are not of interest to our audience.

Network revenue increased by $0.3 million, including a $0.6 million increase from a revenue share agreement and a $0.2 million increase in advertising sales with our national talk shows that we believe is attributable to our increased exposure and media presence during the 2016 presidential debates that were offset by a $0.5 million decline in political advertising revenue based on the 2016 election cycle.

Other revenue increased $1.3 million due to a $0.7 million increase in listener purchase program revenue from a higher audience demand with respect to participation in sales incentives and discount programs, a $0.5 million increase in event revenue due to higher attendance and ticket sales for local events such as concerts and speaking events, and a $0.1 million increase in broadcast tower rental fees.

On a Same Station basis, net broadcast revenue decreased $3.7 million, which reflects these items net of the impact of stations that were acquired or are operating under different formats.

Net Digital Media Revenue

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Net Digital Media Revenue $34,056  $31,998  $(2,058)  (6.0)%  16.7%  16.3%

41

The following table shows the dollar amount and percentage of net digital media revenue for each digital media revenue source.

  Nine Months Ended September 30, 
  2016  2017 
  (Dollars in thousands) 
Digital Advertising, Net $19,727   57.9% $18,391   57.5%
Digital Streaming  3,360   9.9   3,371   10.5 
Digital Subscriptions  4,550   13.3   4,766   14.9 
Digital Downloads  4,118   12.1   3,644   11.4 
e-commerce  1,799   5.3   1,558   4.9 
Other Revenue  502   1.5   268   0.8 
Net Digital Media Revenue $34,056   100.0% $31,998   100.0%

Digital advertising revenue, net of agency commissions, declined by $1.3 million on a consolidated basis. This decline was attributable to lower page views on our conservative opinion websites, primarily Townhall Media, as compared to the same period of the prior year due to the timing of the 2016 election. Page views for conservative opinion websites are typically higher during election years due to higher level of interest in content, both desktop and mobile. Changes in the Facebook newsfeed algorithm have negatively impacted the volume of our desktop page views. Page views from Facebook declined 25.4% as compared to the same period of the prior year. To offset declines in page views generated from Facebook, we have continued to develop and promote the use of mobile applications, particularly for our Christian mobile applications. As mobile page views carry fewer advertisements and typically have shorter site visits, our growth in mobile application generated traffic is larger than our growth in revenue.

Digital streaming revenue was consistent with the prior year with no changes in sales volume or rates.

Digital subscription revenue increased by $0.2 million due to higher distribution levels from acquisitions including Retirement Watch and Turner Investment Products in 2016 and Intelligence Reporter in August of 2017, that were partially offset by a decline in the number of subscribers to Skousen’s Five Star Trader and Fast Money Alert newsletters. There were no changes in subscriber rates as compared to the same period of the prior year.

Digital download revenue declined by $0.5 million due to a lower volume of downloads generated as compared to the same period of the prior year. Of this decline, $0.3 million was attributable to WorshipHouseMedia.com and $0.2 million was attributable to SermonSpice.com. Declines in downloads of third-party produced videos are common throughout the industry as users become more adept at creating their own content. We believe that our content is unique and valuable and that the number of downloads of our content will not be impacted as severely by user created content. In addition, there was a lower volume of downloads as compared to the same period of the prior year due in part to content in 2016 that covered the 15th anniversary of the September 11th terrorist attacks. There were no changes in rates charged to our customers for digital downloads as compared to the same period of the prior year.

E-commerce revenue declined by $0.2 million due to discounts offered on products sold through our wellness website. The average price per unit declined 15% with a 2% decline in the number of products sold. The discounts result from increased competition in the online market place that is driving prices down.

Other revenue includes event revenue, revenue sharing arrangements for purchases made from applications, and mail list rentals. The decrease of $0.2 million reflects the impact of a Townhall and Red State Gathering event held during third quarter of 2016 leading up to the presidential election.

Net Publishing Revenue

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Net Publishing Revenue $19,802  $19,048  $(754)  (3.8)%  9.7%  9.7%

The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source.

  Nine Months Ended September 30, 
  2016  2017 
  (Dollars in thousands) 
Book Sales $14,242   71.9% $13,594   71.4%
Estimated Sales Returns & Allowances  (4,082)  (20.6)  (2,969)  (15.6)
E-Book Sales  1,712   8.7   1,463   7.7 
Self-Publishing Fees  4,680   23.6   3,972   20.8 
Print Magazine Subscriptions  1,087   5.5   892   4.7 
Print Magazine Advertisements  726   3.7   605   3.2 
Digital Advertising  583   2.9   545   2.8 
Other Revenue  854   4.3   946   5.0 
Net Publishing Revenue $19,802   100.0% $19,048   100.0%

42

On a consolidated basis, book sales declined by $0.6 million due to a $1.9 million decline in book sales from Regnery Publishing that were offset by a $1.2 million increase in book sales from Salem Author Services, our self-publishing operations of Xulon Press and Mill City Press. Regnery Publishing book sales declined 16% in volume with a 1% reduction in the average price per unit sold. The $1.2 million increase in book sales generated from Salem Author Services included a $1.1 million increase from Mill City Press, which we acquired on August 1, 2016, and a $0.1 million increase in book sales from Xulon Press™. These results include the impact of Hurricane Irma, which resulted in delays in production due to the loss of power in the Orlando area. We estimate the impact to be approximately $0.2 million of revenue for the three months ended September 30, 2017. There were no changes in rates charged as compared to the same period of the prior year. Sales of books through Regnery Publishing are directly attributable to the number of titles released each period and the composite mix of titles. Revenues can vary significantly based on the book release date and the number of titles that achieve bestseller lists, which can increase awareness and demand for the book.

The $1.1 million decrease in estimated sales returns and allowances resulted from lower sales of Regnery Publishing print books, a reduction in the historical average return rate for Regnery Political books and a reduction to the reserve associated with backlist titles.

Regnery Publishing e-book sales decreased $0.2 million due to a decrease in sales volume of 6% and a decrease of 18% in the average price per unit sold. E-book sales can also vary based on the composite mix of titles released and available in each period. Revenues can vary significantly based on the book release date and the number of titles that achieve bestseller lists, which can increase awareness and demand for the book.

Self-publishing fees decreased $0.7 million which includes a $1.3 million decline in sales volume from Xulon Press™ that was offset by a $0.6 million increase in sales volume from Mill City Press, which was acquired in August 2016. There were no changes in self-publishing fees charged to authors as compared to the same period of the prior year. We believe that our ability to cross-promote our self-publishing services to authors interested in Regnery Publishing provides us with ongoing growth potential.

Declines in print magazine subscription and print magazine advertising revenue are due to the continual decline within this business and our planned reduction in the number of print publications produced. We ceased publishing Preaching Magazine, YouthWorker Journal, FaithTalk Magazine and Homecoming® The Magazine as of the May 2017 publication due to continual declines in the number of subscribers. Lower demand and distribution levels resulted in corresponding declines in advertising revenues.

Digital adverting revenue decreased $38,000 due to the closure of the Salem Publishing Homecoming website and transfer of the Preaching.com and Youthworker.com websites to our Salem Web Network division with the ceasing of publications of these print magazines. There were no changes in sales volume or rates.

Other revenue consists of miscellaneous sources such as change fees, trailers and website revenues. The increase of $0.1 million was generated by Mill City Press that was acquired on August 1, 2016.

Broadcast Operating Expenses

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Broadcast Operating Expenses $109,455  $108,807  $(648)  (0.6)%  53.8%  55.4%
Same Station Broadcast Operating Expenses $108,144  $107,964  $(180)  (0.2)%        

Broadcast operating expenses declined by $0.6 million including a $0.9 million reduction in sales-based commissions and incentives consistent with lower revenues, a $0.7 million favorable litigation matter, and a $0.3 million decline in music license fees, that were offset by a $0.7 million increase in bad debt expense, a $0.4 million increase in payroll related costs associated with higher personnel levels and annual rate increases, and a $0.2 million increase in non-cash stock-based compensation expense.

On a same-station basis, broadcast operating expenses decreased by $0.2 million. The decrease in broadcast operating expenses on a same station basis reflects these items net of the impact of start-up costs associated with acquisitions and format changes and the impact of the Louisville market LMA.

Digital Media Operating Expenses

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Digital Media Operating Expenses $26,815  $25,241  $(1,574)  (5.9)%  13.2%  12.8%

Digital media operating expenses declined by $1.6 million due to a $0.6 million reduction in sales-based commissions and incentives, a $0.4 million reduction in advertising and promotion costs, a $0.4 million reduction in royalties and a $0.3 million decrease in travel and entertainment costs that were offset by a $0.1 million increase in bad debt expenses.

Publishing Operating Expenses

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Publishing Operating Expenses $19,951  $18,705  $(1,246)  (6.2)%  9.8%  9.5%

43

Publishing operating expenses declined by $1.2 million of which $0.6 million was due to a reduction in the consolidated cost of goods sold. Cost of goods sold reflects a $1.4 million decline for Regnery Publishing based on a reduction in the number of books sold and a $0.2 million decline for Salem Publishing, which reduced the number of print publications produced, offset by a $1.0 million increase in the cost of goods sold for Salem Author Services. The gross profit margin for Regnery Publishing was 52% for the nine months ended September 30, 2017 as compared to 48% for the same period of the prior year. Regnery Publishing margins are impacted by the volume of e-book sales, which have higher margins due to the nature of delivery and lack of sales returns and allowances. The gross profit margin for our self-publishing entities was 27% for the nine months ended September 30, 2017 as compared to 31% for the same period of the prior year due to higher paper costs. In addition, there was a $0.7 million decline in payroll related expenses and a $0.2 million decline in travel and entertainment expenses that were offset by a $0.3 million increase in advertising and promotion expenses.

Unallocated Corporate Expenses

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Unallocated Corporate Expenses $11,928  $13,183  $1,255   10.5%  5.9%  6.7%

Unallocated corporate expenses include shared services, such as accounting and finance, human resources, legal, tax and treasury, that are not directly attributable to any one of our operating segments. The net increase of $1.3 million includes a $0.9 million non-cash stock-based compensation charge associated with restricted stock awards and a $0.5 million increase in net payroll related costs due to higher staffing levels and annual rate increases that were offset by a $0.2 million decrease professional fees.

Impairment of Long-Lived Assets

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Impairment of Long-Lived Assets $700  $  $(700)  (100.0)%  0.3%  %

Based on changes in management’s planned usage, we classified land in Covina, California as held for sale as of June 2012. At that time we evaluated the land for impairment in accordance with guidance for impairment of long-lived assets held for sale. We determined that the carrying value of the land exceeded the estimated fair value less costs to sell and recorded an impairment charge of $5.6 million associated with the land based on our estimated sale price at that time. In December 2012, after several purchase offers for the land were terminated, we obtained a third-party valuation for the land. Based on the fair value determined by the third-party, we recorded an additional impairment charge of $1.2 million associated with the land. While we continued to market the land for sale and had no intention to use the land in our operations, we had not received successful offers. Based on the amount of time that the land had been held for sale, we obtained a third-party valuation for the land as of June 2016. Based on this fair value appraisal, we recorded an additional $0.7 million impairment charge associated with the land during the three months ended June 30, 2016. In August 2017, we received an escrow deposit under an agreement to sell the land in Covina, California for $1.0 million dollars. The land is recorded in assets held for sale and has not been used in operations. The sale is subject to the buyer’s ability complete due diligence on their expected use of the land and is currently expected to close in the latter half of 2020.

Impairment of Indefinite-Lived Long-Term Assets Other Than Goodwill

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Impairment of Indefinite-Lived Long-Term Assets Other Than Goodwill $  $19  $19   100.0%  %  %

We reviewed magazine mastheads for impairment at June 30, 2017 based on management’s plan to cease publishing Preaching Magazine, YouthWorker Journal, FaithTalk Magazine and Homecoming® The Magazine upon issuance of the May 2017 issues. We have received purchase offers from third parties interested in acquiring the rights to continue publishing Preaching Magazine, but we have not closed on or agreed to final terms. Because of the likelihood that these print magazines would be sold or otherwise disposed of before the end of their previously estimated life, we performed impairment tests as of March 31, 2017. Due to reductions in forecasted operating cash flows and indications of interest from potential buyers, we then recorded an impairment charge of $19,000 associated with mastheads.

Depreciation Expense

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Depreciation Expense $8,950  $9,171  $221   2.5%  4.4%  4.7%

Depreciation expense increased $0.2 million compared to the same period of the prior year. The increase reflects the impact of recent capital expenditures associated with computer software and office equipment that have shorter estimated useful lives than towers and broadcast assets. There were no changes in our depreciation methods or in the estimated useful lives of our asset groups.

44

Amortization Expense

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Amortization Expense $3,673  $3,420  $(253)  (6.9)%  1.8%  1.7%

The decline in amortization expense reflects the impact of the intangible assets acquired with Eagle Publishing and WorshipHouseMedia.com that were fully amortized as during 2017, compared to generating amortization expense of $0.9 million during the prior year that were offset with the $0.6 million amortization of intangible assets acquired related to 2016 acquisitions of Cycle Prophet in September 2016 and Mill City Press in September 2016. There were no changes in our amortization methods or in the estimated useful lives of our intangible asset groups.

Change in the Estimated Fair Value of Contingent Earn-Out Consideration

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Change in the Estimated Fair Value of Contingent Earn-Out Consideration $(458) $(54) $404   (88.2)%  (0.2)%  %

Our acquisitions may include contingent earn-out consideration as part of the purchase price under which we will make future payments to the seller upon the achievement of certain benchmarks. We review the probabilities of possible future payments to estimate the fair value of any contingent earn-out consideration on a quarterly basis over the earn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the acquired business increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent earn-out consideration liability will increase or decrease, up to the contracted limit, as applicable.

During the nine month period ended September 30, 2017, we decreased the estimated fair value of our contingent earn-out liabilities by $54,000 compared to a net decrease of $458,000 during the same period of the prior year. These changes are based on actual results as compared to the estimates used in our probability analysis for each contingency. Refer to Note 5 of our Condensed Consolidated financial statements for a detailed analysis of the changes in our assumptions and the impact for each contingency.

Changes in the estimated fair value of the contingent earn-out consideration are reflected in our results of operations in the period in which they are identified. Changes in the estimated fair value of the contingent earn-out consideration may materially impact and cause volatility in our operating results.

Net Gain on the Sale or Disposal of Assets

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Net Gain on the Sale or Disposal of assets $(2,008) $(410) $1,598   (79.6)%  (1.0)%  (0.2)%

The net gain on the sale or disposal of assets of $0.4 million for the nine month period ended September 30, 2017 includes a $0.5 million gain from the sale of a former transmitter site in our Dallas, Texas market and a $16,000 net gain from disposals within our print magazine segment that was offset a $77,000 loss related to transmitter equipment in Dallas, Texas that is no longer in use in addition to various other fixed asset disposals. We recorded a net loss of $2,000 for equipment damaged in our Tampa, Florida market as a result of hurricane Irma in September 2017.

The net gain on the sale or disposal of assets of $2.0 million for the nine month period ended September 30, 2016 includes a $1.9 million gain on the sale of our Miami tower site and $0.7 million gain from a land easement in our South Carolina market offset by a $0.4 million charge associated with the relocation of our offices in the Washington D.C. market and various losses from fixed asset disposals.

Other Income (Expense)

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Interest Income $4  $3  $(1)  (25.0)%  %  %
Interest Expense  (11,252)  (12,156)  (904)  8.0%  (5.5)%  (6.2)%
Change in the Fair Value of Interest Rate Swap  (1,325)  357   1,682   (126.9)%  (0.7)%  0.2%
Loss on Early Retirement of Long-Term Debt  (32)  (2,775)  (2,743)  8,571.9%  %  (1.4)%
Net Miscellaneous Income and (Expenses)  7   (80)  (87)  (1,242.9)%  %  %
                         

Interest income represents earnings on excess cash and interest due under promissory notes.

45

Interest expense includes interest due on outstanding debt balances, interest due on our swap agreement prior to termination, and non-cash accretion associated with deferred installments and contingent earn-out consideration associated with our acquisition activity. The increase of $0.9 million reflects the Notes outstanding as of the period ending September 30, 2017 with interest payable in December 2017, as compared to the Term Loan B during the same period of the prior year.

The $1.7 million favorable impact of change in the fair value of interest rate swap reflects the mark-to-market impact prior to the termination of our swap agreement on May 19, 2017. There was no loss on early retirement of long-term debt as compared to the same period of the prior year when a repayment was made on our then outstanding Term Loan B.

Loss on early retirement of long-term debt reflects $0.6 million of the unamortized discount and $1.5 million of unamortized debt issuance costs associated with the payoff and termination of the Term Loan B on May 19, 2017, $0.1 million of unamortized debt issuance costs associated with the Revolver terminated on May 19, 2017, and a $0.6 million loss to exit and terminate our swap agreement on May 19, 2017, as well as $41,000 of the unamortized discount and unamortized debt issuance costs associated with prior principal redemptions of the Term Loan B.

Net miscellaneous income and expenses includes royalty income and usage fees for real estate properties. During the nine months ending September 30, 2017, we recorded a non-recurring loss of $78,000 on an investment.

Provision for Income Taxes

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Provision for Income Taxes $6,121  $1,506  $(4,615)  (75.4)%  3.0%  0.08%

Our provision for income taxes decreased $4.6 million to $1.5 million for the nine months ended September 30, 2017 compared to $6.1 million for the same period of the prior year due to the $1.6 million out-of-period adjustment recognized at September 30, 2016 and the impact of our current period tax analysis that reflects pre-tax operating income of $0.1 million with no changes in our annualized tax adjustments. The provision for income taxes as a percentage of income before income taxes, or the effective tax rate was 39.7% for the nine months ended September 30, 2017 compared to 50.9% for the same period of the prior year. The effective tax rate for each period differs from the federal statutory income rate of 35.0% due to the effect of state income taxes, certain expenses that are not deductible for tax purposes, and changes in the valuation allowance from the utilization of certain state net operating loss carryforwards.

