UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

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

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER000-26497

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)		(I.R.S. EMPLOYER IDENTIFICATION NUMBER)

4880 SANTA ROSA ROAD CAMARILLO, CALIFORNIA		93012
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		(ZIP CODE)

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

Title of each Class

Trading Symbol(s)

Name of each exchange

on which registered

Class A Common Stock, $0.01 par value per share

SALM

NASDAQ Global Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-2 of the Exchange Act.

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 Rule12b-2 of the Exchange Act). Yes ☐ No ☒

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


Class A		Outstanding at ~~November~~May 2, ~~2018~~2019
Common Stock, $0.01 par value per share		20,632,416 shares


Class B		Outstanding at ~~November~~May 2, ~~2018~~2019
Common Stock, $0.01 par value per share		5,553,696 shares

SALEM MEDIA GROUP, INC.

INDEX


	PAGE NO.
COVER PAGE

INDEX

FORWARD LOOKING STATEMENTS		2

PART I - FINANCIAL INFORMATION		3

Item 1. Condensed Consolidated Financial Statements.		3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		36

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		7159

Item 4. Controls and Procedures.		7259

PART II - OTHER INFORMATION		7260

Item 1. Legal Proceedings.		7260

Item 1A. Risk Factors.		7260

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		7260

Item 3. Defaults Upon Senior Securities.		7260

Item 4. Mine Safety Disclosures.		7260

Item 5. Other Information.		7260

Item 6. Exhibits.		7260

EXHIBIT INDEX		7361

SIGNATURES		7462

CERTAIN DEFINITIONS

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

~~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 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 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 Forms10-K,10-Q and8-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 report. Any such forward-looking statements, whether made in this 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”).

PART I – FINANCIAL INFORMATION

SALEM MEDIA GROUP, INC.

ITEM 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, 2017 (Note 1)			September 30, 2018 (Unaudited)				December 31, 2018 (Note 1)			March 31, 2019 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	3		$	17			$	117		$	4
Trade accounts receivable (net of allowances of $11,019 in 2017 and $10,764 in 2018)			32,545			35,058
Trade accounts receivable (net of allowances of $9,732 in 2018 and $8,858 in 2019)										33,020			30,405
Unbilled revenue			2,298			2,149				2,513			2,107
Other receivables (net of allowances of $227 in 2017 and $163 in 2018)			820			898
Inventories (net of reserves of $1,657 in 2017 and $796 in 2018)			730			891
Other receivables (net of allowances of $158 in 2018 and $9 in 2019 )										806			916
Inventories (net of reserves of $994 in 2018 and $1,079 in 2019)										677			533
Prepaid expenses			6,824			7,376				6,504			5,117
Assets held for sale			3,500			1,375				—			750

Total current assets			46,720			47,764				43,637			39,832

Land held for sale			1,000			—
Notes receivable (net of allowance of $759 in 2017 and $748 in 2018)			53			217
Property and equipment (net of accumulated depreciation of $164,720 in 2017 and $167,934 in 2018)			99,480			96,712
Notes receivable (net of allowance of $733 in 2018 and $1,016 in 2019)										218			998
Property and equipment (net of accumulated depreciation of $170,756 in 2018 and $173,055 in 2019)										96,344			95,546
Operating leaseright-of-use assets										—			63,120
Financing leaseright-of-use assets										164			219
Broadcast licenses			380,914			379,182				376,316			372,025
Goodwill			26,424			26,789				26,789			26,445
Other indefinite-lived intangible assets			313			313				277			277
Amortizable intangible assets (net of accumulated amortization of $47,179 in 2017 and $51,545 in 2018)			13,104			12,899
Amortizable intangible assets (net of accumulated amortization of $53,180 in 2018 and $52,279 in 2019)										11,264			9,639
Deferred financing costs			550			397				381			338
Deferred income taxes			1,070			1,070
Other assets			3,191			3,590				3,638			3,828

Total assets		$	572,819		$	568,933			$	559,028		$	612,267

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,584		$	4,583			$	2,187		$	5,211
Accrued expenses			9,281			10,877				10,104			9,140
Accrued compensation and related expenses			7,643			9,556				7,582			9,227
Accrued interest			1,445			5,521				1,375			5,238
Contract liabilities			12,763			12,348				11,537			11,581
Deferred rent expense			152			142
Deferred rent income										108			108
Income taxes payable			172			241				267			397
Current portion of long-term debt and capital lease obligations			9,109			10,228
Current portion of operating lease liabilities										—			9,464
Current portion of financing (capital) lease liabilities										58			74
Current portion of long-term debt										19,660			16,000

Total current liabilities			42,149			53,496				52,878			66,440

Long-term debt and capital lease obligations, less current portion			249,579			240,182
Long-term debt, less current portion										234,030			227,683
Operating lease liabilities, less current portion										—			61,847
Financing (capital) lease liabilities, less current portion										105			156
Deferred income taxes			34,151			33,850				35,272			29,968
Deferred rent expense, long term			13,644			13,339				9,382			—
Contract liabilities, long-term			1,951			1,553				1,379			1,418
Deferred rent income, less current										4,049			4,026
Other long-term liabilities			64			62				64			64

Total liabilities			341,538			342,482				337,159			391,602

Commitments and contingencies (Note 18)
Commitments and contingencies (Note 17)
Stockholders’ Equity:	Stockholders’ Equity:							Stockholders’ Equity:
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 22,932,451 and 22,950,066 issued and 20,614,801 and 20,632,416 outstanding at December 31, 2017 and September 30, 2018, respectively			227			227
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2017 and September 30, 2018, respectively			56			56
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 22,950,066 issued and 20,632,416 outstanding at December 31, 2018 and March 31, 2019										227			227
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2018 and March 31, 2019										56			56
Additionalpaid-in capital			244,634			245,040				245,220			245,396
Accumulated earnings			20,370			15,134				10,372			8,992
Treasury stock, at cost (2,317,650 shares at December 31, 2017 and September 30, 2018)			(34,006	)		(34,006	)
Treasury stock, at cost (2,317,650 shares at December 31, 2018 and March 31, 2019)										(34,006	)		(34,006	)

Total stockholders’ equity			231,281			226,451				221,869			220,665

Total liabilities and stockholders’ equity		$	572,819		$	568,933			$	559,028		$	612,267

See accompanying notes

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						Three Months Ended
	September 30,						September 30,						March 31,
	2017			2018			2017			2018			2018			2019
Net broadcast revenue	$	48,424		$	48,812		$	145,479		$	147,425		$	48,050		$	46,093
Net digital media revenue		10,446			10,397			31,998			31,051			10,394			10,240
Net publishing revenue		6,563			6,319			19,048			17,119			5,351			4,136

Total net revenue		65,433			65,528			196,525			195,595			63,795			60,469

Operating expenses:
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $534 and $564 for the three months ended September 30, 2017 and 2018, respectively, and $1,648 and $1,699 for the nine months ended September 30, 2017 and 2018, respectively, paid to related parties)		37,040			37,158			108,807			110,151
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $561 and $436 for the three months ended March 31, 2018 and 2019, respectively, paid to related parties)														35,750			36,449
Digital media operating expenses, exclusive of depreciation and amortization shown below		8,169			8,021			25,241			24,792			8,374			8,058
Publishing operating expenses, exclusive of depreciation and amortization shown below		6,686			6,210			18,705			17,319			5,587			4,822
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $98 and $41 for the three months ended September 30, 2017 and 2018, respectively, and $237 and $198 for the nine months ended September 30, 2017 and 2018, respectively, paid to related parties)		4,233			3,987			13,183			11,938
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $63 and $7 for the three months ended March 31, 2018 and 2019, respectively, paid to related parties)														3,921			3,871
Depreciation		3,082			3,032			9,171			9,076			3,009			2,933
Amortization		1,135			1,604			3,420			4,558			1,478			1,296
Change in the estimated fair value of contingentearn-out consideration		(12	)		—			(54	)		72
Impairment of indefinite-lived long-term assets other than goodwill		—			—			19			—
Net (gain) loss on the disposition of assets		95			(759	)		(410	)		4,400			5			4,024