Net Income (Loss)

  Nine Months Ended September 30, 
  2016  2017  Change $  Change %  2016  2017 
  (Dollars in thousands)     % of Total Net Revenue 
Net Income (Loss) $5,901  $2,286  $(3,615)  (61.3)%  2.9%  1.2%

We recognized net income of $2.3 million for the nine month period ended September 30, 2017 compared to $5.9 million in the same period of the prior year. The $3.6 million decline includes a $6.2 million decline in net operating income, a $2.7 million increase in loss on the early retirement of long-term debt, and a $0.9 million increase in interest expense offset by a $4.6 million decrease in our provision for income taxes and a $1.7 million favorable impact of the change in fair value of our interest rate swap.

NON-GAAP FINANCIAL MEASURES

Management uses certain

non-GAAP
financial measures defined below in communications with investors, analysts, rating agencies, banks and others to assist such parties in understanding the impact of various items on our financial statements. We use these
non-GAAP
financial measures to evaluate financial results, develop budgets, manage expenditures and as a measure of performance under compensation programs.

Our presentation of these
non-GAAP
financial measures should not be considered as a substitute for or superior to the most directly comparable financial measures as reported in accordance with GAAP.

38

Item 10(e)10€ of Regulation
S-K
defines and prescribes the conditions under which certain
non-GAAP
financial information may be presented in this report. We closely monitor EBITDA, Adjusted EBITDA, Station Operating Income (“SOI”), Same Station net broadcast revenue, Same Station broadcast operating expenses, Same Station Operating Income, Digital Media Operating Income, and Publishing Operating Income (Loss), all of which are
non-GAAP
financial measures. We believe that these
non-GAAP
financial measures provide useful information about our core operating results, and thus, are appropriate to enhance the overall understanding of our financial performance. These
non-GAAP
financial measures are intended to provide management and investors a more complete understanding of our underlying operational results, trends and performance.

46

The performance of a radio broadcasting company is customarily measured by the ability of its stations to generate SOI. We define SOI as net broadcast revenue less broadcast operating expenses. Accordingly, changes in net broadcast revenue and broadcast operating expenses, as explained above, have a direct impact on changes in SOI. SOI is not a measure of performance calculated in accordance with GAAP. SOI should be viewed as a supplement to and not a substitute for our results of operations presented on the basis of GAAP. We believe that SOI is a useful

non-GAAP
financial measure to investors when considered in conjunction with operating income (the most directly comparable GAAP financial measures to SOI), because it is generally recognized by the radio broadcasting industry as a tool in measuring performance and in applying valuation methodologies for companies in the media, entertainment and communications industries. SOI is commonly used by investors and analysts who report on the industry to provide comparisons between broadcasting groups. We use SOI as one of the key measures of operating efficiency and profitability, including our internal reviews associated with impairment analysis of our indefinite-lived intangible assets. SOI does not purport to represent cash provided by operating activities. Our statement of cash flows presents our cash activity in accordance with GAAP and our income statement presents our financial performance prepared in accordance with GAAP. Our definition of SOI is not necessarily comparable to similarly titled measures reported by other companies.

We define Same Station net broadcast revenue as net broadcast revenue from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. We define Same Station broadcast operating expenses as broadcast operating expenses from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. Same Station Operating Income includes those stations we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. Same Station Operating Income for a full calendar year is calculated as the sum of the Same Station-results for each of the four quarters of that year. We use Same Station Operating Income, a
non-GAAP
financial measure, both in presenting our results to stockholders and the investment community, and in our internal evaluations and management of the business. We believe that Same Station Operating Income provides a meaningful comparison of period over period performance of our core broadcast operations as this measure excludes the impact of new stations, the impact of stations we no longer own or operate, and the impact of stations operating under a new programming format. Our presentation of Same Station Operating Income is not intended to be considered in isolation or as a substitute for the most directly comparable financial measures reported in accordance with GAAP. Our definition of Same Station net broadcast revenue, Same Station broadcast operating expenses and Same Station Operating Income is not necessarily comparable to similarly titled measures reported by other companies.

We apply a similar methodology to our digital media and publishing group. Digital Media Operating Income is defined as net digital media revenue less digital media operating expenses. Publishing Operating Income (Loss) is defined as net publishing revenue less publishing operating expenses. Digital Media Operating Income and Publishing Operating Income (Loss) are not measures of performance in accordance with GAAP. Our presentations of these
non-GAAP
financial performance measures are not to be considered a substitute for or superior to our operating results reported in accordance with GAAP. We believe that Digital Media Operating Income and Publishing Operating Income (Loss) are useful
non-GAAP
financial measures to investors, when considered in conjunction with operating income (the most directly comparable GAAP financial measure), because they are comparable to those used to measure performance of our broadcasting entities. We use this analysis as one of the key measures of operating efficiency, profitability and in our internal review. This measurement does not purport to represent cash provided by operating activities. Our statement of cash flows presents our cash activity in accordance with GAAP and our income statement presents our financial performance in accordance with GAAP. Our definitions of Digital Media Operating Income and Publishing Operating Income (Loss) are not necessarily comparable to similarly titled measures reported by other companies.

We define EBITDA as net income before interest, taxes, depreciation, and amortization. We define Adjusted EBITDA as EBITDA before net gains or losses on the sale or disposaldisposition of assets, before changes in the estimated fair value of contingent
earn-out
consideration, before gains on bargain purchases, before the change in fair value of interest rate swaps, before impairments, before net miscellaneous income and expenses, before (gain) loss on early retirement of long-term debt, before (gain) loss from discontinued operations and before
non-cash
compensation expense. EBITDA and Adjusted EBITDA are commonly used by the broadcast and media industry as important measures of performance and are used by investors and analysts who report on the industry to provide meaningful comparisons between broadcasters. EBITDA and Adjusted EBITDA are not measures of liquidity or of performance in accordance with GAAP and should be viewed as a supplement to and not a substitute for or superior to our results of operations and financial condition presented in accordance with GAAP. Our definitions of EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures reported by other companies.

39

For all
non-GAAP
financial measures, investors should consider the limitations associated with these metrics, including the potential lack of comparability of these measures from one company to another.

We use
non-GAAP
financial measures to evaluate financial performance, develop budgets, manage expenditures, and determine employee compensation. Our presentation of this additional information is not to be considered as a substitute for or superior to the most directly comparable measures reported in accordance with GAAP.

47

Reconciliation of
Non-GAAP

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

Financial Measures:

In the tables below, we present a reconciliation of net broadcast revenue, the most comparable GAAP measure, to Same Station net broadcast revenue, and broadcast operating expenses, the most comparable GAAP measure to Same Station broadcast operating expense. We show our calculation of Station Operating Income and Same Station Operating Income, which is reconciled from net income, the most comparable GAAP measure andin the table following our calculation of Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these
non-GAAP
measures are not to be considered a substitute for or superior to the most directly comparable measures reported in accordance with GAAP.

  Three Months Ended September 30,  Nine Months Ended September 30, 
  2016  2017  2016  2017 
  (Dollars in thousands) 
Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue           
Net broadcast revenue $51,052  $48,424  $149,768  $145,479 
Net broadcast revenue – acquisitions     (58)     (398)
Net broadcast revenue – dispositions  (382)  (45)  (1,187)  (131)
Net broadcast revenue – format change        (58)  (102)
Same Station net broadcast revenue $50,670  $48,321  $148,523  $144,848 
                 
Reconciliation of Broadcast Operating Expenses To Same Station Broadcast Operating Expenses        
Broadcast operating expenses $37,434  $37,040  $109,455  $108,807 
Broadcast operating expenses – acquisitions  (9)  (102)  (9)  (635)
Broadcast operating expenses – dispositions  (412)     (1,214)  (102)
Broadcast operating expenses – format change        (88)  (106)
Same Station broadcast operating expenses $37,013  $36,938  $108,144  $107,964 
                 
Reconciliation of Station Operating Income to Same Station Operating Income           
Station Operating Income $13,618  $11,384  $40,313  $36,672 
Station operating (income) loss –acquisitions  9   44   9   237 
Station operating (income) loss – dispositions  30   (45)  27   (29)
Station operating (income) loss – format change        30   4 
Same Station – Station Operating Income $13,657  $11,383  $40,379  $36,884 

   
Three Months Ended

September 30,
   
Nine Months Ended

September 30,
 
   
2020
   
2021
   
2020
   
2021
 
                 
   
(Dollars in thousands)
 
Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue
 
Net broadcast revenue
  $45,391   
$
49,591
 
  $130,041   
$
140,422
 
Net broadcast revenue – acquisitions
   —     
 
(264
   —     
 
(343
Net broadcast revenue – dispositions
   (192  
 
2
 
   (635  
 
(36
Net broadcast revenue – format change
   (104  
 
(216
   (384  
 
(561
  
 
 
   
 
 
   
 
 
   
 
 
 
Same Station net broadcast revenue
  $45,095   
$
49,113
 
  $129,022   
$
139,482
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Reconciliation of Broadcast Operating Expenses To Same Station Broadcast Operating Expenses
 
Broadcast operating expenses
  $34,283   
$
37,463
 
  $104,704   
$
106,968
 
Broadcast operating expenses – acquisitions
   —     
 
(168
   —     
 
(206
Broadcast operating expenses – dispositions
   (344  
 
(14
   (1,225  
 
(199
Broadcast operating expenses – format change
   (252  
 
(209
   (771  
 
(593
  
 
 
   
 
 
   
 
 
   
 
 
 
Same Station broadcast operating expenses
  $33,687   
$
37,072
 
  $102,708   
$
105,970
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Reconciliation of Operating Income to Same Station Operating Income
 
Station Operating Income
  $11,108   
$
12,128
 
  $25,337   
$
33,454
 
Station operating (income) loss –acquisitions
   —     
 
(96
   —     
 
(137
Station operating loss – dispositions
   152   
 
16
 
   590   
 
163
 
Station operating (income) loss – format change
   148   
 
(7
   387   
 
32
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Same Station – Station Operating Income
  $11,408   
$
12,041
 
  $26,314   
$
33,512
 
  
 
 
   
 
 
   
 
 
   
 
 
 
In the table below, we present our calculations of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these
non-GAAP
performance indicators are not to be considered a substitute for or superior to the directly comparable measures reported in accordance with GAAP.

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2016  2017  2016  2017 
  (Dollars in thousands) 
Calculation of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)     
Net broadcast revenue $51,052  $48,424  $149,768  $145,479 
Less broadcast operating expenses  (37,434)  (37,040)  (109,455)  (108,807)
Station Operating Income $13,618  $11,384  $40,313  $36,672 
                 
Net digital media revenue $11,999  $10,446  $34,056  $31,998 
Less digital media operating expenses  (9,172)  (8,169)  (26,815)  (25,241)
Digital Media Operating Income $2,827  $2,277  $7,241  $6,757 
                 
Net publishing revenue $8,221  $6,563  $19,802  $19,048 
Less publishing operating expenses  (8,020)  (6,686)  (19,951)  (18,705)
Publishing Operating Income (Loss) $201  $(123) $(149) $343 

48

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2020
   
2021
   
2020
   
2021
 
                 
   
(Dollars in thousands)
 
Calculation of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
 
    
Net broadcast revenue
  $45,391   
$
49,591
 
  $130,041   
$
140,422
 
Less broadcast operating expenses
   (34,283  
 
(37,463
   (104,704  
 
(106,968
  
 
 
   
 
 
   
 
 
   
 
 
 
Station Operating Income
  $11,108   
$
12,128
 
  $25,337   
$
33,454
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Net digital media revenue
  $9,808   
$
10,645
 
  $28,355   
$
30,603
 
Less digital media operating expenses
   (7,144  
 
(8,269
   (23,123  
 
(25,280
  
 
 
   
 
 
   
 
 
   
 
 
 
Digital Media Operating Income
  $2,664   
$
2,376
 
  $5,232   
$
5,323
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Net publishing revenue
  $5,442   
$
5,747
 
  $13,366   
$
18,093
 
Less publishing operating expenses
   (5,814  
 
(5,213
   (16,443  
 
(16,844
  
 
 
   
 
 
   
 
 
   
 
 
 
Publishing Operating Income (Loss)
  $(372  
$
534
 
  $(3,077  
$
1,249
 
  
 
 
   
 
 
   
 
 
   
 
 
 
40

In the table below, we present a reconciliation of net income (loss), the most directly comparable GAAP measure to Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these
non-GAAP
performance indicators are not to be considered a substitute for or superior to the most directly comparable measures reported in accordance with GAAP.

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2016  2017  2016  2017 
  (Dollars in thousands) 
Reconciliation of Net Income (Loss) to Operating Income and Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss) 
Net income (Loss) $2,192  $(46) $5,901  $2,286 
Plus provision for income taxes  3,763   170   6,121   1,506 
Plus loss on early retirement of long-term debt  18      32   2,775 
Plus change in fair value of interest rate swap  (856)     1,325   (357)
Plus interest expense, net of capitalized interest  3,726   4,802   11,252   12,156 
Less interest income  (1)  (1)  (4)  (3)
Less net miscellaneous (income) and expenses  (7)  80   (7)  80 
Net operating income $8,835  $5,005  $24,620  $18,443 
Less net (gain) loss on the sale or disposal of assets  (457)  95   (2,008)  (410)
Less change in the estimated fair value of contingent earn-out consideration  (196)  (12)  (458)  (54)
Plus impairment of long-lived assets        700    
Plus impairment of indefinite-lived long-term assets other than goodwill           19 
Plus depreciation and amortization  4,317   4,217   12,623   12,591 
Plus unallocated corporate expenses  4,147   4,233   11,928   13,183 
Combined Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss) $16,646  $13,538  $47,405  $43,772 
                 
Station Operating Income $13,618  $11,384  $40,313  $36,672 
Digital Media Operating Income  2,827   2,277   7,241   6,757 
Publishing Operating Income (Loss)  201   (123)  (149)  343 
  $16,646  $13,538  $47,405  $43,772 

                                                            
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2020
   
2021
   
2020
   
2021
 
                 
   
(Dollars in thousands)
 
Reconciliation of Net Income (Loss) to Operating Income and Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
 
Net income (loss)
  $329   
$
22,094
 
  $(57,390  
$
24,674
 
Plus provision for income taxes
   401    
837
    31,180    
479
 
Plus net miscellaneous income and (expenses)
   (1   
(2
)
 
   45    
(87
)
 
Plus gain on the forgiveness of PPP loans
   —      
(11,212
)
 
   —      
(11,212
)
 
Plus (gain) loss on early retirement of long-term debt
   —      
56
    (49   
56
 
Plus interest expense, net of capitalized interest
   4,024    
4,026
    12,069    
11,887
 
Less interest income
   (1   
  
    (1   
(1
)
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Net operating income (loss)
  $4,752   
$
15,799
 
  $(14,146  
$
25,796
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Plus net (gain) loss on the disposition of assets
   1,381    
(10,607
)
 
   1,494   
 
(10,552
Plus change in the estimated fair value of contingent
earn-out
consideration
   (10  
 
—  
 
   (12  
 
—  
 
Plus debt modification costs
   —     
 
2,347
 
   —     
 
2,347
 
Plus impairment of indefinite-lived long-term assets other than goodwill
   —     
 
—  
 
   17,254   
 
—  
 
Plus impairment of goodwill
   —     
 
—  
 
   307   
 
—  
 
Plus depreciation and amortization
   3,428   
 
3,215
 
   10,686   
 
9,671
 
Plus unallocated corporate expenses
   3,849   
 
4,284
 
   11,909   
 
12,764
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Combined Station Operating Income, Digital Media Operating Income and Publishing Operating Loss
  $13,400   
$
15,038
 
  $27,492   
$
40,026
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Station Operating Income
  $11,108   
$
12,128
 
  $25,337   
$
33,454
 
Digital Media Operating Income
   2,664   
 
2,376
 
   5,232   
 
5,323
 
Publishing Operating Income (Loss)
   (372  
 
534
 
   (3,077  
 
1,249
 
  
 
 
   
 
 
   
 
 
   
 
 
 
  $13,400   
$
15,038
 
  $27,492   
$
40,026
 
  
 
 
   
 
 
   
 
 
   
 
 
 
In the table below, we present a reconciliation of Adjusted EBITDA to EBITDA to Net Income (Loss), the most directly comparable GAAP measure. EBITDA and Adjusted EBITDA are
non-GAAP
financial performance measures that are not to be considered a substitute for or superior to the most directly comparable measures reported in accordance with GAAP.