Total operating expenses		60,428			59,253			178,082			182,306			58,124			61,453

Operating income		5,005			6,275			18,443			13,289
Operating income (loss)														5,671			(984	)
Other income (expense):
Interest income		1			2			3			4			2			1
Interest expense		(4,802	)		(4,507	)		(12,156	)		(13,779	)		(4,518	)		(4,425	)
Change in the fair value of interest rate swap		—			—			357			—
Gain (loss) on early retirement of long-term debt		—			—			(2,775	)		234
Net miscellaneous income and (expenses)		(80	)		1			(80	)		(12	)
Gain on early retirement of long-term debt														—			426
Net miscellaneous income and expenses														75			1

Net income (loss) before income taxes		124			1,771			3,792			(264	)		1,230			(4,981	)
Provision for (benefit from) income taxes		170			564			1,506			(132	)		402			(5,303	)

Net income (loss)	$	(46	)	$	1,207		$	2,286		$	(132	)
Net income													$	828		$	322

Basic earnings (loss) per share data:
Basic earnings (loss) per share	$	—		$	0.05		$	0.09		$	(0.01	)
Diluted earnings (loss) per share data:
Diluted earnings (loss) per share	$	—		$	0.05		$	0.09		$	(0.01	)
Distributions per share	$	0.07		$	0.07		$	0.20		$	0.20
Basic weighted average shares outstanding		26,144,796			26,183,910			26,036,333			26,177,565
Basic earnings per share data:
Basic earnings per share Class A and Class B common stock													$	0.03		$	0.01
Diluted earnings per share data:
Diluted earnings per share Class A and Class B common stock													$	0.03		$	0.01
Basic weighted average Class A and Class B shares outstanding														26,171,539			26,186,112

Diluted weighted average shares outstanding		26,144,796			26,312,194			26,454,923			26,177,565
Diluted weighted average Class A and Class B shares outstanding														26,304,891			26,193,307

See accompanying notes

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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


	Class A Common Stock				Class B Common Stock				Additional Paid-In		Retained			Treasury
	Shares		Amount		Shares		Amount		Capital		Earnings			Stock			Total
Stockholders’ equity, December 31, 2018		22,950,066	$	227		5,553,696	$	56	$	245,220	$	10,372		$	(34,006	)	$	221,869
Stock-based compensation		—		—		—		—		176		—			—			176
Cash distributions		—		—		—		—		—		(1,702	)		—			(1,702	)
Net income		—		—		—		—		—		322			—			322

Stockholders’ equity, March 31, 2019		22,950,066	$	227		5,553,696	$	56	$	245,396	$	8,992		$	(34,006	)	$	220,665

Distributions per share	$	0.065			$	0.065

	Class A Common Stock				Class B Common Stock				Additional Paid-In		Retained			Treasury
	Shares		Amount		Shares		Amount		Capital		Earnings			Stock			Total
Stockholders’ equity, December 31, 2017		22,932,451	$	227		5,553,696	$	56	$	244,634	$	20,370		$	(34,006	)	$	231,281
Stock-based compensation		—		—		—		—		46		—			—			46
Options exercised		8,125		—		—		—		19		—			—			19
Cash distributions		—		—		—		—		—		(1,701	)		—			(1,701	)
Net income		—		—		—		—		—		828			—			828

Stockholders’ equity, March 31, 2018		22,940,576	$	227		5,553,696	$	56	$	244,699	$	19,497		$	(34,006	)	$	230,473