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2016  2017  2016  2017 
  (Dollars in thousands) 
Reconciliation of Adjusted EBITDA to EBITDA to Net Income (Loss)          
Net income (loss) $2,192  $(46) $5,901  $2,286 
Plus interest expense, net of capitalized interest  3,726   4,802   11,252   12,156 
Plus provision for income taxes  3,763   170   6,121   1,506 
Plus depreciation and amortization  4,317   4,217   12,623   12,591 
Less interest income  (1)  (1)  (4)  (3)
EBITDA $13,997  $9,142  $35,893  $28,536 
Less net (gain) loss on the sale or disposal of assets  (457)  95   (2,008)  (410)
Less change in the estimated fair value of contingent earn-out consideration  (196)  (12)  (458)  (54)
Plus impairment of long-lived assets        700    
Plus impairment of indefinite-lived long-term assets other than goodwill           19 
Plus changes the fair value of interest rate swap  (856)     1,325   (357)
Plus net miscellaneous (income) and expenses  (7)  80   (7)  80 
Plus loss on early retirement of long-term debt  18      32   2,775 
Plus non-cash stock-based compensation  134   268   458   1,693 
Adjusted EBITDA $12,633  $9,573  $35,935  $32,282 

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2020
   
2021
   
2020
   
2021
 
                 
   
(Dollars in thousands)
 
Reconciliation of Adjusted EBITDA to EBITDA to Net Income (Loss)
 
Net income (loss)
  $329   
$
22,094
 
  $(57,390  
$
24,674
 
Plus interest expense, net of capitalized interest
   4,024   
 
4,026
 
   12,069   
 
11,887
 
Plus provision for income taxes
   401   
 
837
 
   31,180   
 
479
 
Plus depreciation and amortization
   3,428   
 
3,215
 
   10,686   
 
9,671
 
Less interest income
   (1   —      (1  
 
(1
  
 
 
   
 
 
   
 
 
   
 
 
 
EBITDA
  $8,181   
$
30,172
 
  $(3,456  
$
46,710
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Plus net (gain) loss on the disposition of assets
   1,381   
 
(10,607
   1,494   
 
(10,552
Plus change in the estimated fair value of contingent
earn-out
consideration
   (10   —      (12   —   
Plus debt modification costs
   —     
 
2,347
 
   —     
 
2,347
 
Plus impairment of indefinite-lived long-term assets other than goodwill
   —      —      17,254    —   
Plus impairment of goodwill
   —      —      307    —   
Plus net miscellaneous (income) and expenses
   (1  
 
(2
   45   
 
(87
Plus (gain) loss on early retirement of long-term debt
   —     
 
56
 
   (49  
 
56
 
Plus gain on the forgiveness of PPP loans
   —     
 
(11,212
   —     
 
(11,212
Plus
non-cash
stock-based compensation
   74   
 
78
 
   273   
 
240
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Adjusted EBITDA
  $9,625   
$
10,832
 
  $15,856   
$
27,502
 
  
 
 
   
 
 
   
 
 
   
 
 
 
41

RESULTS OF OPERATIONS
The following factors affected our results of operations and cash flows:
Acquisitions and Divestitures
The operating results of our business acquisitions and asset purchases are included in our consolidated results of operations from their respective closing date or the date that we began operating them under an LMA or TBA. The operating results of business and asset divestitures are excluded from our consolidated results of operations from their respective closing date or the date that a third-party began operating them under an LMA or TBA.
On July 27, 2021, we sold the Hilary Kramer Financial Newsletter and related assets for $0.2 million to be collected in quarterly installments over the
two-year
period ending September 30, 2023. We recognized a
pre-tax
gain on the sale of $0.1 million.
On July 23, 2021, we sold approximately 34 acres of land in Lewisville, Texas, for $12.1 million in cash. The land was being used for as the transmitter site for company owned radio station
KSKY-AM.
We retained a portion of the land in the southwest corner of the site to continue operating the radio station. We recognized a
pre-tax
gain on the sale of $10.5 million.
On July 2, 2021, we acquired the SeniorResource.com domain for $0.1 million in cash.
On July 1, 2021, we acquired the ShiftWorship.com domain and digital assets for $2.6 million in cash. The digital content library is operated within Salem Web Network’s church products division.
On June 1, 2021, we acquired radio stations
KDIA-AM
and
KDYA-AM
in San Francisco, California for $0.6 million in cash.
On May 25, 2021, we sold Singing News Magazine and Singing News Radio for $0.1 million in cash.
On April 28, 2021, we acquired the Centerline New Media domain and digital assets for $1.3 million in cash. The digital content library is operated within Salem Web Network’s church products division.
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.
On March 18, 2021, we sold radio station
WKAT-AM
and an FM translator in Miami, Florida for $3.5 million. The buyer began operating the station under a LMA in November 2020.
On September 15, 2020, we acquired the Hyper Pixels Media website and related assets for $1.1 million in cash. We paid $0.4 million in cash upon closing with deferred payments of $0.4 million due January 31, 2021 and $0.3 million due September 15, 2021.
On April 6, 2020, we sold radio station
WBZW-AM
and an FM translator construction permit in Orlando, Florida, for $0.2 million in cash.
Debt Transactions
On September 24, 2021, we repurchased $4.7 million of the 6.75% Senior Secured Notes due 2024 (“2024 Notes”) for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs.
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of newly issued 2028 Notes.
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis.
In July 2021, the SBA forgave all but $20,000 of the PPP loans. The remaining PPP loan was repaid in July 2021.
During the nine-months ended September 30, 2020, we completed repurchases of $3.5 million of the Notes for $3.4 million in cash, recognizing a net gain of $49,000 after adjusting for bond issuance costs.
Equity Transactions
No distributions were declared or paid during nine-month period ended September 30, 2021, compared to distributions of $0.7 million ($0.025 per share) declared and paid during the nine-month period ended September 30, 2020 based upon our Board’s then current assessment of our business as detailed in Note 16 – Equity Transactions.
42

Three months ended September 30, 2021 compared to the three months ended September 30, 2020
Net Broadcast Revenue
   
Three Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Net Broadcast Revenue
  $45,391   
$
49,591
 
  $4,200    9.3  74.9 
 
75.2
Same Station Net Broadcast Revenue
  $45,095   
$
49,113
 
  $4,018    8.9  
The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source.
   
Three Months Ended September 30,
 
   2020  
2021
 
                
   
(Dollars in thousands)
 
Block Programming:
       
National
  $11,732    25.8 
$
12,502
 
  
 
25.2
Local
   5,771    12.7  
 
6,299
 
  
 
12.7
  
 
 
   
 
 
  
 
 
   
 
 
 
   17,503    38.5  
 
18,801
 
  
 
37.9
Broadcast Advertising:
       
National
   3,635    8.0  
 
3,447
 
  
 
7.0
Local
   9,485    20.9  
 
10,682
 
  
 
21.5
  
 
 
   
 
 
  
 
 
   
 
 
 
   13,120    28.9  
 
14,129
 
  
 
28.5
Broadcast Digital (local)
   7,754    17.1  
 
8,805
 
  
 
17.8
Infomercials
   214    0.5  
 
220
 
  
 
0.4
Network
   4,891    10.8  
 
4,908
 
  
 
9.9
Other Revenue
   1,909    4.2  
 
2,728
 
  
 
5.5
  
 
 
   
 
 
  
 
 
   
 
 
 
Net Broadcast Revenue
  $45,391    100.0 
$
49,591
 
  
 
100.0
  
 
 
   
 
 
  
 
 
   
 
 
 
Block programming revenue increased by $1.3 million including a $0.8 million increase in national programming and a $0.5 million increase in local programming. Our Christian Teaching and Talk format radio stations generated a $0.5 million increase in national programming revenue and a $0.4 million increase in local programming revenue while our News Talk format radio stations generated a $0.2 million increase in national programming and a $0.2 million increase in local programming. These increases include the impact of the $0.2 million in early-payment discounts offered during the prior year and an increase in the number of programmers
on-air.
Advertising revenue, net of agency commissions, increased by $1.0 million, including a $1.2 million increase in local advertising that was offset with a $0.2 million decline in national advertising. Excluding political advertising, advertising revenue increased by $1.4 million, all in local advertising. The increase includes $0.6 million from our Contemporary Christian Music format radio stations, primarily in our Los Angeles, Atlanta and Nashville markets, $0.3 million from our News Talk format radio stations, $0.2 million from our Christian Teaching and Talk format radio stations, and $0.5 million from other radio station formats, that were offset by a $0.1 million decline from our Spanish Christian Teaching and Talk format radio stations. The increases reflect the higher demand for airtime associated with improving economic conditions as pandemic restrictions continue to ease that can in turn result in higher spot rates for premium airtime spots. The decline from Spanish Christian Teaching and Talk format radio stations is due to the sale of radio station
WKAT-AM
in Miami, Florida, and the reformatting of our remaining Spanish Christian Teaching and Talk format radio stations.
Broadcast digital revenue, net of agency commissions, or net digital revenue generated from our broadcast markets and networks, increased by $1.1 million due to growth in digital product offerings and the launch of the Salem Podcast Network in January 2021. Salem Podcast Network is a highly specialized platform for conservative, political, news, family-oriented podcasts with talk show hosts including Dinesh D’Souza, Todd Starnes and Charlie Kirk. Salem Podcast Network joins Salem Surround, our multimedia digital advertising agency providing digital marketing services to our customers, and SalemNow, our transactional video
on-demand
streaming platform launched in the fourth quarter of 2020, along with our owned and operated station branded websites to offer an expanding line of digital products and services. Increases in broadcast digital revenue include a $1.2 million increase in digital marketing services through Salem Surround, a $1.8 million increase from Salem Podcast Network and a $0.2 million increase in streaming revenue that was partially offset by a $2.1 million decline in revenue from SalemNow due to the impact of two successful titles released during the prior year. There were no significant changes in digital rates as compared to the prior year.
43

There were no significant changes in the number of infomercials aired and no significant changes in rates. The placement of infomercials can vary significantly from one period to another due to the number of time slots available and the degree to which the infomercial content is considered to be of interest to our audience.
Network revenue, exclusive of amounts reported within digital, increased by $17,000 compared to the same period of the prior year due to a $0.7 million increase in revenue from our nationally syndicated host programs that was partially offset by a $0.7 million decline in political advertising.
Other revenue increased by $0.8 million due to a $0.6 million increase in event revenue due to the
re-opening
of live events, a $0.1 million increase in TBA fees associated with radio station
KBJD-AM,
Denver, Colorado and a $0.1 million increase in talent fees. Event revenue varies from period to period based on the nature and timing of events, audience demand, and in some cases, the weather which can affect attendance.
On a Same Station basis, net broadcast revenue increased $4.0 million, which reflects these items net of the impact of stations acquired, disposed of, or with format changes.
Net Digital Media Revenue
   
Three Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
   
 
  % of Total Net Revenue 
Net Digital Media Revenue
  $9,808   
$
10,645
 
  $837    8.5  16.2 
 
16.1
The following table shows the dollar amount and percentage of net digital media revenue for each digital media revenue source.
   
Three Months Ended September 30,
 
   2020  
2021
 
                
   
(Dollars in thousands)
     
Digital Advertising, net
  $5,213    53.2 
$
5,053
 
  
 
47.5
Digital Streaming
   843    8.6  
 
873
 
  
 
8.2
 
Digital Subscriptions
   2,387    24.3  
 
3,155
 
  
 
29.6
 
Digital Downloads
   1,244    12.7  
 
1,464
 
  
 
13.8
 
e-commerce
   53    0.5  
 
65
 
  
 
0.6
 
Other Revenues
   68    0.7  
 
35
 
  
 
0.3
 
  
 
 
   
 
 
  
 
 
   
 
 
 
Net Digital Media Revenue
  $9,808    100.0 
$
10,645
 
  
 
100.0
  
 
 
   
 
 
  
 
 
   
 
 
 
National digital revenue, net of agency commissions, or net revenue generated from our owned and operated Christian and conservative opinion websites, declined by $0.2 million due to a lower number of advertisements on our conservative opinion websites within Townhall Media. Our conservative opinion websites experience lower demand and lower page views during
non-election
years. We also experience lower demand from advertisers who move advertising spending to digital programmatic advertisers, such as Facebook and Google, and we may lose advertisers who decide to reduce or eliminate advertising on political-content websites such as ours. We continue to acquire, develop and promote the use of mobile applications to reduce our dependency on page views from digital programmatic advertisers. Because mobile page views carry fewer advertisements and tend to have shorter site visits as compared to desktop, our growth in mobile page views exceeds our growth in revenue from the mobile applications.
Digital streaming revenue was consistent with that of the same period of the prior year with no significant changes in sales volume or rates.
Digital subscription revenue increased by $0.8 million including a $0.4 million increase from Christianjobs.com and Churchstaffing.com within SWN due to an increase in job postings, a $0.2 million increase from Eagle Financial Publications due to an increase in the number of subscribers from increased marketing efforts, and a $0.2 million increase from Townhall Media’s launch of Townhall VIP, a subscription service. There were no significant changes in rates over the prior period.
Digital download revenue increased by $0.2 million due to increases in the number of downloads purchased from our church product websites and form the acquisitions of Centerline New Media in April 2021 and ShiftWorship in July 2021. There were no significant changes in rates.
44

E-commerce
revenue includes
in-app
purchases that increased in volume with no significant changes in rates.
Other revenue includes revenue sharing arrangements for mobile applications and mail list rentals which declined slightly in volume with no significant changes in rates.
Net Publishing Revenue
   
Three Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Net Publishing Revenue
  $5,442   
$
5,747
 
  $305    5.6  9.0 
 
8.7
The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source.
   
Three Months Ended September 30,
 
   2020  
2021
 
                
   
(Dollars in thousands)
 
Book Sales
  $4,310    79.2 
$
4,561
 
  
 
79.4
Estimated Sales Returns & Allowances
   (1,322   (24.3  
(1,212
)
 
   
(21.1
)
 
  
 
 
   
 
 
  
 
 
   
 
 
 
Net Book Sales
   2,988    54.9  
 
3,349
 
  
 
58.3
 
E-Book
Sales
   456    8.4  
 
502
 
  
 
8.7
 
Self-Publishing Fees
   1,407    25.8  
 
1,556
 
  
 
27.1
 
Print Magazine Subscriptions
   168    3.1   —      —   
Print Magazine Advertisements
   85    1.6   —      —   
Digital Advertising
   65    1.2   —      —   
Other Revenue
   273    5.0  
 
340
 
  
 
5.9
 
  
 
 
   
 
 
  
 
 
   
 
 
 
Net Publishing Revenue
  $5,442    100.0 
$
5,747
 
  
 
100.0
  
 
 
   
 
 
  
 
 
   
 
 
 
Net book sales increased by $0.3 million including a $0.2 million increase from Salem Author Services and a $0.1 million increase from Regnery
®
Publishing. Book sales through Regnery
®
Publishing reflect a 10% decrease in volume with a 11% decrease in the average price per unit sold offset with a reduction in sales returns and allowances resulting from lower print sales. Revenue is directly attributable to the number of titles released each period and the composite mix of titles available that can vary significantly from period to period based on the book release date and the number of titles that achieve placement on bestseller lists, which can increase awareness and demand for the book. The decrease of $0.1 million in estimated sales returns and allowances is based on a flat volume of print books sold through Regnery
®
Publishing. The $0.2 million increase in Salem Author Services book sales was due to an increase in the number of books sold as trade shows and events resumed with no significant changes in sale prices.
Regnery
®
Publishing
e-book
sales increased by $46,000 with a 6% increase in the average price per unit sold from sales incentives and a 19% increase in sales volume.
E-book
sales can also vary based on the composite mix of titles released and available in each period. Revenues can vary significantly based on the book release date and the number of titles that achieve placement on bestseller lists, which can increase awareness and demand for the book.
Self-publishing fees increased $0.1 million due an increase in the number of authors publishing books with no change in fees charged to authors.
Declines in print magazine subscription revenues and advertising revenues reflect the sale of Singing News Magazine on May 25, 2021.
Declines in digital advertising revenues reflect the sale of Singing News Magazine on May 25, 2021.
Other revenue includes change fees, video trailers, and subright revenue for foreign translation and audio books for original published titles from Regnery
®
Publishing. Subright revenue increased $0.1 million due to higher demand.
There were no changes in volume or rates.
45

Broadcast Operating Expenses
   
Three Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Broadcast Operating Expenses
  $34,283   
$
37,463
 
  $3,180    9.3  56.5 
 
56.8
Same Station Broadcast Operating Expenses
  $33,687   
$
37,072
 
  $3,385    10.0  
Broadcast operating expenses increased by $3.2 million, including a $1.9 million increase from expenses associated with Salem Surround and Salem Podcast Network, a $1.0 million increase in payroll costs including the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020, a $0.5 million increase in health insurance costs, a $0.3 million increase in advertising and event costs, a $0.2 million increase in production and programming costs, a $0.2 million increase in travel and entertainment costs, and a $0.2 million increase in professional services. These costs were partially offset with a $0.9 million decline in cost of sales from SalemNow consistent with the decline in revenue as compared to the prior year when SalemNow released two successful titles, a $0.3 million decline in bad debt expense due to the impact of the
COVID-19
pandemic on prior year reserves, and a $0.1 million decrease in rent and facilities related expenses.
On a same-station basis, broadcast operating expenses increased by $3.4 million reflecting these items net of the impact of station dispositions and format changes.
Digital Media Operating Expenses
   
Three Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Digital Media Operating Expenses
  $7,144     
$
8,269  
 
  $1,125    15.7  11.8 
 
12.5
Digital media operating expenses increased by $1.1 million including a $0.5 million increase payroll and employee benefits expense, a $0.4 million increase in advertising and promotional expenses, a $0.2 million increase in sales-based commissions and bonuses and a $0.1 million increase in professional services, offset by a $0.1 million decrease in bad debt expense. Increases in advertising and promotional expenses are driven by a new video initiative for Eagle Financial Publications that management believes to be beneficial for the business and overall gradual increase in adverting spending as the economy begins to return to
pre-pandemic
levels. The increase in payroll expenses reflects the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020.
Publishing Operating Expenses
   
Three Months Ended September 30,
 
   2020   
2021
   Change $  Change %  2020  
2021
 
                      
   
(Dollars in thousands)
     % of Total Net Revenue 
Publishing Operating Expenses
  $5,814     
$
5,213  
 
  $(601  (10.3)%     9.6 
 
  7.9
Publishing operating expenses decreased by $0.6 million, including a $0.3 million decrease in royalty expense reflecting a decrease in the reserve for royalty advances based on flat book sales for Regnery
®
Publishing, a $0.2 million decrease in professional services, a $0.1 million decrease in costs of sales and a $0.1 million decrease in facility-related expenses that was offset by a $0.1 million increase in payroll expenses from the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020. Cost of goods sold decreased $0.1 million including a $0.1 million from Regnery
®
Publishing due to flat book sales and $0.1 million decline from Salem Publishing due to the sale of Singing News Magazine offset by a $0.1 million increase from Salem Author Services due to a higher volume of book sales. The gross profit margin for Regnery
®
Publishing improved to 52% from 42% as sales volume remained flat while material costs decreased. Regnery
®
Publishing margins vary based on the volume of
e-book
sales, which have higher margins due to the nature of delivery and no reserve for sales returns and allowances. The gross profit margin for Salem Author Services remained flat at 74% due to higher book sales offset by higher paper costs for print book sales.
Unallocated Corporate Expenses
            
            
            
            
            
            
   
Three Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Unallocated Corporate Expenses
  $3,849   
$
4,284
 
  $435    11.3  6.3 
 
6.5
46

Unallocated corporate expenses include shared services, such as accounting and finance, human resources, legal, tax and treasury, that are not directly attributable to any one of our operating segments. The net increase of $0.4 million includes a $0.6 million increase in payroll expense due to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020 that was offset a $0.2 million decline in professional service fees.
Debt Modification Costs
            
            
            
            
            
            
   
Three Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Debt Modification Costs
  $—     
$
2,347
 
  $2,347    100.0  —   
 
3.6
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of 2028 Notes. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470 with $2.3 million of fees paid to third parties included in operating expenses for the period.
Depreciation Expense
   