Distributions per share	$	0.065			$	0.065

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2018			2018			2019
OPERATING ACTIVITIES
Net income (loss)	$	2,286		$	(132	)
Net income							$	828		$	322
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash stock-based compensation		1,693			363			46			176
Depreciation and amortization		12,591			13,634			4,487			4,229
Amortization of deferred financing costs		645			855			270			258
Accretion of financing items		74			—
Non-cash lease expense								—			2,267
Accretion of acquisition-related deferred payments and contingent consideration		32			24			16			1
Provision for bad debts		1,548			1,498			146			320
Deferred income taxes		1,409			(301	)		382			(5,304	)
Change in the fair value of interest rate swap		(357	)		—
Change in the estimated fair value of contingentearn-out consideration		(54	)		72
Impairment of indefinite-lived long-term assets other than goodwill		19			—
(Gain) loss on early retirement of long-term debt		2,775			(234	)
(Gain) loss on the disposition of assets		(410	)		4,400
Gain on early retirement of long-term debt								—			(426	)
Net (gain) loss on the disposition of assets								5			4,024
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue		(463	)		(3,829	)		1,176			1,758
Inventories		(139	)		(161	)		(78	)		(256	)
Prepaid expenses and other current assets		(1,001	)		(560	)		(69	)		1,387
Accounts payable and accrued expenses		5,152			7,224			6,629			3,449
Deferred rent expense		(3	)		(304	)		(119	)		—
Operating lease liabilities								—			(3,458	)
Contract liabilities		(577	)		(2,380	)		(938	)		133
Other liabilities		(3	)		(40	)
Deferred rent income								(23	)		(43	)
Income taxes payable		(49	)		69			115			130

Net cash provided by operating activities		25,168			20,198			12,873			8,967

INVESTING ACTIVITIES
Cash paid for capital expenditures net of tenant improvement allowances		(6,800	)		(6,513	)		(2,472	)		(2,404	)
Capital expenditures reimbursable under tenant improvement allowances and trade agreements		(50	)		(77	)		(4	)		—
Escrow deposits paid related to acquisitions		(30	)		—			(240	)		—
Purchases of broadcast assets and radio stations		(1,662	)		(6,534	)
Escrow deposits received related to radio station sale								500			—
Purchases of digital media businesses and assets		(1,690	)		(4,320	)		—			(100	)
Proceeds from sale of assets		602			8,518			1			1,255
Other		(224	)		(398	)		(170	)		(139	)

Net cash used in investing activities		(9,854	)		(9,324	)		(2,385	)		(1,388	)

FINANCING ACTIVITIES
Payments under Term Loan B		(263,000	)		—
Payments to repurchase 6.75% Senior Secured Notes		—			(9,550	)		—			(6,123	)
Proceeds from borrowings under Revolver and ABL Facility		60,133			111,337
Payments on Revolver and ABL Facility		(53,980	)		(110,137	)
Payment of interest rate swap		(783	)		—
Proceeds from bond offering		255,000			—
Payment of debt issuance costs		(6,837	)		(11	)
Payments of acquisition-related contingentearn-out consideration		(14	)		(140	)
Payments of deferred installments due from acquisition activity		(225	)		—
Proceeds from borrowings under ABL Facility								10,334			22,189
Payments on ABL Facility								(19,334	)		(25,849	)
Refund (payments) of debt issuance costs								41			(13	)
Proceeds from the exercise of stock options		501			43			19			—
Payments of capital lease obligations		(93	)		(73	)
Payments on financing lease liabilities								(31	)		(21	)
Payment of cash distribution on common stock		(5,089	)		(5,104	)		(1,701	)		(1,702	)
Book overdraft		(1,053	)		2,775			187			3,827

Net cash used in financing activities		(15,440	)		(10,860	)		(10,485	)		(7,692	)