Three Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Depreciation Expense
  $2,677   
$
2,788
 
  $111    4.1  4.4 
 
4.2
Depreciation increase was consistent with that of the prior year. There were no changes in our depreciation methods or in the estimated useful lives of our asset groups.
Amortization Expense    
            
            
            
            
            
            
   
Three Months Ended September 30,
 
   2020   
2021
   Change $  Change %  2020  
2021
 
                      
   
(Dollars in thousands)
     % of Total Net Revenue 
Amortization Expense
  $751   
$
427
 
  $(324  (43.1)%   1.2 
 
0.6
The decrease in amortization expense reflects the impact of fully amortized domain names, customer lists and contracts, and subscriber base lists that had estimated useful lives of three to five years. These items were fully amortized at or near the beginning of 2021 resulting in lower amortization expense. There were no changes in our amortization methods or the estimated useful lives of our intangible asset groups.
Net (Gain) Loss on the Disposition of Assets
              
              
              
              
              
              
   
Three Months Ended September 30,
 
   2020   
2021
  Change $  Change %  2020  
2021
 
                     
   
(Dollars in thousands)
     % of Total Net Revenue 
Net (Gain) Loss on the Disposition of assets
  $1,381   
$
(10,607
 $(11,988  (868.1)%   2.3 
 
(16.1
)% 
The net gain on the disposition of assets of $10.6 million for the three-month period ending September 30, 2021 includes a $10.5 million
pre-tax
gain on the sale of land in Lewisville, Texas, and a $0.1 million
pre-tax
gain on the sale of the Hilary Kramer Financial Newsletter and related assets as well as various other fixed asset disposals.
The net loss on the disposition of assets of $1.4 million for the three months ended September 30, 2020 reflects the estimated
pre-tax
loss associated with the exit of the Miami broadcast market with the then pending sale of radio station
WKAT-AM.
47

Other Income (Expense)
                                                                              
   
Three Months Ended September 30,
 
   2020  
2021
  Change $  Change %  2020  
2021
 
                    
   
(Dollars in thousands)
     % of Total Net Revenue 
                    
Interest Income
  $1  
$
—  
 
  (1  (100.0)%   —    
 
—  
Interest Expense
   (4,024 
 
(4,026
  2   —    (6.6)%  
 
(6.1
)% 
Gain on the Forgiveness of PPP loans
   —    
 
11,212
 
  11,212   100.0  —    
 
17.0
Gain (Loss) on Early Retirement of Long-Term Debt
   —    
 
(56
  (56  (100.0)%   —   
 
(0.1
)% 
Net Miscellaneous Income and (Expenses)
   1  
 
2
 
  1   —    —   
 
—  
Interest expense includes interest due on outstanding debt balances and
non-cash
accretion associated with deferred installments.
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. We used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million.
The loss on the early retirement of long-term debt reflects $4.7 million of repurchases of the 2024 Notes for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs.
Net miscellaneous income and expenses includes
non-operating
receipts such as usage fees and other expenses.
Provision for Income Taxes
                                                                                                      
   
Three Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Provision for Income Taxes
  $401   
$
837
 
  $436    108.7  0.7 
 
1.3
Our expense from income taxes increased $0.4 million to a $0.8 million provision for the three months ended September 30, 2021 compared to $0.4 million for the same period of the prior year. The provision for income taxes as a percentage of income before income taxes, or the effective tax rate was 3.7% for the three months ended September 30, 2021 compared to 54.9% for the same period of the prior year. The change in the effective tax between the comparative three-month quarters is attributable to the current year forecasted income and related operating loss utilization coupled with the PPP loan forgiveness favorable tax adjustment relative to
pre-tax
book income for the period. The effective tax rate for each period differs from the federal statutory income rate of 21.0% due to state income taxes, certain expenses that are not deductible for tax purposes, and changes in the valuation allowance. The effective tax rate of 3.7% is driven by certain expenses that are nondeductible for income tax purposes relative to
pre-tax
book loss, tax expense attributable to deductible amortization on indefinite lived assets for fully valued state jurisdictions and projected utilization of operating loss carryforwards.
Net Income (Loss)
                                                                              
   
Three Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Net Income (Loss)
  $329   
$
22,094
 
  $21,765    6,615.5  0.5 
 
33.5
Net income increased by $21.8 million to $22.1 million for the three months ended September 30, 3021 compared $0.3 million during the same period of the prior year as described above.
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
Net Broadcast Revenue
                                                                              
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Net Broadcast Revenue
  $130,041   
$
140,422
 
  $10,381    8.0  75.7 
 
74.3
Same Station Net Broadcast Revenue
  $129,022   
$
139,482
 
  $10,460    8.1  
48

The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source.
   
Nine Months Ended September 30,
 
   2020  
2021
 
                
   
(Dollars in thousands)
 
Block Programming:
       
National
  $35,536    27.3 
$
35,824
 
   25.5
Local
   18,211    14.0  
 
18,072
 
   12.9
  
 
 
   
 
 
  
 
 
   
 
 
 
   53,747    41.3  
 
53,896
 
   38.4
Broadcast Advertising:
       
National
   10,179    7.8  
 
10,565
 
   7.5
Local
   28,630    22.0  
 
30,123
 
   21.5
  
 
 
   
 
 
  
 
 
   
 
 
 
   38,809    29.8  
 
40,688
 
   29.0
Broadcast Digital (local)
   17,702    13.6  
 
23,602
 
   16.8
Infomercials
   750    0.6  
 
682
 
   0.5
Network
   13,505    10.4  
 
14,729
 
   10.4
Other Revenue
   5,528    4.3  
 
6,825
 
   4.9
  
 
 
   
 
 
  
 
 
   
 
 
 
Net Broadcast Revenue
  $130,041    100.0 
$
140,422
 
  
 
100.0
  
 
 
   
 
 
  
 
 
   
 
 
 
Block programming revenue increased by $0.1 million, including a $0.3 million increase in national programming revenue offset by a $0.1 million decline in local programming revenue. Our Christian Teaching and Talk format radio station increased $0.4 million, while our News Talk format radio stations increased $0.1 million and our Contemporary Christian Music format radio stations increased $0.1 million. These increases include the impact of the $0.3 million in early-payment discounts offered during the prior year and an increase in the number of programmers
on-air
that were offset by a decrease of $0.5 million from our Spanish Christian Teaching and Talk format radio stations primarily from the sale of radio station
WKAT-AM
in Miami, Florida.
Advertising revenue, net of agency commissions, increased by $1.9 million, $2.4 million net of political, due to a $1.8 million increase net of political in local advertising revenue and a $0.6 million increase net of political in national advertising. Net of political, the increase includes $2.4 million from our Contemporary Christian Music format radio stations, primarily in our Atlanta, Dallas and Los Angeles markets and $0.7 million from other format radio stations, that was offset with a $0.4 million decline from our Spanish Christian Teaching and Talk format radio stations, a $0.1 million decline from our News Talk format radio stations, and a $0.1 million decline from our Christian Teaching and Talk format radio stations. The increases in Atlanta, Dallas and Los Angeles reflect an increase in demand for advertising as pandemic restrictions ease that in turn creates higher spot rates for premium airtime spots. The decline from our Christian Teaching and Talk format radio stations reflects the sale of
WKAT-AM
in Miami, Florida and the reformatting of our remaining Spanish Christian Teaching and Talk format radio stations.
Broadcast digital revenue, net of agency commissions, or net digital revenue generated from our broadcast markets and networks, increased by $5.9 million due to growth in digital product offerings and the launch of the Salem Podcast Network in January 2021. Salem Podcast Network is a highly specialized platform for conservative, political, news, family-oriented podcasts with talk show hosts including Dinesh D’Souza, Todd Starnes and Charlie Kirk. Salem Podcast Network joins Salem Surround, our multimedia digital advertising agency providing digital marketing services to our customers, and SalemNow, our
on-demand
pay-per-view
video streaming platform launched in the fourth quarter of 2020, along with our owned and operated station branded websites to offer new digital products and services. Increases in digital revenue include a $4.7 million increase from Salem Podcast Network, a $2.6 million increase in digital marketing services through Salem Surround, a $0.9 million increase in streaming revenue and a $0.9 million increase in digital advertising revenue from our station websites and an increase of $0.2 million from our networks that were offset by a $3.4 million decline in revenue from SalemNow that released two successful titles during the prior year. There were no significant changes in digital rates as compared to the prior year.
Declines in infomercial revenue were due to a reduction in the number of infomercials aired with no significant changes in rates as compared to the prior year. The placement of infomercials can vary significantly from one period to another due to the number of time slots available and the degree to which the infomercial content is considered to be of interest to our audience.
Network revenue, net of amounts reported as digital, increased by $1.2 million due to a $2.0 million increase in revenue from our nationally syndicated host programs that was partially offset by a $0.8 million decline in political advertising.
49

Other revenue increased by $1.3 million due to a $0.6 million increase in event revenue due to the
re-opening
of live events, a $0.2 million increase in listener purchase program revenue from higher listener participation and half price tuition tickets sold as schools and businesses started to
re-open,
a $0.2 million increase in TBA fees associated with radio station
KBJD-AM,
Denver, Colorado , a $0.1 million increase in LMA fees associated with radio station
KGU-AM,
Honolulu, Hawaii and a $0.1 million increase in talent fees. Event revenue varies from period to period based on the nature and timing of events, audience demand, and in some cases, the weather which can affect attendance.
On a Same Station basis, net broadcast revenue increased $10.5 million, which reflects the above described items net of the impact of stations with acquisitions, dispositions and format changes.
Net Digital Media Revenue
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Net Digital Media Revenue
  $28,355   
$
30,603
 
  $2,248    7.9  16.5 
 
16.2
The following table shows the dollar amount and percentage of net digital media revenue for each digital media revenue source.
   
Nine Months Ended September 30,
 
   2020  
2021
 
                
   
(Dollars in thousands)
 
Digital Advertising, net
  $14,473    51.0 
$
13,859
 
  
 
45.3
Digital Streaming
   2,611    9.2  
 
2,579
 
  
 
8.4
 
Digital Subscriptions
   6,679    23.6  
 
9,227
 
  
 
30.2
 
Digital Downloads
   4,291    15.1  
 
4,637
 
  
 
15.1
 
e-commerce
   108    0.4  
 
163
 
  
 
0.5
 
Other Revenues
   193    0.7  
 
138
 
  
 
0.5
 
  
 
 
   
 
 
  
 
 
   
 
 
 
Net Digital Media Revenue
  $28,355    100.0 
$
30,603
 
  
 
100.0
  
 
 
   
 
 
  
 
 
   
 
 
 
National digital revenue, net of agency commissions, or net revenue generated from our owned and operated Christian and conservative opinion websites declined by $0.9 million due to a lower volume of advertisements on our conservative opinion websites within Townhall Media. Revenues increased $0.1 million from Salem Web Network and $0.2 million from Eagle Financial Publications. Our conservative opinion websites experience lower demand and lower page views during
non-election
years. We also experience lower demand from advertisers who move advertising spending to digital programmatic advertisers, such as Facebook and Google, and we may lose advertisers who decide to reduce or eliminate advertising on political-content websites such as ours. We continue to acquire, develop and promote the use of mobile applications to reduce our dependency on page views from digital programmatic advertisers. Because mobile page views carry fewer advertisements and tend to have shorter site visits as compared to desktop, our growth in mobile page views exceeds our growth in revenue from the mobile applications.
Digital streaming revenue decreased compared to the prior year based on a slightly lower demand for content available from our Christian websites. There were no significant changes in rates as compared to the prior year.
Digital subscription revenue increased $2.5 million on a consolidated basis reflecting a $0.9 million increase in revenues from Eagle Financial Publications, a $0.9 million increase from Christianjobs.com and Churchstaffing.com within Salem Web Network due to increases in job postings as job markets start to
re-open,
and a $0.7 million increase in revenues from Townhall Media’s launch of Townhall VIP, a subscription service. Eagle Financial Publications saw an increase in the number of subscribers due to an increased investment in marketing with no significant changes in rates over the same period of the prior year.
Digital download revenue increased by $0.3 million from our church product websites, WorshipHouseMedia.com and SermonSpice
TM
.com and the acquisitions of Centerline New Media in April 2021 and ShiftWorship in July 2021. There were no significant changes in rates as compared to the prior year.
E-commerce
revenue includes
in-app
purchases through Salem Web Network that increased in volume with no significant changes in rates over the prior year.
Other revenue includes revenue sharing arrangements for mobile applications and mail list rentals which remained consistent with no changes in volume or rates.
50

Net Publishing Revenue
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Net Publishing Revenue
  $13,366   
$
18,093
 
  $4,727    35.4  7.8 
 
9.6
The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source.
   
Nine Months Ended September 30,
 
   2020  
2021
 
                
   
(Dollars in thousands)
 
Book Sales
  $9,701    72.5 
$
15,074
 
  
 
83.3
Estimated Sales Returns & Allowances
   (2,852   (21.3 
 
(4,223
  
 
(23.3
  
 
 
   
 
 
  
 
 
   
 
 
 
Net Book Sales
   6,849    51.2  
 
10,851
 
  
 
60.0
 
E-Book
Sales
   960    7.2  
 
1,294
 
  
 
7.2
 
Self-Publishing Fees
   3,860    28.9  
 
4,730
 
  
 
26.1
 
Print Magazine Subscriptions
   519    3.9  
 
262
 
  
 
1.4
 
Print Magazine Advertisements
   278    2.1  
 
123
 
  
 
0.7
 
Digital Advertising
   216    1.6  
 
132
 
  
 
0.7
 
Other Revenue
   684    5.1  
 
701
 
  
 
3.9
 
  
 
 
   
 
 
  
 
 
   
 
 
 
Net Publishing Revenue
  $13,366    100.0 
$
18,093
 
  
 
100.0
  
 
 
   
 
 
  
 
 
   
 
 
 
Net book sales increased by $4.0 million which includes a $3.7 million increase in Regnery
®
Publishing as book sales reflect a 76% increase in volume largely attributable to the reopening of bookstores and retail locations, offset by a 7% decrease in the average price unit sold and a $0.3 million increase in Salem Author Services. The increase in the number of print books sold through Regnery
®
Publishing resulted in a $1.4 million increase to the estimated sales returns and allowances. The increase in book sales from Salem Author Services of $0.3 million was due to books sold at tradeshows with events resuming in limited capacity as pandemic restrictions are lifted. There were no significant changes in sale prices for Salem Author Services as compared to the prior year.
Regnery
®
Publishing
e-book
sales increased $0.3 million with a 6% increase in the average price per unit sold from sales incentives and a 27% increase in sales volume.
E-book
sales can also vary based on the composite mix of titles released and available in each period. Revenues can vary significantly based on the book release date and the number of titles that achieve placement on bestseller lists, which can increase awareness and demand for the book.
Self-publishing fees increased $0.9 million due an increase in the number of authors and services provided with no change in fees charged to authors.
Declines in print magazine subscription revenues and advertising revenues reflect the sale of Singing News Magazine on May 25, 2021, and ongoing lower consumer demand and distribution levels prior to the sale.
Digital advertising revenue decreased $0.1 million due to the sale of Singing News Magazine on May 25, 2021 and Regnery
®
Publishing websites declined due to a lower demand due to the
COVID-19
pandemic and the ongoing closure of bookstores with rates comparable to the same period of the prior year.
Other revenue includes change fees, video trailers, and subright revenue for foreign translation and audio books for original published titles from Regnery
®
Publishing which remained consistent to the prior year.
Broadcast Operating Expenses
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Broadcast Operating Expenses
  $104,704   
$
106,968
 
  $2,264    2.2  61.0 
 
56.6
Same Station Broadcast Operating Expenses
  $102,708   
$
105,970
 
  $3,262    3.2  
51

Broadcast operating expenses increased by $2.3 million, including a $4.2 million increase from expenses associated with Salem Surround and Salem Podcast Network, a $1.8 million increase in payroll costs including the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020, a $0.4 million increase in health insurance costs, a $0.4 million increase in advertising and event costs, a $0.4 million increase in production and programming costs, and a $0.4 million increase in professional services. These costs were partially offset with a $1.5 million decline in cost of sales from SalemNow consistent with the decline in revenue as compared to the prior year when they released two successful titles, a $3.2 million decline in bad debt expense due to the impact of the
COVID-19
pandemic on prior year reserves, a $0.4 million decline in employee benefits attributable to the suspension of the 401(k) match and a $0.2 million decrease in rent and facilities related expenses.
On a same-station basis, broadcast operating expenses increased by $3.3 million. The increase on a same station basis reflects these items net of the impact of
start-up
costs associated with acquisitions, station dispositions and format changes.
Digital Media Operating Expenses
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Digital Media Operating Expenses
  $23,123   
$
25,280
 
  $2,157    9.3  13.5 
 
13.4
Digital media operating expenses increased by $2.2 million, including a $1.2 million increase in advertising and promotional expenses, a $0.7 million increase in sales-based commissions and incentives, a $0.7 million increase in payroll costs and a $0.2 million increase in professional services that were offset by a $0.3 million decrease in bad debt expense, a $0.2 million decrease in costs of sales, a $0.1 million decrease in employee benefit costs due to the suspension of the 401(k) match, and $0.1 million decrease in royalties. Increases in advertising and promotional expenses are driven by a new video initiative for Eagle Financial Publications that management believes to be beneficial for the business and overall gradual increase in adverting spending as the economy begins to return to
pre-pandemic
levels. The increase in payroll related expenses reflects the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020.
Publishing Operating Expenses
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Publishing Operating Expenses
  $16,443   
$
16,844
 
  $401    2.4  9.6 
 
8.9
Publishing operating expenses increased by $0.4 million, including a $0.9 million increase in costs of sales, a $0.4 million increase in payroll costs due to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020, a $0.2 million increase in royalty expense based on higher sales, and a $0.1 million increase in advertising and promotional costs that were offset by a $0.8 million decrease in bad debt expense, a $0.4 million decrease in facility related expenses due to the termination of a lease in Washington D.C., and a $0.1 million decrease in employee benefit costs due to the suspension of the 401(k) match. Cost of goods sold increased $0.9 million including a $0.9 million increase from print books sold by Regnery
®
Publishing and $0.2 million increase from Salem Author Services due to higher volume of book sales offset by a $0.2 million decline Salem Publishing due to the sale of Singing News Magazine. The gross profit margin for Regnery
®
Publishing improved to 54% from 41% as sales volume increased while material costs increased only slightly. Regnery
®
Publishing margins vary based on the volume of
e-book
sales, which have higher margins due to the nature of delivery and no reserve for sales returns and allowances. The gross profit margin for Salem Author Services improved to 75% from 72% due to higher sales volume while paper costs for print book sales increased only slightly.
Unallocated Corporate Expenses
                                                                                                      