Net increase (decreased) in cash and cash equivalents		(126	)		14
Net increase (decrease) in cash and cash equivalents								3			(113	)
Cash and cash equivalents at beginning of year		130			3			3			117

Cash and cash equivalents at end of period	$	4		$	17		$	6		$	4

See accompanying notes

SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollars in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2017		2018
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Cash paid for interest, net of capitalized interest	$	4,962	$	8,794	$	73		$	302
Cash paid for income taxes, net of refunds	$	128	$	99
Cash paid for interest on finance lease liabilities					$	—		$	2
Cash (received) paid for income taxes					$	(95	)	$	130
Other supplemental disclosures of cash flow information:
Barter revenue	$	4,152	$	5,018	$	1,737		$	1,310
Barter expense	$	4,012	$	4,223	$	1,266		$	1,356
Non-cash investing and financing activities:
Capital expenditures reimbursable under tenant improvement allowances	$	50	$	77	$	4		$	—
Net assets acquired and liabilities assumed in anon-cash acquisition	$	2,852	$	—
Deferred payments on acquisitions	$	—	$	326
Assets acquired under capital lease	$	16	$	56
Right-of-use assets acquired through operating leases					$	—		$	288
Non-cash capital expenditures for property & equipment acquired under trade agreements	$	—	$	90	$	9		$	—
Debt issuance costs accrued	$	132	$	—

See accompanying notes

SALEM MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION ~~AND SIGNIFICANT ACCOUNTING POLICIES~~

~~The accompanying Condensed Consolidated Financial Statements of~~ Salem Media Group, Inc. (“Salem” “we,” “us,” “our” or the “company”) is a domestic multimedia company specializing in Christian and conservative content. Our media properties include radio broadcasting, digital media, and publishing entities. We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which are discussed in Note 21 – Segment Data.

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

Information with respect to the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ 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 Form10-Q and Article 10 of RegulationS-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations and cash flows of the company. The unaudited interim financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report for Salem filed on Form10-K for the year ended December 31, ~~2017.~~2018. Our results are subject to seasonal fluctuations. Therefore, the results of operations for the interim periods presented are not necessarily indicative of the results of operations for the full year.

The balance sheet at December 31, ~~2017~~2018 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 include radio broadcasting, digital media, and publishing entities. We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which are discussed in Note 19 – Segment Data. Our foundational business is radio broadcasting, which includes the ownership and operation of radio stations in large metropolitan markets. We also own and operate Salem Radio Network^TM ~~(“SRN”), SRN News Network~~^TM ~~(“SNN”), Today’s Christian Music~~^TM ~~(“TCM”), Singing News Radio~~^TM ~~and Salem Media Representatives~~^TM (“SMR”). SRN, SNN, TCM and Singing News Radio are networks that develop, produce and syndicate a broad range of programming specifically targeted to Christian and family-themed talk stations, music stations and general 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. 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 BibleStudyTools.com™, Crosswalk.com~~^®~~, GodVine.com™, iBelieve.com, GodTube.com™, OnePlace.com™, Christianity.com™, GodUpdates.com~~^TM~~, CrossCards.com™, ChristianHeadlines.com~~^TM~~, LightSource.com™, AllCreated.com~~^TM~~, ChristianRadio.com™, CCMmagazine.com™, SingingNews.com™ and SouthernGospel.com™ and our conservative opinion website, collectively known as Townhall Media~~^TM~~, include Townhall.com~~^®~~, HotAir.com™, Twitchy.com~~^TM~~, RedState.com~~^TM~~, BearingArms.com~~^TM~~, HumanEvents.com~~^TM~~, and ConservativeRadio.com~~^TM~~. We also publish digital newsletters through Eagle Financial Publications~~^TM~~, which provide market analysis andnon-individualized~~ ~~investment strategies from financial commentators on a subscription basis.~~

~~Our churche-commerce~~ ~~websites, including SermonSearch.com, ChurchStaffing.com™, WorshipHouseMedia.com~~^TM~~, SermonSpice.com™, WorshipHouseKids.com~~^TM~~, Preaching.com~~^TM~~, ChristianJobs.com™, Youthworker.com~~^TM ~~and Childrens-Ministry-Deals.com, offer a variety of digital resources including videos, song tracks, sermon archives, job listings and Sunday school curriculum to pastors and Church leaders.E-commerce~~ ~~also includes wellness products through Newport Natural Health~~^TM~~, which is a seller of 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 includes three businesses: (1) Regnery Publishing~~^TM, a traditional book publisher that has published dozens of bestselling books by leading conservative authors and personalities, including David Limbaugh, Sebastian Gorka, Ed Klein, Mark Steyn and Second Lady Karen Pence; (2) Salem Author Services, a self-publishing service for authors through Xulon Press, Mill City Press and Bookprinting.com; and (3) ~~Singing News~~^® ~~a print magazine.~~

~~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 consolidated in the financial statements if we 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 for 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, depending on the facts and circumstances related to each transaction. As of September 30, 2018, we did not have implicit or explicit arrangements that required consolidation under the guidance in FASB ASC Topic 810.

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 differ from those estimates.

Significant areas for which management uses estimates include:

revenue recognition,

asset impairments, including ~~goodwill,~~ broadcasting licenses, goodwill and other indefinite-lived intangible ~~assets, and assets held for sale;~~assets;

probabilities associated with the potential for contingentearn-out consideration;

fair value measurements;

contingency reserves;

allowance for doubtful accounts;

sales returns and allowances;

barter transactions;

inventory reserves;

reserves for royalty advances;

fair value of equity awards;

self-insurance reserves;

estimated lives for tangible and intangible assets;

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

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

income tax valuation allowances; and

uncertain tax ~~positions.~~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.

Reclassifications

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. These reclassifications include ~~reclassifications of contract liabilities associated with~~ the ~~adoption of new revenue recognition guidance as of~~accounting for finance lease obligations under Accounting Standards Codification (“ASC”) Topic 842,Leases (“ASC 842”) issued under ASU2016-02 on January 1, ~~2018.~~2019.

~~Significant Accounting Policies~~NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for our accounting policies for ~~revenue recognition, deferred revenue, and deferred commissions that were updated as~~leases a result of adopting ASC ~~Topic 606,~~842, there have been no changes to our significant accounting policies described in Note 12 to our Annual Report on Form10-K for the year ended December 31, ~~2017,~~2018, filed with the SEC on March ~~15, 2018,~~12, 2019, that have had a material impact on our Condensed Consolidated Financial Statements and related notes.

~~Revenue Recognition~~Leases

We adopted ~~Accounting Standards Codification (“ASC”) Topic 606,~~~~Revenue from Contracts with Customers~~ (“ASC ~~Topic 606”)~~842 on January 1, ~~2018~~2019 using the modified retrospective ~~method.~~basis and did not restate comparative periods as permitted under Accounting Standards Update (“ASU”) 2018-11. ASC 842 supersedes nearly all existing lease accounting guidance under GAAP issued by the Financial Accounting Standards Board (“FASB”) including ASC Topic 840, Leases. ASC 842 requires that lessees recognize ROU assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months. ASC 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the statement of operations and statement of cash flows.

For operating leases, we calculated ROU assets and lease liabilities based on the present value of the remaining lease payments as of the date of adoption using the IBR as of that date. There were no changes in our capital lease portfolio, which are now titled “finance leases” under ASC 842, other than the reclassification of the assets acquired under capital leases from their respective property and equipment category and long-term debt to ROU assets and lease liabilities.

The adoption of ASC 842 resulted in recording anon-cash transitional adjustment to operating lease ROU assets and operating lease liabilities of $65.0 million and $74.4 million, respectively. The difference between the operating lease ROU assets and operating lease liabilities at transition represented existing deferred rent expense and prepaid rent that was derecognized. The adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof. Refer to Note 8 for more information.