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Unallocated Corporate Expenses
  $11,909   
$
12,764
 
  $855    7.2  6.9 
 
6.7
52

Unallocated corporate expenses include shared services, such as accounting and finance, human resources, legal, tax and treasury, that are not directly attributable to any one of our operating segments. The increase of $0.9 million includes a $1.3 million increase in payroll costs due to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020 that were offset by a $0.2 million decrease in travel and entertainment-related expenses due to the events that took place prior to the pandemic restrictions in early 2020, a $0.2 million decrease in professional services and a $0.1 million decrease in employee-related benefits associated with the cash surrender value of split dollar life insurance.
Debt Modification Costs
                                                                                                                  
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Debt Modification Costs
  $—     
$
2,347
 
  $2,347    100.0  —   
 
1.2
On September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of 2028 Notes. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470 with $2.3 million of fees paid to third parties included in operating expenses for the period.
Depreciation Expense
                                                                  
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $   Change %  2020  
2021
 
                       
   
(Dollars in thousands)
      % of Total Net Revenue 
Depreciation Expense
  $8,108   
$
8,118
 
  $10    0.1  4.7 
 
4.3
Depreciation expense reflects the impact of prior year capital expenditures for data processing equipment and computer software that had shorter estimated useful lives as compared to towers or other assets and were fully depreciated during the current year. There were no changes in our depreciation methods or in the estimated useful lives of our asset groups.
Amortization Expense    
                                                                              
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $  Change %  2020  
2021
 
                      
   
(Dollars in thousands)
     % of Total Net Revenue 
Amortization Expense
  $2,578   
$
1,553
 
  $(1,025  (39.8)%   1.5 
 
0.8
The decrease in amortization expense reflects the impact of fully amortized domain names, customer lists and contracts, and subscriber base lists that had estimated useful lives of three to five years. These items were fully amortized at or near the beginning of the 2021 calendar year resulting in lower amortization expense for this year. There were no changes in our amortization methods or the estimated useful lives of our intangible asset groups.
Impairment of Indefinite-Lived Long-Term Assets Other Than Goodwill
                                                                              
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $  Change %  2020  
2021
 
                      
   
(Dollars
in thousands)
     % of Total Net Revenue 
Impairment of Indefinite-Lived Long-Term Assets Other Than Goodwill
  $17,254   $—     $(17,254  (100.0)%   10.0  —  
We performed an interim review of broadcast licenses for certain markets during the first quarter of 2020 due to the
COVID-19
pandemic and the resulting
stay-at-home
orders that began to adversely impact revenues. We engaged an independent third-party appraisal and valuation firm to assist us with determining the fair value of our broadcast licenses. Based on our interim review and analysis, we recorded an impairment charge of $17.0 million to the value of broadcast licenses in Chicago, Cleveland, Louisville, Philadelphia, Portland, Sacramento and Tampa. We also recorded an impairment charge of $0.3 million to the value of mastheads. These impairments were driven by decreases in projected revenues due to the current estimated impact of
COVID-19
and an increase in the WACC. We believe that these factors are indicative of trends in the industry as a whole and not unique to our company or operations. There were no indications of impairment as of our interim review during the third quarter of 2021.
53

Impairment of Goodwill
                                                                                                      
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $  Change %  2020  
2021
 
                      
   
(Dollars
in thousands)
     % of Total Net Revenue 
Impairment of Goodwill
  $307   $—     $(307  (100.0)%   0.2  —  
We performed an interim review of goodwill for impairment during the first quarter of 2020 due to the
COVID-19
pandemic and the resulting
stay-at-home
orders that began to adversely impact revenues. We engaged an independent third-party appraisal and valuation firm to assist us with determining the enterprise value for certain entities. Based on our interim review and analysis in the first quarter of 2020, we recorded an impairment charge of $0.3 million. These impairments were driven by decreases in projected revenues due to the current estimated impact of
COVID-19
and an increase in the WACC. We believe that these factors are indicative of trends in the industry as a whole and not unique to our company or operations. There were no indications of impairment as of our interim review during the third quarter of 2021.
Net (Gain) Loss on the Disposition of Assets
                                                                              
   
Nine Months Ended September 30,
 
   2020   
2021
  Change $  Change %  2020  
2021
 
                     
   
(Dollars in thousands)
     % of Total Net Revenue 
Net (Gain) Loss on the Disposition of assets
  $1,494   
$
(10,552
 $(12,046  (806.3)%   0.9 
 
(5.6
)% 
The net gain on the disposition of assets of $10.6 million for the nine-month period ended September 30, 2021 reflects a $10.5 million
pre-tax
gain on the sale of approximately 34 acres of land in Lewisville, Texas, a $0.5 million
pre-tax
gain on the sale of Singing News Magazine and Singing News Radio, and a $0.1 million
pre-tax
gain on the sale of the Hilary Kramer Financial Newsletter and related assets, offset by a $0.4 million additional loss recorded at closing on the sale of radio station
WKAT-AM
and FM translator in Miami, Florida and various other fixed asset disposals.
The net loss on the disposition of assets of $1.5 million for the nine-month period ended September 30, 2020 includes a $1.4 million estimated
pre-tax
loss for associated with the plans to exit the Miami broadcast market with the then pending sale of radio station
WKAT-AM
and various other fixed asset disposals.
Other Income (Expense)
                                                                              
   
Nine Months Ended September 30,
 
   2020  
2021
  Change $  Change %  2020  
2021
 
                    
   
(Dollars in thousands)
     % of Total Net Revenue 
Interest Income
  $1  
$
1
 
 $—     —    —   
 
—  
Interest Expense
   (12,069 
 
(11,887
  (182  (1.5)%   (7.0)%  
 
(6.3
)% 
Gain on the Forgiveness of PPP Loans
   —    
 
11,212
 
  11,212   100.0  —    
 
5.9
Gain (Loss) on Early Retirement of Long-Term Debt
   49  
 
(56
  (105  (214.3)%   —   
 
—  
Net Miscellaneous Income and (Expenses)
   (45 
 
87
 
  132   (2,93.3)%   —   
 
—  
Interest income represents earnings on excess cash and interest due under promissory notes.
Interest expense includes interest due on outstanding debt balances and
non-cash
accretion associated with deferred installments. The decrease of $0.2 million reflects the lower outstanding balance of the Notes, the lower outstanding balance of the ABL Facility, and finance lease obligations outstanding during the nine-months ended September 30, 2021.
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. We used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million.
The loss on the early retirement of long-term debt reflects $4.7 million of repurchases of the 2024 Notes for $4.7 million in cash, recognizing a net loss of $56,000 after adjusting for bond issuance costs. The gain on the early retirement of long-term debt reflects $3.5 million of repurchases of the 2024 Notes at prices below face value resulting in a
pre-tax
gain of $49,000 for the nine-month period ended September 30, 2020.
Net miscellaneous income and expenses includes
non-operating
receipts such as usage fees and other miscellaneous expenses.
54

Provision for Income Taxes
   
Nine Months Ended September 30,
 
   2020   
2021
   Change $  Change %  2020  
2021
 
                      
   
(Dollars in thousands)
     % of Total Net Revenue 
Provision for Income Taxes
  $31,180   
$
479
 
  $(30,701  (98.5)%   18.2 
 
0.3
Our provision for income taxes decreased $30.7 million to $0.5 million for the nine months ended September 30, 2021 compared to $31.2 million for the same period of the prior year. The provision for income taxes as a percentage of income before income taxes, or the effective tax rate was 1.9% for the nine months ended September 30, 2021 compared to (119.0)% for the same period of the prior year. The change between the comparative nine-month quarters is attributable to the recognition of a valuation allowance against the net operating loss deferred tax assets for the period ended September 30, 2021 coupled with a change in forecasted income for 2021 impacting the utilization of operating losses along with favorable tax adjustment around the PPP forgiveness. The effective tax rate for each period differs from the federal statutory income rate of 21.0% due to state income taxes, certain expenses that are not deductible for tax purposes, and changes in the valuation allowance. The effective tax rate of 1.9% is driven by certain expenses that are nondeductible for income tax purposes relative to
pre-tax
book loss, tax expense attributable to deductible amortization on indefinite lived assets for fully valued state jurisdictions and projected utilization of operating loss carryforwards.
Net Income (Loss)
   
Nine Months Ended September 30,
 
   2020  
2021
   Change $   Change %  2020  
2021
 
                      
   
(Dollars in thousands)
      % of Total Net Revenue 
Net Income (Loss)
  $(57,390 
$
24,674
 
  $82,064    (143.0)%   (33.4)%  
 
13.0
Net income increased by $82.1 million to $24.7 million for the nine months ended September 30, 2021 compared to a net loss of $57.4 million during the same period of the prior year as described above.
CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated financial statements,Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

49

Significant areas for which management uses estimates include:

·asset impairments, including goodwill, broadcasting licenses 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;
·income tax valuation allowances; and
·uncertain tax positions.

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.

We believe the following accounting policies and the related judgments and estimates are critical accounting policies that affect the preparation of our Condensed Consolidated financial statements.

Goodwill, Broadcast Licenses and Other Indefinite-Lived Intangible Assets

We have accounted for acquisitions for which a significant amount of the purchase price was allocated to broadcast licenses and goodwill. Approximately 71% of our total assets at September 30, 2017, consisted of indefinite-lived intangible assets including broadcast licenses, goodwill and mastheads. The value of these indefinite-lived intangible assets depends significantly upon the operating results of our businesses. We do not amortize goodwill or other indefinite-lived intangible assets, but rather test for impairment at least 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.

We believe that our estimate of the value of our broadcast licenses, mastheads, and goodwill is a critical accounting estimate as the value is significant in relation to our total assets, and our estimates incorporate variables and assumptions that are based on experiences and judgment about future operating performance of our markets and business segments. We did not find reconciliation to our current market capitalization meaningful in the determination of our enterprise value given current factors that impact our market capitalization, including but not limited to: limited trading volume, the impact of our publishing segment operating losses and the significant voting control of our Chairman and Chief Executive Officer.

The fair value measurements for our indefinite-lived intangible assets use 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. The fair value measurements for our indefinite-lived intangible assets use significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value including assumptions about risk. The unobservable inputs are defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures” as Level 3 inputs discussed in detail in Note 16.

We are permitted to perform a qualitative assessment as to whether it is more likely than not that an indefinite-lived intangible asset is impaired. This qualitative assessment requires significant judgment in considering events and circumstances that may affect the estimated fair value of our indefinite-lived intangible assets and requires that we weigh these events and circumstances by what we believe to be the strongest to weakest indicator of potential impairment. If it is more likely than not that an impairment exists, we are required to perform a quantitative analysis to estimate the fair value of the assets.

50

Our analysis includes the following events and circumstances that could affect the estimated fair value of indefinite-lived intangible assets, presented in the order of what we believe to be the strongest to weakest indicators of impairment:

(1)the difference between any recent fair value calculations and the carrying value;
(2)financial performance, such as station operating income, including performance as compared to projected results used in prior estimates of fair value;
(3)macroeconomic economic conditions, including limitations on accessing capital that could affect the discount rates used in prior estimates of fair value;
(4)industry and market considerations such as a declines in market-dependent multiples or metrics, a change in demand, competition, or other economic factors;
(5)operating cost factors, such as increases in labor, that could have a negative effect on future expected earnings and cash flows;
(6)legal, regulatory, contractual, political, business, or other factors;
(7)other relevant entity-specific events such as changes in management or customers; and
(8)any changes to the carrying amount of the indefinite-lived intangible asset.

The primary assumptions used in the Greenfield Method are:

(1)gross operating revenue in the station’s designated market area;
(2)normalized market share;
(3)normalized profit margin;
(4)duration of the “ramp-up” period to reach normalized operations, (which was assumed to be three years),
(5)estimated start-up costs (based on market size);
(6)ongoing replacement costs of fixed assets and working capital;
(7)the calculations of yearly net free cash flows to invested capital; and
(8)amortization of the intangible asset, or the broadcast license.

When we are required to perform a quantitative analysis to estimate the fair value of mastheads, the Relief from Royalty method is used. The Relief from Royalty method estimates the fair value of mastheads through use of a discounted cash flow model that incorporates a hypothetical “royalty rate” that a third-party owner would be willing to pay in lieu of owning the asset. The royalty rate is based on observed royalty rates for comparable assets as of the measurement date. We adjust the selected royalty rate to account for a percentage of the royalty fee that could be attributed to the use of other intangibles, such as goodwill, time in existence, trade secrets and industry expertise. The adjusted royalty rate represents the royalty fee remaining that could be attributed to the use of the masthead only.

When performing Step 1 of our annual impairment testing for goodwill, the fair value of each applicable reporting unit is estimated using a discounted cash flow analysis, which is a form of the income approach. The discounted cash flow analysis utilizes a five to seven year projection period to derive operating cash flow projections from a market participant view. We make certain assumptions regarding future revenue growth based on industry market data, historical performance and expected future performance. We also make assumptions regarding working capital requirements and ongoing capital expenditures for fixed assets.

If the results of Step 1 indicate that the fair value of a reporting unit is less than its carrying value, Step 2 is required. Under Step 2, the implied fair value of the reporting unit, including goodwill, is calculated to determine the amount of the impairment.

We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of our indefinite-lived intangible assets, however, these estimates and assumptions are highly judgmental in nature. Actual results can be materially different from these estimates and assumptions. If actual market conditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of our indefinite-lived intangible assets below the amounts reflected on our balance sheet, we may recognize future impairment charges, the amount of which may be material.

Sensitivity of Key Broadcasting LicensesThere have been no significant and Goodwill Assumptions

When estimating the fair value of our broadcasting licenses and goodwill, we make assumptions regarding revenue growth rates, operating cash flow margins and discount rates. These assumptions require substantial judgment, and actual rates and margins may differ materially. We prepare a sensitivity analysis of these assumptions and the hypothetical non-cash impairment charge that would have resulted if our estimated long-term revenue growth rates and estimated discount rates were increased.

Impairment of Long-Lived Assets

We account for property and equipment in accordance with FASB ASC Topic 360-10, “Property, Plant and Equipment.” We periodically review our long-lived assets for impairment whenever events ormaterial changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. In accordance with authoritative guidance for impairment of long-lived assets, we must estimate the fair value of assets when events or circumstances indicate that they may be impaired. The fair value measurements for our long-lived assets use significant observable 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.

We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of our long-lived assets, however, these estimates and assumptions are highly judgmental in nature. Actual results can be materially different from estimates and assumptions. If actual market conditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of long-lived assets below the amounts reflected on our balance sheet, we may recognize future impairment charges, the amount of which may be material.

51

Business Acquisitions

We account for business acquisitions in accordance with the acquisition method ofcritical accounting as specified in FASB ASC Topic 805 “Business Combinations.” The total acquisition consideration is allocated to assets acquired and liabilities assumed based on their estimated fair values as of the date of the transaction. Estimates of the fair value include discounted estimated cash flows to be generated by the assets and their expected useful lives based on historical experience, market trends and any synergies believed to be achieved from the acquisition. The excess of consideration paid over the estimated fair values of the net assets acquired is recorded as goodwill and any excess of fair value of the net assets acquired over the consideration paid is recorded as a gain on bargain purchase. Prior to recording a gain, the acquiring entity must reassess whether all acquired assets and assumed liabilities have been identified and recognized and perform re-measurements to verify that the consideration paid, assets acquired, and liabilities assumed have been properly valued.

Acquisitions may include contingent earn-out consideration, the fair value of which is estimated as of the acquisition date as the present value of the expected contingent payments as determined using weighted probabilities of the payment amounts.

A majority of our radio station acquisitions have consisted primarily of the FCC licenses to broadcast in a particular market. We often do not acquire the existing format, or we change the format upon acquisition when we find it beneficial. As a result, a substantial portion of the purchase price for the assets of a radio station is allocated to the broadcast license.

We may retain a third-party appraiser to estimate the fair value of the acquired net assets as of the acquisition date. As part of the valuation and appraisal process, the third-party appraiser prepares a report assigning estimated fair values to the various asset categories in our financial statements. These fair value estimates are subjective in nature and require careful consideration and judgment. Management reviews the third party reports for reasonableness of the assigned values. We believe that the purchase price allocations represent the appropriate estimated fair value of the assets acquired and we have not had to modify our purchase price allocations.

We estimate the economic life of each tangible and intangible asset acquired to determine the period of time in which the asset should be depreciated or amortized. A considerable amount of judgment is required in assessing the economic life of each asset. We consider our own experience with similar assets, industry trends, market conditions and the age of the property at the time of our acquisition to estimate the economic life of each asset. If the financial condition of the assets were to deteriorate, the resulting change in life or impairment of the asset could cause a material impact and volatility in our operating results. To date, we have not experienced changes in the economic life established for each major category of our assets.

Accounting for Contingent Earn-Out Consideration

Our acquisitions may include contingent earn-out consideration as part of the purchase price under which we will make future payments to the seller upon the achievement of certain benchmarks. The fair value of the contingent earn-out consideration is estimated as of the acquisition date at the present value of the expected contingent payments to be made using a probability-weighted discounted cash flow model for probabilities of possible future payments. The present value of the expected future payouts is accreted to interest expense over the earn-out period. The fair value estimates use unobservable inputs that reflect our own assumptions as to the ability of the acquired business to meet the targeted benchmarks and discount rates used in the calculations. The unobservable inputs are defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” as Level 3 inputs discussed in detail in Note 16.

We review the probabilities of possible future payments to the estimated fair value of any contingent earn-out consideration on a quarterly basis over the earn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the acquired business increase or decreasepolicies as compared to our estimatesthose disclosed in “Management’s Discussion and assumptions, the estimated fair valueAnalysis of the contingent earn-out consideration liability will increase or decrease, up to the contracted limit, as applicable. Changes in the estimated fair valueFinancial Conditions and Results of the contingent earn-out consideration are reflectedOperations—Critical Accounting Policies and Significant Judgments and Estimates” in our results of operations in the period in which they are identified. Changes in the estimated fair value of the contingent earn-out consideration may materially impact and cause volatility in our operating results.

We recorded a net decrease to our estimated contingent earn-out liabilities of $54,000 for the nine months ended September 30, 2017 and net decrease of $458,000 during the same period of the prior year. The changes in our estimates reflect volatility from variables, such most recent Annual Report on Form

10-K,
as revenue growth, page views and session time as discussed in Note 5 – Contingent Earn-Out Consideration.

Fair Value Measurements

FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” established a single definition of fair value in generally accepted accounting principles and requires expanded disclosure requirements about fair value measurements. The provision applies to other accounting pronouncements that require or permit fair value measurements. This includes applying the fair value concept to (i) nonfinancial assets and liabilities initially measured at fair value in business combinations; (ii) reporting units or nonfinancial assets and liabilities measured at fair value in conjunction with goodwill impairment testing; (iii) other nonfinancial assets measured at fair value in conjunction with impairment assessments; and (iv) asset retirement obligations initially measured at fair value.

52

The fair value provisions include guidance on how to estimate the fair value of assets and liabilities in the current economic environment and reemphasize that the objective of a fair value measurement remains an exit price. If we were to conclude that there has been a significant decrease in the volume and level of activity of the asset or liability in relation to normal market activities, quoted market values may not be representative of fair value and we may conclude that a change in valuation technique or the use of multiple valuation techniques may be appropriate.

The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market, and the characteristics specific to the transaction. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have less (or no) pricing observability and a higher degree of judgment utilized in measuring fair value.

FASB ASC Topic 820 established a hierarchal disclosure framework associatedfiled with the level of pricing observability utilized in measuring fair value. This framework defined three levels of inputs to the fair value measurement process and requires that each fair value measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three broad levels of inputs defined by the FASB ASC Topic 820 hierarchy are as follows:

Level 1 Inputs—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;SEC on March 4, 2021.
Level 2 Inputs—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability; and
Level 3 Inputs—unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).

We believe that we have used reasonable estimates and assumptions to calculate the estimated fair value of our financial assets as discussed in Note 16.

Contingency Reserves

In the ordinary course of business, we are involved in various legal proceedings, lawsuits, arbitration and other claims that are complex in nature and have outcomes that are difficult to predict. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters.  Certain of these proceedings are discussed in Note 18, Commitments and Contingencies, contained in our Condensed Consolidated financial statements.

We record contingency reserves to the extent we conclude that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. The establishment of the reserve is based on a review of all relevant factors, the advice of legal counsel, and the subjective judgment of management. The reserves we have recorded to date have not been material to our Condensed Consolidated financial position, results of operations or cash flows.We believe thatour estimates and assumptions are reasonable and that our reserves are accurately reflected.

While we believe that the final resolution of any known maters, individually and in the aggregate, will not have a material adverse effect upon our Condensed Consolidated financial position, results of operations or cash flows, it is possible that we could incur additional losses.We maintain insurance that may provide coverage for such matters. Future claims against us, whether meritorious or not, could have a material adverse effect upon our Condensed Consolidated financial position, results of operations or cash flows, including losses due to costly litigation and losses due to matters that require significant amounts of management time that can result in the diversion of significant operational resources.

Allowance for Doubtful Accounts

We evaluate the balance reserved in our allowance for doubtful accounts on a quarterly basis based on our historical collection experience, the age of the receivables, specific customer information and current economic conditions. Past due balances are generally not written-off until all collection efforts have been exhausted, including use of a collections agency. A considerable amount of judgment is required in assessing the likelihood of ultimate realization of these receivables, including the current creditworthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

Sales Returns and Allowances

We provide for estimated returns for products sold with the right of return, primarily book sales associated with Regnery Publishing and nutritional products sold through Eagle Wellness. We record an estimate of these product returns as a reduction of revenue in the period of the sale. Our estimates are based upon historical sales returns, the amount of current period sales, economic trends and any changes in customer demand and acceptance of our products. We regularly monitor actual performance to estimated return rates and make adjustments as necessary. Estimated return rates utilized for establishing estimated returns reserves have approximated actual returns experience. However, actual returns may differ significantly, either favorably or unfavorably, from these estimates if factors such as the historical data we used to calculate these estimates do not properly reflect future returns or as a result of changes in economic conditions of the customer and/or the market. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

53

Barter Transactions

We may provide broadcast time or digital advertising placement to customers in exchange for certain products, supplies or services. The terms of these exchanges generally permit for the preemption of such broadcast time or digital placements in favor of customers who purchase these items for cash. We include the value of such exchanges in net revenues and operating expenses. The value recorded for barter revenue and barter expense is based upon management’s estimate of the fair value of the products, supplies or services received. We believe that our estimates and assumptions are reasonable and that our barter revenue and barter expense are accurately reflected.

We record barter revenue as it is earned, typically when the broadcast time is used or the digital advertisement is delivered. We record barter expense equal to the estimated fair value of the goods or services received upon receipt or usage of the items as applicable. Barter advertising revenue included in broadcast revenue for the three and nine month periods ended September 30, 2017 was approximately $1.6 million and $4.1 million, respectively, and $1.4 million and $3.8 million for the three and nine month periods ended September 30, 2016, respectively. Barter expenses included in broadcast operating expense for the three and nine month periods ended September 30, 2017 was approximately $1.6 million and $3.9 million, respectively, and $1.3 million and $3.7 million for the three and nine month periods ended September 30, 2016, respectively. Barter advertising revenue included in digital media revenue for the three and nine month periods ended September 30, 2017 was approximately $7,000 and $47,000, respectively, and $14,000 and $36,000 for the three and nine month periods ended September 30, 2016, respectively. Barter expenses included in digital media operating expense for the three and nine month periods ended September 30, 2017 was approximately $1,000 and $84,000, respectively, and $18,000 and $24,500 for the three and nine month periods ended September 30, 2016, respectively.

Inventory Reserves

Inventories consist of finished goods, including published books and wellness products. Inventory is recorded at the lower of cost or market as determined on a First-In First-Out (“FIFO”) cost method. We reviewed historical data associated with book and wellness product inventories held by Regnery Publishing and our e-commerce wellness entities, as well as our own experiences to estimate the fair value of inventory on hand. Our analysis includes a review of actual sales returns, our allowances, royalty reserves, overall economic conditions and product demand. We record a provision to expense the balance of unsold inventory that we believe to be unrecoverable. We regularly monitor actual performance to our estimates and make adjustments as necessary. Estimated inventory reserves may be adjusted, either favorably or unfavorably, if factors such as the historical data we used to calculate these estimates do not properly reflect future returns or as a result of changes in economic conditions of the customer and/or the market. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

Reserves for Royalty Advances

Royalties due to book authors are paid in advance and capitalized. Royalties are expensed as the related book revenues are earned or when we determine that future recovery of the royalty is not likely. We reviewed historical data associated with royalty advances, earnings and recoverability based on actual results of Regnery Publishing. Historically, the longer the unearned portion of an advance remains outstanding, the less likely it is that we will recover the advance through the sale of the book. We apply this historical experience to outstanding royalty advances to estimate the likelihood of recovery. A provision was established to expense the balance of any unearned advance which we believe is not recoverable. Our analysis also considers other discrete factors, such as death of an author, any decision to not pursue publication of a title, poor market demand or other relevant factors. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

Fair Value of Equity Awards

We account for stock-based compensation under the provisions of FASB ASC Topic 718, “Compensation—Stock Compensation.” We record equity awards with stock-based compensation measured at the fair value of the award as of the grant date. We determine the fair value of each award using the Black-Scholes valuation model that requires the input of highly subjective assumptions, including the expected stock price volatility and expected term of the award granted. The exercise price for each award is equal to or greater than the closing market price of Salem Media Group, Inc. common stock as of the date of the award. We use the straight-line attribution method to recognize share-based compensation costs over the expected service period of the award. Upon exercise, cancellation, forfeiture, or expiration of the award, deferred tax assets for awards with multiple vesting dates are eliminated for each vesting period on a first-in, first-out basis as if each vesting period was a separate award. We have not modified our estimates or assumptions used in our valuation model. We believe that our estimates and assumptions are reasonable and that our stock based compensation is accurately reflected in our results of operations.

54

Partial Self-Insurance on Employee Health Plan

We provide health insurance benefits to eligible employees under a self-insured plan whereby we pay actual medical claims subject to certain stop loss limits. We record self-insurance liabilities based on actual claims filed and an estimate of those claims incurred but not reported. Our estimates are based on historical data and probabilities. Any projection of losses concerning our liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors such as future inflation rates, changes in severity, benefit level changes, medical costs and claim settlement patterns. Should the actual amount of claims increase or decrease beyond what was anticipated, we may adjust our future reserves. Our self-insurance liability was $0.8 million at September 30, 2017 and December 31, 2016. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates.

Income Tax Valuation Allowances (Deferred Taxes)

In preparing our Condensed Consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax exposure and assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes. Our judgments, assumptions and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws and possible outcomes of audits conducted by tax authorities. Reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities are established if necessary. Although we believe our judgments, assumptions and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any future tax audits could significantly impact the amounts provided for income taxes in our Condensed Consolidated financial statements.

We calculate our current and deferred tax provisions based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the tax implications are known. Tax law and rate changes are reflected in the income tax provision in the period in which such changes are enacted.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period in which we make such a determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance.

For financial reporting purposes, we recorded a valuation allowance of $4.5 million as of September 30, 2017 and December 31, 2016 to offset $4.2 million of the deferred tax assets related to the state net operating loss carryforwards and $0.3 million associated with asset impairments.

Income Taxes and Uncertain Tax Positions

We are subject to audit and review by various taxing jurisdictions. We may recognize liabilities on our financial statements for positions taken on uncertain tax positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others may be subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the balance sheet. It is inherently difficult and subjective to estimate such amounts, as this requires us to make estimates based on the various possible outcomes. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

We review and reevaluate uncertain tax positions on a quarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an additional charge to the tax provision. During the nine month period ended September 30, 2017, we did not recognize liabilities associated with uncertain tax positions. Accordingly, we have no liabilities for uncertain tax positions recorded at September 30, 2017. Our evaluation was performed for all tax years that remain subject to examination, which range from 2013 through 2016. There is currently one tax examination in process. The City of New York began their audit of Salem’s 2013 and 2014 tax filings. We do not anticipate any material or significant results from the audit.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of funds have beenare operating cash flow,flows, borrowings under credit facilities and proceeds from the sale of selected assets or businesses. We have historically funded, and will continue to fund, expenditures for operations, administrative expenses, and capital expenditures from these sources. We have historically financed acquisitions through borrowings, including borrowings under credit facilities and, to a lesser extent, from operating cash flow and from proceeds on selected asset dispositions. We expect to fund future acquisitions from cash on hand, borrowings under our credit facilities, operating cash flow and possibly through the sale of income-producing assets or proceeds from debt and equity offerings.
The
COVID-19
global pandemic that began in March 2020 materially impacted our business. We have assessedexperienced a rapid decline in revenue from advertising, programming, events and book sales. Several advertisers reduced or ceased advertising spending due to the currentoutbreak and expected economic outlook
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 were particularly hard hit due to social distancing and government interventions, and our currentpublishing segment, which derives revenue from book sales through retail stores and expected needslive events.
55

While we see progress being made in revenue returning to
pre-pandemic
levels, the
COVID-19
pandemic continues to create significant uncertainty and disruption in the economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for fundsdoubtful accounts, impairments and
right-of-use assets.
As a result, many estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
During 2020 we believeimplemented several measures to reduce costs and conserve cash to ensure that the borrowing capacity under our current credit facilities allows uswe had adequate cash to meet our ongoing operatingdebt servicing requirements, fundincluding:
limiting capital expendituresexpenditures;
reducing discretionary spending, including travel and satisfyentertainment;
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 debt service requirementscommon stock indefinitely.
As the economy continues to show signs of recovery, many of these cost reduction initiatives were reversed during 2021. We continue to operate with lower staffing levels, we have not reinstated the company 401(k) match and we have not paid equity distributions on our common stock.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act provided emergency economic assistance for at leastindividuals and businesses impacted by the next twelve months.

55
COVID-19
pandemic, including opportunities for additional liquidity, loan guarantees, and other government programs. On December 27, 2020, Congress passed the Consolidated Appropriations Act (“CAA”) that included a second relief package, which, among other things, provides for an extension of the Payroll Support Program established by the CARES Act. We utilized certain benefits of the CARES Act and the CAA, including:

Our cash

we deferred $3.3 million of employer FICA taxes from April 2020 through December 2020, with 50% payable in December 2021 recorded in accrued compensation and cash equivalents decreased to $4,000 asrelated expenses and 50% payable in December 2022 recorded in other long-term liabilities;
relaxation of September 30, 2017 as compared to $130,000 at December 31, 2016. Working capital decreased $20.7 million to ($5.3) million at September 30, 2017 compared to $15.4 million at December 31, 2016 due to a $9.4 million reclass of current deferredinterest expense deduction limitation for income tax assets upon adoptionpurposes;
we received Paycheck Protection Program (“PPP”) loans of ASU 2015-17, a $6.4$11.2 million increase in accrued interesttotal through the SBA during the first quarter of 2021 based on the Noteseligibility as determined on a
per-location
basis; and a $6.1 million increase
In July 2021, the SBA forgave all but $20,000 of these loans with the remaining PPP loan repaid in Revolver debt on the ABL.

July 2021.

Operating Cash Flows

Our largest source of operating cash inflows are receipts from customers in exchange for advertising and programming. Other sources of operating cash inflows include receipts from customers for digital downloads and streaming, book sales, subscriptions, self-publishing fees, ticket sales, sponsorships, and vendor promotions. The adverse economic impact of the
COVID-19
pandemic negatively impacted our revenue and cash receipts from customers. Advertising revenue continues to improve over the lowest levels that were experienced during April and May of 2020 but remains significantly below prior years. The exact timing and pace of the economic recovery has not been determinable due to varying degrees of restrictions and resurgences. A majority of our operating cash outflows consist of payments to employees, such as salaries and benefits, and vendor payments under facility and tower leases, talent agreements, inventory purchases and recurring services such as utilities and music license fees. Our operating cash flows are subject to factors such as fluctuations in preferred advertising media and changes in demand caused by shifts in population, station listenership, demographics, and audience tastes. In addition, our operating cash flows may be affected if our customers are unable to pay, delay payment of amounts owed to us, or if we experience reductions in revenue, or increases in costs and expenses.

56

Net cash provided by operating activities during the nine monthnine-month period ended September 30, 20172021, decreased by $1.4$8.4 million to $25.2$14.7 million compared to $26.5$23.1 million during the same period of the prior year. The decrease in cashCash provided by operating activities includes the impact of the following items:

·Net operating income decreased to $2.3 million compared to $5.9 million for the same period of the prior year;
·Net accounts receivable decreased $1.4 million;
·Our Day’s Sales Outstanding, or the average number of days to collect cash from the date of sale, increased to 66 days at September 30, 2017 compared to 65 days for the same period of the prior year;
·Net accounts payable and accrued expenses increased $4.5 million to $16.1 million for the nine month period ended September 30, 2017 compared to a decrease of $2.7 million to $19.2 million for the same period of the prior year; and
·Net inventories on hand increased $0.1 million to $0.8 million at September 30, 2017 compared to a decrease of $0.1 million to $0.7 million for the same period of the prior year.

The favorable impact of
non-cash
items on the prior year, including a $17.3 million impairment of indefinite-lived assets and a $31.0 million deferred income tax charge combined with;
Total net revenue increased by $17.4 million;
Operating expenses decreased by $22.6 million;
Trade accounts receivables, net of allowances, did not change significantly compared to a decrease of $6.6 million for the same period of the prior year;
Unbilled revenue increased $0.1 million;
Our Day’s Sales Outstanding, or the average number of days to collect cash from the date of sale, decreased to 53 days at September 30, 2021, from 59 days in the same period of the prior year;
Deferred income tax liabilities increased by $0.4 million compared to an increase of $31.0 million during the same period of the prior year; and
Net accounts payable and accrued expenses increased $1.4 million to $24.7 million from $21.9 million as of the prior year.
Investing Cash Flows

Our primary source of investing cash inflows includes proceeds from the sale or disposal of assets or businesses. Our investingInvesting cash outflows include cash payments made to acquire businesses, to acquire property and equipment and to acquire intangible assets such as domain names. While our focus continues to be on deleveraging the company, we remain committed to explore and pursue strategic acquisitions.

In recent years, our acquisition agreements have contained contingent earn-out arrangements that are payable in the future based on the achievement of predefined operating results. We believe that these contingent earn-out arrangements provide some degree of protection with regard to our cash outflows should these acquisitions not meet our operational expectations.

We plan to fund future purchases and any acquisitions from cash on hand, operating cash flow or our credit facilities. These transactions include the acquisition of WSPZ-AM in our Washington DC market for $0.6 million and an option to acquire radio station KHTE-FM, Little Rock, Arkansas, for $1.2 million in cash during the TBA period under which we are programming the station. The 36 month TBA began on April 1, 2015, and contains an option to extend to 48 months.

We undertake projects from time to time to upgrade our radio station technical facilities and/or FCC broadcast licenses, expand our digital and
web-based
offerings, improve our facilities and upgrade our computer infrastructures. The nature and timing of these upgrades and expenditures can be delayed or scaled back at the discretion of management. Based on our current plans,original 2021 budget, we expect to incur additional capital expenditures of approximately $8.4$1.6 million during the remainder of 2017.

2021.