The FASB issued practical expedients and accounting policy elections that we have applied as described below.

Practical Expedients

ASC 842 provides a package of three practical expedients that must be adopted together and applied to all lease agreements. We elected the package of practical expedients as follows for all leases:

Whether expired or existing contracts contain leases under the new definition of a lease.

Because the accounting for operating leases and service contracts was similar under ASC 840, there was no accounting reason to separate lease agreements from service contracts in order to account for them correctly. We reviewed existing service contracts to determine if the agreement contained an embedded lease to be accounted for on the balance sheet under ASC 842.

Lease classification for expired or existing leases.

Leases that were capital leases under ASC 840 are accounted for as financing leases under ASC 842 while leases that were operating leases under ASC 840 are accounted for as operating leases under ASC 842.

Whether previously capitalized initial direct costs would meet the definition of initial direct costs under the new standard guidance.

The definition of initial direct costs is more restrictive under ASC 842 than under ASC 840. Entities that do not elect the practical expedient are required to reassess capitalized initial direct costs under ASC 840 and record an equity adjustment for those that are not capitalizable under ASC 842.

Land Easement Practical Expedient

We elected the practical expedient that permits us to continue applying our current policy of accounting for land easements that existed as of, or expired before, the effective date of ASC 842. We have applied this policy to all of our existing land easements that were not previously accounted for under ASC 840.

Accounting Policy Elections

Lease Term

We calculate the term for each lease agreement to include the noncancellable period specified in the agreement together with (1) the periods covered by options to extend the lease if we are reasonably certain to exercise that option, (2) periods covered by an option to terminate if we are reasonably certain not to exercise that option and (3) period covered by an option to extend (or not terminate) if controlled by the lessor.

The assessment of whether we are reasonably certain to exercise an option to extend a lease requires significant judgement surrounding contract-based factors, asset-based factors, entity-based factors and market-based factors. These factors are described in our Critical Accounting Policies, Judgments and Estimates in Item 2 in this quarterly report on Form10-Q.

Lease Payments

Lease payments consist of the following payments (as applicable) related to the use of the underlying asset during the lease term:

Fixed payments, including in substance fixed payments, less any lease incentives paid or payable to the lessee

Variable lease payments that depend on an index or a rate, such as the Consumer Price Index or a market interest rate, initially measured using the index or rate at the commencement date of January 1, 2019.

The exercise price of an option to purchase the underlying asset if the lessee is reasonably certain to exercise that option.

Payments for penalties for terminating the lease if the lease term reflects the lessee exercising an option to terminate the lease.

Fees paid by the lessee to the owners of a special-purpose entity for structuring the transaction

For a lessee only, amounts probable of being owed by the lessee under residual value guarantees

Short-Term Lease Exemption

We elected to exclude short-term leases, or leases with a term of twelve months or less that do not contain a purchase option that we are reasonably certain to exercise, from our ROU asset and lease liability calculations.

We considered the applicability of the short-term exception onmonth-to-month leases with perpetual or rolling renewals as we are “reasonably certain” to continue the lease. For example, we lease various storage facilities under agreements withmonth-to-month terms that have continued over several years. The standard terms and conditions for a majority of these agreements allow either party to terminate within a notice period ranging from 10 to 30 days. There are no cancellation penalties other than the potential loss of aone-month rent or a security deposit if the termination terms are not adhered to.

We believe that thesemonth-to-month leases qualify for the short-term exception to ASC 842 because either party can terminate the agreement without permission from the other party with no more than an insignificant penalty, therefore, the arrangements do not create enforceable rights and obligations. Additionally, the cost to move to a new location or find comparable facilities is low as there are no unique features of the storage facilities that impact our business or operations. We considered termination clauses, costs associated with moving and costs associated with finding alternative facilities to excludemonth-to-month leases that have perpetually renewed.