We plan to fund any future purchases and any future acquisitions from cash on hand, operating cash flow or our credit facilities.
Net cash used inprovided by investing activities increased $4.7 million to $2.8 million during the nine monthnine-month period ended September 30, 2017 decreased $2.5 million to $9.9 million compared to $12.42021, from net cash used of $1.9 million during the same period of the prior year. The decreaseincrease in cash used forprovided by investing activities includes:

·Cash paid for acquisitions decreased $3.8 million to $3.4 million compared to $7.2 million during the same period of the prior year;
·Cash paid for capital expenditures decreased $0.4 million to $6.8 million compared to $7.2 million during the same period of the prior year; and
·Cash paid for capital expenditures reimbursable under tenant improvement allowances decreased $0.4 million to $0.1 million compared to $0.5 million during the same period of the prior year; and
·Proceeds from the sale of assets decreased $2.5 million to $0.6 million compared to $3.1 million during the same period of the prior year.

was the result of:

Receipts from asset sales provided $15.8 million of cash during the nine months ended September 30, 2021, compared to $0.2 million during the same period of the prior year;
We paid $4.6 million in cash for acquisitions during the nine months ended September 30, 2021, compared to $0.4 million during the same period of the prior year;
Cash paid for capital expenditures increased $3.4 million to $6.9 million from $3.5 million; and
We collected $2.4 million in cash from the surrender of split dollar life insurance policies in 2020.
Financing Cash Flows

Financing cash inflows include borrowings under our credit facilities and any proceeds from the exercise of stock options issued under our stock incentive plan. Financing cash outflows include repayments of our credit facilities, the payment of any equity distributions and any payments of amounts due under deferred installments and contingency
earn-out
consideration associated with acquisition activity.

56

We believe that cash payments for deferred installments and contingent earn-out consideration that were entered contemporaneously with an acquisition are appropriately recorded as financing activities. These payments are similarIn April 2021, we filed a prospectus supplement to seller financing arrangements in that cash payments are typically due one to three years after the acquisition date. We referred to guidance in FASB ASC Topic 230-10-45-13 (c) which states that only advance payments, down payments, or other amounts paid at the time of purchase or soon before or after a purchase of property, plant and equipment and other productive assets are investing cash outflows. The guidance clarifies that incurring directly related debt to the seller is a financing transaction and that subsequent payments of that debt are financing cash outflows. This is consistent our shelf registration statement on Form

S-3
with the guidance in FASB ASU 2016-15, “StatementSEC covering the offering, issuance and sale of Cash Flows (Topic 230): Classificationup to $15.0 million of Certain Cash Receipts and Cash Payments,”which clarifies how entities should classify certain cash receipts and cash payments onour Class A Common Stock pursuant to an
at-the-market
facility, with B. Riley Securities, Inc. acting as sales agent. No Common Stock transactions have taken place under the statementfacility.
57

During the nine monthnine-month period ended September 30, 2017, we paid $14,000 in cash for contingent earn-out consideration due under acquisition agreements and $0.2 million in cash for deferred installments.

On May 19, 2017, we closed on a private offering of the Notes and concurrently entered into the ABL Facility. The net proceeds from the offering of the Notes, together with borrowings under the ABL Facility, were used to repay outstanding borrowings, including accrued and unpaid interest, on our previously existing senior credit facilities consisting of the Term Loan B and the Revolver, and to pay fees and expenses incurred in connection with the Notes offering and the ABL Facility.

During the six month period ended June 30, 2017, the principal balances outstanding under our previous credit facilities ranged from $258.0 million to $263.5 million. During the nine month period ended September 30, 2017,2021, the principal balances outstanding under the 2024 Notes, 2028 Notes and the ABL Facility ranged from $258.0$216.3 million to $268.6$218.2 million. TheseAdditionally, during the first quarter of 2021 we received $11.2 million in aggregate principal amount of PPP loans through the SBA available to our radio stations and networks by location under the CAA. The SBA forgave all but $20,000 of the PPP loans during July 2021 resulting in a

pre-tax
gain on the forgiveness of $11.2 million. The remaining $20,000 PPP loan was repaid in July 2021. The outstanding balances were ordinary and customary based on our operating and investing cash needs during this time.

Based on the number of shares of Class A and Class B common stock currently outstanding we expect to pay total annual equity distributions of approximately $6.8 million in 2017. However, the actual declaration of dividends and equity distributions, as well as the establishment of per share amounts, dates of record, and payment dates are subject to final determination by our Board of Directors and depend upon future earnings, cash flows, financial and legal requirements, and other factors. The current policy of the Board of Directors is to review each of these factors on a quarterly basis to determine the appropriate amount, if any, to allocate toward a cash distribution. In recent years, distributions have been approximately 20% of Adjusted EBITDA less cash paid for capital expenditures, less cash paid for income taxes, and less cash paid for interest. Adjusted EBITDA is a non-GAAP financial measure defined in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this quarterly report on Form 10-Q. Future distributions, if any, are likely to be approximately 30% of Adjusted EBITDA less cash paid for capital expenditures, less cash paid for income taxes, and less cash paid for interest.

time

Our sole source of cash available for making any future equity distributions is our operating cash flow, subject to our credit facilities and Notes, which contain covenants that restrict the payment of dividends and equity distributions unless certain specified conditions are satisfied.

On May 6, 2020, our Board of Directors voted to discontinue equity distributions until further notice due to the adverse economic impact of the

COVID-19
pandemic on our financial position, results of operations, and cash flows.
Net cash used in financing activities decreased $1.8 million to $0.1 million during the nine monthnine-month period ended September 30, 2017 increased by $1.3 million2021, compared to $15.4 million from $14.1$1.9 million during the same period of the prior year. The decrease in cash used forin financing activities includes:

A $1.9 million increase in the book overdraft from the prior year;
We exchanged $112.8 million of our Senior Secured Notes due 2024 (the “2024 Notes”) for $114.7 million (reflecting a call premium of 1.688%) of newly issued 7.125% Senior Secured Notes due 2028 (the “2028 Notes”);
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. During July 2021, the SBA forgave all but $20,000 of the PPP loans with the remaining PPP loan repaid in July 2021;
We used $4.7 million in cash to repurchase $4.7 million in face value of the 2024 Notes compared to $3.4 million in cash to repurchase $3.5 million in face value of 2024 Notes during the same period of the prior year; and
Net repayments on our ABL Facility were $5.0 million during the nine-months ended September 30, 2021, compared to net borrowings of $4.2 million during the same period of the prior year.
Long-term debt consists of the following:
   December 31, 2020   
September 30, 2021
 
         
   
(Dollars in thousands)
 
7.125% Senior Secured Notes
  $—     
$
114,731
 
Less unamortized discount and debt issuance costs based on imputed interest rate of 7.64%
   —     
 
(4,048
  
 
 
   
 
 
 
7.125% Senior Secured Notes net carrying value
   —     
 
110,683
 
  
 
 
   
 
 
 
6.75% Senior Secured Notes
   216,341   
 
98,815
 
Less unamortized debt issuance costs based on imputed interest rate of 7.10%
   (2,577  
 
(939
  
 
 
   
 
 
 
6.75% Senior Secured Notes net carrying value
   213,764   
 
97,876
 
  
 
 
   
 
 
 
Asset-Based Revolving Credit Facility principal outstanding (1)
   5,000   
 
—  
 
SBA Paycheck Protection Program loans
   —     
 
—  
 
  
 
 
   
 
 
 
Long-term debt less unamortized discount and debt issuance costs
  $218,764   
$
208,559
 
  
 
 
   
 
 
 
Less current portion
   (5,000  
 
—  
 
  
 
 
   
 
 
 
Long-term debt less unamortized discount and debt issuance costs, net of current portion
  $213,764   
$
208,559
 
  
 
 
   
 
 
 
(1)·We paid
As of September 30, 2021, the remaining principal balanceAsset-Based Revolving Credit Facility (“ABL”), had a borrowing base of $24.6 million, no outstanding on the Term Loan B of $258.0 millionborrowings and terminated the Term Loan B;
·We paid the remaining principal outstanding on the Revolver and terminated the related credit agreement;
·We issued the 6.75% Senior Secured Notes and received gross proceeds of $255.0 million upon issuance;
·We entered into the ABL Facility for $30.0 million and borrowed $39.8$0.3 million of proceeds thereunder;outstanding letters of credit, resulting in a $24.3 million borrowing base availability.
·We subsequently repaid $33.2 million on the ABL Facility;
·We paid $0.2 million of cash against deferred installments due under our purchase agreements during the nine month period ended September 30, 2017 compared
Our weighted average interest rate was 6.65% and 6.94% at December 31, 2020 and September 30, 2021, respectively.
58

In addition to $3.4 million during the same period of the prior year;
·We paid $14,000 of cash due for amounts earned under the contingent earn-out provision of our purchase agreements during the nine month period ended September 30, 2017 compared to $0.1 million during the same period of the prior year;
·The book overdraft use increased $1.8 million to $1.1 million use as of the period ended September 30, 2017 compared to a $0.7 million source for the same period of the prior year; and
·We paid cash equity distributions of $5.1 million on our Class A and Class B common stock compared to $5.0 million for the same period of the prior year.

Salem Media Group, Inc. has no independent assets or operations, the subsidiary guarantees are fulloutstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of September 30, 2021:

$114.7 million aggregate principal amount of 2028 Notes with semi-annual interest payments at an annual rate of 7.125%;
$98.8 million aggregate principal amount of 2024 Notes with semi-annual interest payments at an annual rate of 6.75%; and unconditional and joint and several, and any subsidiaries
Commitment fee of Salem Media Group, Inc. other than0.25% to 0.375% per annum on the subsidiary guarantors are minor.

57
unused portion of the ABL Facility.

6.75%

7.125% Senior Secured Notes

On May 19, 2017,September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million (reflecting a call premium of 1.688%) of newly issued 7.125% Senior Secured Notes due 2028 (“2028 Notes.”) Contemporaneously with the refinancing, we obtained commitments from the holders of the 2028 Notes to purchase up to $50 million in additional 2028 Notes (“Delayed Draw 2028 Notes”), contingent upon satisfying certain performance benchmarks, the proceeds of which are to be used exclusively to repurchase or repay the remaining balance outstanding of the 2024 Notes.
The 2028 Notes and the related guarantees were exchanged and sold to certain holders of the 2024 Notes, whom we believe to be qualified institutional buyers, in a private placementplacement. The 2028 Notes and the related guarantees have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or any state securities laws. The transaction was assessed on a lender-specific level and was accounted for as a debt modification in accordance with FASB ASC Topic 470.
The 2028 Notes which wereare guaranteed on a senior secured basis by our existing subsidiaries (the “Subsidiary Guarantors”). The Notes bear interest at a rate of 6.75% per year and mature on June 1, 2024, unless earlier redeemed or repurchased. Interest initially accrues on the Notes from May 19, 2017 and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2017.

The Notes and the ABL Facility are secured by liens on substantially all of our and the Subsidiary Guarantors’ assets, other than certain excluded assets. The ABL Facility has a first-priority lien on our and the Subsidiary Guarantor’s accounts receivable, inventory, deposit and securities accounts, certain real estate and related assets (the “ABL Priority Collateral”). The Notes are secured by a first-priority lien on substantially all other assets of ours and the Subsidiary Guarantors (the “Notes Priority Collateral”). There is no direct lien on our Federal Communications Commission (“FCC”) licenses to the extent prohibited by law or regulation.

basis. We may redeem the 7.125% Notes, in whole or in part, at any time on or afterprior to June 1, 20202024 at a price equal to 100% of the principal amount of the 2028 Notes plus a “make-whole” premium as of, and accrued and unpaid interest, if any, to, but not including, the redemption date. At any time on or after June 1, 2020,2024, we may redeem some or all of the 2028 Notes at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth in the 2028 Notes Indenture, plus accrued and unpaid interest, if any, to, but not including the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 2028 Notes before June 1, 20202024 with the net cash proceeds from certain equity offerings at a redemption price of 106.75%107.125% of the principal amount plus accrued and unpaid interest, if any, to, but not including the redemption date. We may also redeem up to 10% of the aggregate original principal amount of the 2028 Notes per twelve monthtwelve-month period, before June 1, 2020in connection with up to two redemptions in such twelve-month period, at a redemption price of 103%101% of the principal amount plus accrued and unpaid interest to, but not including, the redemption date.

date

The 2028 Notes mature on June 1, 2028, unless earlier redeemed or repurchased. Interest accrues on the 2028 Notes from September 10, 2021 and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2021. Based on the balance of the 2028 Notes outstanding, we are required to pay $8.2 million per year in interest. As of September 30, 2021, accrued interest on the 2028 Notes was $0.5 million.
The indenture to the 2028 Notes (“2028 Indenture”) contains covenants that, among other things and subject in each case to certain specified exceptions, limit the ability to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets. At September 30, 2021, we were, and we remain, in compliance with all of the covenants under the 7.125% Indenture.
We incurred debt issuance costs of $4.2 million, of which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is deferred with the Delayed Draw 2028 Notes, and $1.1 million, along with $3.0 million from the exchanged 2024 Notes, is being amortized as part of the effective yield on the 2028 Notes.
SBA PPP Loans
We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 based on the eligibility of our radio stations and networks as determined on a
per-location
basis. The PPP loans and accrued interest were forgivable provided that the proceeds were used for eligible purposes, including payroll, benefits, rent and utilities within the covered period. We used the PPP loan proceeds according to the terms and filed timely applications for forgiveness. During July 2021, the SBA forgave all but $20,000 of the PPP loans resulting in a
pre-tax
gain on the forgiveness of $11.2 million. The remaining PPP loan was repaid in July 2021.
59

6.75% Senior Secured Notes
On May 19, 2017, we issued 6.75% Senior Secured Notes (“2024 Notes”) in a private placement. The 2024 Notes are guaranteed on a senior secured basis by our existing subsidiaries (the “Subsidiary Guarantors”). The 2024 Notes bear interest at a rate of 6.75% per year and mature on June 1, 2024, unless they are earlier redeemed or repurchased. Interest is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year.
The 2024 Notes are secured by a first-priority lien on substantially all assets of ours and the Subsidiary Guarantors other than the ABL Facility Priority Collateral (as described below) (the “2024 Notes Priority Collateral”). There is no direct lien on our FCC licenses to the extent prohibited by law or regulation (other than the economic value and proceeds thereof).
The indenture relating to the 2024 Notes (the “Indenture”“2024 Indenture”) contains covenants that, among other things and subject in each case to certain specified exceptions, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets.

The Indenture provides At September 30, 2021, we were, and we remain, in compliance with all of the covenants under the Indenture.

We may from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to repurchase the 2024 Notes in open market transactions, privately negotiated transactions, by tender offer or otherwise, as market conditions warrant.
As described above, on September 10, 2021, we exchanged $112.8 million of the 2024 Notes for $114.7 million of newly issued 2028 Notes, reflecting a call premium of 1.688%. Bond issuance costs of $1.1 million associated with the following events$112.8 million of default (each, an “Eventthe 2024 Notes are being amortized as part of Default”): (i) default in payment of principal or premiumthe effective yield on the 2028 Notes.
On September 24, 2021, we repurchased $4.7 million of the 2024 Notes at maturity, upon repurchase, acceleration, optional redemption or otherwise; (ii) default for 30 days$4.7 million in paymentcash, recognizing a net loss of interest$56,000 after adjusting for bond issuance costs.
Based on the Notes; (iii) the failure by us or certain restricted subsidiaries to comply with other agreements in the Indenture or the Notes, in certain cases subject to notice and lapse of time; (iv) the failure of any guarantee by certain significant Subsidiary Guarantors to be in full force and effect and enforceable in accordance with its terms, subject to notice and lapse of time; (v) certain accelerations (including failure to pay within any grace period) of other indebtedness of ours or any restricted subsidiary if the amount accelerated (or so unpaid) is at least $15 million; (vi) certain judgments for the payment of money in excess of $15 million; (vii) certain events of bankruptcy or insolvency with respect to us or any significant subsidiary; and (vii) certain defaults with respect to any collateral having a fair market value in excess of $15 million. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amountbalance of the 2024 Notes outstanding Notes may declare the principal of the Notes and any accrued interest on the Notes to be due and payable immediately, subject to remedy or cure in certain cases. Certain events of bankruptcy or insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default.

We$98.8 million, we are required to pay $17.2$6.6 million per year in interest on the 2024 Notes. As of September 30, 2017,2021, accrued interest on the 2024 Notes was $6.4$2.3 million.

We incurred debt issuance costs of $6.3$4.2 million, that were recordedof which $2.3 million of third-party debt modification costs are reflected in operating expenses for the current period, $0.8 million is deferred with the Delayed Draw 2028 Notes, and $1.1 million, along with $3.0 million from the exchanged 2024 Notes, is being amortized as a reductionpart of the debt proceeds that are being amortized to non-cash interest expense overeffective yield on the life of the Notes using the effective interest method. During the three and nine month periods ended September 30, 2017, $0.2 million and $0.3 million, respectively, of debt issuance costs associated with the Notes were recognized as interest expense.

2028 Notes.

Asset-Based Revolving Credit Facility

On May 19, 2017, the Company alsowe entered into the ABL Facility pursuant to a Credit Agreement (the “Credit Agreement”) by and among us as a borrower,and our subsidiaries party thereto as borrowers, Wells Fargo Bank, National Association, as administrative agent and lead arranger, and the lenders that are parties thereto. We used the proceeds of the ABL Facility, together with the net proceeds from the Notes offering, to repay the Prior Facility and related fees and expenses. Going forward, the proceeds of the ABL Facility will be used to provide ongoing working capital and for other general corporate purposes (including permitted acquisitions).

The ABL Facility is a five-year $30.0 million revolving credit facility due May 19, 2022,March 1, 2024, which includes a $5.0 million subfacility for standby letters of credit and a $7.5 million subfacility for swingline loans. All borrowings under the ABL Facility accrue interest at a rate equal to a base rate or LIBOR rate plus a spread. The spread, which is based on an availability-based measure, ranges from 0.50% to 1.00% for base rate borrowings and 1.50% to 2.00% for LIBOR rate borrowings. If an event of default occurs, the interest rate may increase by 2.00% per annum. Amounts outstanding under the ABL Facility may be paid and then reborrowed at our discretion without penalty or premium. Additionally, we pay a commitment fee on the unused balance offrom 0.25% to 0.375% per year.

58
year based on the level of borrowings.

Availability under the 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. As of September 30, 2021, the amount available under the ABL Facility was $25.0 million of which none was outstanding. The ABL Facility is secured byhas a first-priority lien on our and the ABLSubsidiary Guarantors’ accounts receivable, inventory, deposit and securities accounts, certain real estate and related assets (the “ABL Facility Priority CollateralCollateral”) and by a second-priority lien on the Notes Priority Collateral. There is no direct lien on the Company’sour FCC licenses to the extent prohibited by law or regulation (other than the economic value and proceeds thereof).

The Credit Agreement includes a springing fixed charge coverage ratio of 1.0 to 1.0, which is tested during the period commencing on the last day At September 30, 2021, we were, and we remain, in compliance with all of the fiscal month most recently ended priorcovenants under Credit Agreement.

60

On September 10, 2021, we entered into the fifth amendment to the date on which Availability (as defined in the Credit Agreement) is less than the greater of 15% of the Maximum Revolver Amount (as defined in the Credit Agreement) and $4.5 million and continuing for a period of 60 consecutive days after the first day on which Availability exceeds such threshold amount. The Credit Agreement also includes other negative covenants that are customary for credit facilities of this type, including covenants that, subject to exceptions described in the Credit Agreement, restrict the ability of the borrowers and their subsidiaries (i) to incur additional indebtedness; (ii) to make investments; (iii) to make distributions, loans or transfers of assets; (iv) to enter into, create, incur, assume or suffer to exist any liens, (v) to sell assets; (vi) to enter into transactions with affiliates; (vii) to merge or consolidate with, or dispose of all assets to a third party, except as permitted thereby; (viii) to prepay indebtedness; and (ix) to pay dividends.

The Credit Agreement provides for the following events of default: (i) default for non-payment of any principal or letter of credit reimbursement when due or any interest, fees or other amounts within five days of the due date; (ii) the failure by any borrower or any subsidiary to comply with any covenant or agreement contained in the Credit Agreement or any other loan document, in certain cases subject to applicable notice and lapse of time; (iii) any representation or warranty made pursuant to the Credit Agreement or any other loan document is incorrect in any material respect when made; (iv) certain defaults of other indebtedness of any borrower or any subsidiary of indebtedness of at least $10 million; (v) certain events of bankruptcy or insolvency with respect to any borrower or any subsidiary; (vi) certain judgments for the payment of money of $10 million or more; (vii) a change of control; and (viii) certain defaults relating to the loss of FCC licenses, cessation of broadcasting and termination of material station contracts. If an event of default occurs and is continuing, the Administrative Agent and the Lenders may accelerate the amounts outstanding under the ABL Facility and may exercise remedies in respectto designate the incurrence of the collateral.

2028 Notes, and any further refinancing of 2024 Notes through the issuance of additional 2028 Notes, as permitted indebtedness thereunder and to effect related arrangements for the interests in the ABL Priority Collateral and the Notes Priority Collateral. We incurred debt issue costs of $0.6$0.9 million that were recorded as an asset and are being amortized to

non-cash
interest expense over the term of the ABL Facility using the effective interest method. During the three and nine monthnine-month periods ended September 30, 2017, $63,0002021, $27,000 and $86,000,$0.1 million, respectively, of debt issuance costs associated with the ABL was amortized to interest expense. During the three and nine-month periods ended September 30, 2020, $30,000 and $0.1 million, respectively, of debt issue costs associated with the Notes were recognized asABL was amortized to interest expense. At September 30, 2017, the blended interest rate on amounts outstanding under the ABL Facility was 2.98%.

We report outstanding balances on the ABL Facility as short-term regardless of the maturity date based on use of the ABL Facility to fund ordinary and customary operating cash needs with frequent repayments. We believe that our borrowing capacity under the ABL Facility allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve months.

Prior Term Loan B and Revolving Credit Facility

Our prior credit facility consisted of a term loan of $300.0 million (“Term Loan B”) and a revolving credit facility of $25.0 million (“Revolver”). The Term Loan B was issued at a discount for total net proceeds of $298.5 million. The discount was amortized to non-cash interest expense over the life of the loan using the effective interest method. For each of the three months ended September 30, 2017 and 2016, approximately $0 and $51,000, respectively, of the discount associated with the Term Loan B was recognized as interest expense. For each of the nine months ended September 30, 2017 and 2016, approximately $74,000 and $155,000, respectively, of the discount associated with the Term Loan B was recognized as interest expense.

The Term Loan B had a term of seven years, maturing in March 2020. On May 19, 2017, we used the net proceeds of the Notes and a portion of the ABL Facility to fully repay amounts outstanding under the Term Loan B of $258.0 million and under the Revolver of $4.1 million. We recorded a loss on the early retirement of long-term debt of $2.1 million, which included $1.5 million of unamortized debt issuance costs on the Term Loan B and the Revolver and $0.6 million of unamortized discount on the Term Loan B.

The following payments or prepayments of the Term Loan B were made during the year ended December 31, 2016 and through the date of the termination, including interest through the payment date as follows:

Date Principal Paid  Unamortized Discount 
  (Dollars in Thousands) 
May 19, 2017 $258,000  $550 
February 28, 2017  3,000   6 
January 30, 2017  2,000   5 
December 30, 2016  5,000   12 
November 30, 2016  1,000   3 
September 30, 2016  1,500   4 
September 30, 2016  750    
June 30, 2016  441   1 
June 30, 2016  750    
March 31, 2016  750    
March 17, 2016  809   2 

Debt issuance costs were amortized to non-cash interest expense over the life of the Term Loan B using the effective interest method. For each of the three months ended September 30, 2017 and 2016, approximately $0 and $140,000, respectively, of the debt issuance costs associated with the Term Loan B were recognized as interest expense. For each of the nine months ended September 30, 2017 and 2016, approximately $203,000 and $423,000 respectively, of the debt issuance costs associated with the Term Loan B were recognized as interest expense.

59

Debt issuance costs associated with the Revolver were recorded as an asset in accordance with ASU 2015-15. The costs were amortized to non-cash interest expense over the five year life of the Revolver using the effective interest method based on an imputed interest rate of 4.58%. For each of the three month periods ended September 30, 2017 and 2016, we recorded amortization of deferred financing costs of approximately $0 and $17,000. For each of the nine month periods ended September 30, 2017 and 2016, we recorded amortization of deferred financing costs of approximately $26,000 and $52,000.

Summary of long-term debt obligations

Long-term debt consisted of the following:

  As of December 31, 2016  As of September 30, 2017 
  (Dollars in thousands) 
6.75% Senior Secured Notes $  $255,000 
Less unamortized debt issuance costs based on imputed interest rate of 7.08%     (6,004)
6.75% Senior Secured Notes net carrying value     248,996 
Asset-Based Revolving Credit Facility principal outstanding     6,629 
Term Loan B principal amount  263,000    
Less unamortized discount and debt issuance costs based on imputed interest rate of 4.78%  (2,371)   
Term Loan B net carrying value  260,629    
Revolver principal outstanding  477    
Capital leases and other loans  568   491 
Long-term debt and capital lease obligations less unamortized debt issuance costs  261,674   256,116 
Less current portion  (590)  (6,741)
Long-term debt and capital lease obligations less unamortized debt issuance costs, net of current portion $261,084  $249,375 
         

In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of September 30, 2017:

·Outstanding borrowings of $6.6 million under the ABL Facility, with interest payments due at LIBOR plus 1.5% to 2.0% per annum;

·$255.0 million aggregate principal amount of Notes with semi-annual interest payments at an annual rate of 6.75% ; and

·Commitment fee of 0.25% to 0.375% on the unused portion of the ABL Facility.

Other Debt

We have several capital leases related to office equipment. The obligation recorded at December 31, 2016 and September 30, 2017 represents the present value of future commitments under the capital lease agreements.

Maturities of Long-Term Debt and Capital Lease Obligations

Principal repayment requirements under all long-term debt agreements outstanding at September 30, 20172021 for each of the next five years and thereafter are as follows:

  Amount 
For the Twelve Months Ended September 30, (Dollars in thousands) 
2018 $6,741 
2019  108 
2020  107 
2021  121 
2022  43 
Thereafter  255,000 
  $262,120 

   
Amount
 
For the Year Ended September 30,
  
(Dollars in
thousands)
 
2022
  $—   
2023
   —   
2024
   98,815 
2025
   —   
2026
   —   
Thereafter
   114,731 
  
 
 
 
  $213,546 
  
 
 
 
Impairment Losses on Goodwill and Indefinite-Lived Intangible Assets

Under FASB ASC Topic 350 “Intangibles—Goodwill and Other,” indefinite-lived intangibles, including broadcast licenses, goodwill and mastheads are not amortized but instead are tested for impairment at least annually, or more frequently if events or circumstances indicate that there may be an impairment. Impairment is measured as the excess of the carrying value of the indefinite-lived intangible asset over its fair value. Intangible assets that have finite useful lives continue to be amortized over their useful lives and are measured for impairment if events or circumstances indicate that they may be impaired. Impairment losses are recorded as operating expenses.

We have incurred significant impairment losses in prior years with regardregards to our indefinite-lived intangible assets.

60

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. During our annual testing in the fourth quarter of 2016, we recognized impairment charges of $7.0 million including a $6.5 million impairment of broadcast licenses and $0.5 million impairment of mastheads. Broadcast licenses were deemed to be impaired in four of the twenty five markets tested. Impairments were recorded in our Cleveland, Dallas, Detroit and Portland market clusters due to an increase in the risk-adjusted discount rate or Weighted Average Cost of Capital (“WACC”). Mastheads were deemed to be impaired due to further reductions in projected net revenues and increases in the WACC. We continue to evaluate our print magazine business due to recurring declines in operating results and projected revenues. Due to operating results during the three month period ended March 31, 2017 that did not meet management’s expectations, we ceased publishing Preaching Magazine, YouthWorker Journal, FaithTalk Magazine and Homecoming® The Magazine upon issuance of the May 2017 publication. We have received purchase offers from third parties interested in acquiring the rights to continue publishing Preaching Magazine, but we have not closed on or agreed to final terms of the sale.

Because of the likelihood that these print magazines would be sold or otherwise disposed of before the end of their previously estimated life, we performed impairment tests as of March 31, 2017. Due to reductions in forecasted operating cash flows and indications of interest from potential buyers, we then recorded an impairment charge of $19,000 associated with mastheads.

We believe that our estimatethe impairments are indicative of trends in the value of our broadcast licenses, mastheads,industry as a whole and goodwill is a critical accounting estimate as the value is significant in relationare not unique to our total assets,company or operations. While impairment charges are

non-cash
in nature and do not violate the covenants on our estimates incorporate variables and assumptions that are based on past experiences and judgment about future operating performance of our markets and business segments. If actual future results are less favorable thandebt agreements, the assumptions and estimates we used, we are subject topotential for future impairment charges the amount of which maycan be material. The fair value measurements for our indefinite-lived intangible assets use significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value including assumptions about risk. The unobservable inputs are defined in FASB ASC Topic 820, “Fair Value Measurementsviewed as a negative factor with regard to forecasted future performance and Disclosures,” as Level 3 inputs discussed in detail in Note 16.

cash flows.

The valuation of intangible assets is subjective and based on estimates rather than precise calculations. The fair value measurements of our indefinite-lived intangible assets use 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. Given the current economic environment and uncertainties that can negatively impact our business, there can be no assurance that our estimates and assumptions made for the purpose of our indefinite-lived intangible fair value estimates will prove to be accurate.

While the impairment charges we have recognized are non-cash in nature and did not violate the covenants on the then existing Revolver and Term Loan B, the potential for future impairment charges can be viewed as a negative factor with regard to forecasted future performance and cash flows. We believe that we have adequately considered the potential for an economic downturn in our valuation models and do not believe that the non-cash impairments in and of themselves are a liquidity risk.

OFF-BALANCE
SHEET ARRANGEMENTS

At September 30, 2017,2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating
off-balance
sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

DERIVATIVE INSTRUMENTS

We are exposed to fluctuations in interest rates. We actively monitor these fluctuations and use derivative instruments from time to time to manage the related risk. In accordance with our risk management strategy, we may use derivative instruments only

Not required for the purposesmaller reporting companies
61

Table of managing risk associated with an asset, liability, committed transaction, or probable forecasted transaction that is identified by management. Our use of derivative instruments may result in short-term gains or losses that may increase the volatility of our earnings.

Under FASB ASC Topic 815, “Derivatives and Hedging,” the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument shall be reported as a component of other comprehensive income (outside earnings) and reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. The remaining gain or loss on the derivative instrument, if any, shall be recognized currently in earnings.

On March 27, 2013, we entered into an interest rate swap agreement with Wells Fargo that began on March 28, 2014 with a notional principal amount of $150.0 million. The agreement was entered to offset risks associated with the variable interest rate on the Term Loan B. Payments on the swap were due on a quarterly basis with a LIBOR floor of 0.625%. The swap was to expire on March 28, 2019 at a fixed rate of 1.645%. The interest rate swap agreement was not designated as a cash flow hedge, and as a result, all changes in the fair value were recognized in the current period statement of operations rather than through other comprehensive income. On May 19, 2017, we paid $0.8 million to terminate the interest rate swap.

  As of December 31, 2016  As of September 30, 2017 
  (Dollars in thousands) 
Fair value of interest rate swap $514  $ 

On May 19, 2017, we entered into a new senior credit facility, which is an asset-based revolving credit facility (“ABL Facility”). The ABL Facility is a five-year $30.0 million (subject to borrowing base) revolving credit facility maturing on May 19, 2022. Amounts outstanding under the ABL Facility bear interest at a rate based on LIBOR plus a spread of 1.50% to 2.0% per annum based on a pricing grid depending on the average available amount for the most recently ended quarter or at the Base Rate (as defined in the Credit Agreement) plus a spread of 0.50% to 1.0% per annum based on a pricing grid depending on the average available amount for the most recently ended quarter. Additionally, we pay a commitment fee on the unused balance of 0.25% to 0.38% per year. If an event of default occurs, the interest rate may increase by 2.00% per annum. Amounts outstanding under the ABL Facility may be paid and then re-borrowed at our discretion without penalty or premium.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.
Our management, including our principal executive and financial officers, have conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined under Rules
13a-15(e)
and
15d-15(e)
of the Exchange Act, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and financial officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting
There waswere no changechanges in our internal control over financial reporting identified in connection with the evaluation required by Rule
13a-15(d)
and
15d-15(d)
of the Exchange Act that occurred during the three month periodquarter ended September 30, 20172021 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We and our subsidiaries, incident to our business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. We maintain insurance that may provide coverage for such matters. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. We believe, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon our annual consolidated financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS.

We have included in Part I, Item 1A of our Annual Report on Form 10-K

Not required for the year ended December 31, 2016 (the “2016 Annual Report”) a description of certain risks and uncertainties that could affect our business, future performance or financial condition, which was updated or supplemented by risk factors included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and our Quarterly report on Form 10-Q for the quarter ended June 30, 2017 (collectively, the “Risk Factors”). The Risk Factors are hereby incorporated in Part II, Item 1A of this Form 10-Q. Investors should consider the Risk Factors, as updated and supplemented, prior to making an investment decision with respect to our stock. There are no material changes from the Risk Factors disclosed in the 2016 Annual Report and the Form 10-Q for the quarter ended June 30, 2017.

62
smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable

Applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

See “Exhibit Index” below.

62

EXHIBIT INDEX
Exhibit
Number
  63
Exhibit Description
  
Form
File No.
Date of First Filing
Exhibit
Number
Filed
Herewith
31.1Certification of Edward G. Atsinger III Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.----X
31.2Certification of Evan D. Masyr Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.----X
32.1Certification of Edward G. Atsinger III Pursuant to 18 U.S.C. Section 1350.----X
32.2Certification of Evan D. Masyr Pursuant to 18 U.S.C. Section 1350.----X
101The following financial information from the Quarterly Report on Form 10Q for the three and nine months ended September 30, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets (ii) Condensed Consolidated Statements of Operations (iii) the Condensed Consolidated Statements of Cash Flows (iv) the Notes to the Condensed Consolidated Financial Statements.----X
104The cover page of this Quarterly Report on Form
10-Q,
formatted in inline XBRL.
----X

63

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Salem Media Group, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 SALEM MEDIA GROUP, INC.
November 8, 20174, 2021  
 By: /s/
/s/ EDWARD G. ATSINGER III
 
  Edward G. Atsinger III
 
  Chief Executive Officer
 
  (Principal Executive Officer)
November 4, 2021 
 
November 8, 2017 
 
 By: /s/
/s/ EVAN D. MASYR
 
  Evan D. Masyr
 
  Executive Vice President and Chief Financial Officer
 
  (Principal Financial Officer)

64

EXHIBIT INDEX

Exhibit

Number

 Exhibit Description Form File No. Date of
First Filing
 Exhibit
Number
 Filed
Herewith
10.1 Employment Agreement with David A.R. Evans dated as of September 15, 2017. 8-K 000-26497 09/19/2017 99.1  
10.2 Assignment and Assumption of Real Property Rights and Obligations under Asset Purchase Agreement dated September 12, 2017 between AM 570 LLC and Salem Radio Properties, Inc.   8-K 000-26497 09/20/2017 10.1  
10.3 Local Programming and Marketing Agreement dated September 15, 2017 between AM 570 LLC and Salem Media of Virginia, Inc. 8-K 000-26497 09/20/2017 10.2  
10.4 Asset Purchase Agreement dated September 15, 2017 between AM 570 LLC and Salem Media of Virginia, Inc. 8-K 000-26497 09/20/2017 10.3  
10.5 Transmitter Site Lease Agreement dated September 15, 2017 between Salem Radio Properties, Inc. and AM 570, LLC. 8-K 000-26497 09/20/2017 10.4 -
31.1 Certification of Edward G. Atsinger III Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act. - - - - X
31.2 Certification of Evan D. Masyr Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act. - - - - X
32.1 Certification of Edward G. Atsinger III Pursuant to 18 U.S.C. Section 1350. - - - - X
32.2 Certification of Evan D. Masyr Pursuant to 18 U.S.C. Section 1350. - - - - X
101 The following financial information from the Quarterly Report on Form 10Q for the three and nine months ended September 30, 2017, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets (ii) Condensed Consolidated Statements of Operations (iii) the Condensed Consolidated Statements of Cash Flows (iv) the Notes to the Condensed Consolidated Financial Statements. - - - - X

65
64