Service Agreements with an Embedded Lease Component

We elected to exclude certain service agreements that contain embedded leases for equipment based on the immaterial impact of these agreements. Our analysis included cable and satellite television service agreements for which our monthly payment may include equipment rentals, coffee and water service at certain facilities that may include equipment rentals (we often meet minimum requirements and just pay for product used), security services that include a monthly fee for cameras or equipment, and other similar arrangements. Based on the insignificant amount of the monthly lease costs, we elected to exclude these agreements from our ROU asset and liability calculations due to the immaterial impact to our financial statements.

Index or Rate Applicable to Operating Lease Liabilities

We elected to measure lease liabilities for variable lease payments using the current rate or index in effect at the time of transition on January 1, 2019. Using the current index or rate is consistent with how we calculated and presented future minimum lease payments under ASC 840. Therefore, there is no change in accounting policy applicable to this election.

Incremental Borrowing Rate

The ROU asset and related lease liabilities recorded under ASC 842 are calculated based on the present value of the lease payments using (1) the rate implicit in the lease or (2) the lessee’s IBR, defined as the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. We performed an analysis as of January 1, 2019 to estimate the IBR applicable to Salem upon transition to ASC 842. Our analysis required the use of significant judgement and estimates, including the estimated value of the underlying leased asset, as described in are described in our Critical Accounting Policies, Judgments and Estimates in Item 2 in this quarterly report on Form10-Q.

Portfolio Approach

We elected to use a portfolio approach by applying a single IBR to leases with reasonably similar characteristics, including the remaining lease term, the underlying assets and the economic environment. We believe that applying the portfolio approach is acceptable because the results do not materially differ from the application of the leases model to the individual leases in that portfolio.

Sales Taxes and Other Similar Taxes

We elected not to evaluate whether sales taxes or other similar taxes imposed by a governmental authority on a specific lease revenue-producing transaction that are collected by the lessor from the lessee are the primary obligation of the lessor as owner of the underlying leased asset. A lessor that makes this election will exclude these taxes from the measurement of lease revenue and the associated expense. Taxes assessed on a lessor’s total gross receipts or on the lessor as owner of the underlying asset (e.g., property taxes) are excluded from the scope of the policy election. A lessor must apply the election to all taxes in the scope of the policy election and would provide certain disclosures.

Separating Consideration between Lease andNon-Lease Components

We elected to include the lease andnon-lease components (or the fixed and variable consideration) as a single component accounted for as a lease. This practical expedient is elected by class of underlying assets as an accounting policy election, and applies to all arrangements in that class of underlying assets that qualify for the expedient. ASC 842 provides this expedient to alleviate concerns that the costs and administrative burden of allocating consideration to the separate lease andnon-lease components may not justify the benefit of more precisely reflecting the ROU asset and the lease liability.

Contracts that include lease andnon-lease components that are accounted for under the election not to separate require that all components that qualify for the practical expedient be combined. The components that do not qualify, such as those for which the timing and pattern of transfer of the lease and associatednon-lease components are not the same, are accounted for separately.

Accounting for a lease component of a contract and its associatednon-lease components as a single lease component results in an allocation of the total contract consideration to the lease component. Therefore, the initial and subsequent measurement of the lease liability and ROU asset is greater than if the policy election was not applied. The greater ROU asset value is considered in our impairment analysis.

Impairment of ROU Assets

ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.

ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.

After a careful analysis of the guidance, we concluded that the appropriate unit of accounting for testing ROU assets for impairment is the broadcast market cluster level for radio station operations and the entity or division level for digital media entities, publishing entities and networks. Corporate ROU assets are tested on a consolidated level with consideration given to all cash flows of the company as corporate functions do not generate cash flows and are funded by revenue-producing activities at lower levels of the entity.

ASC 360 requires three steps to identify, recognize and measure the impairment of a long-lived asset (asset group) to be held and used:

Step 1 – Consider whether Indicators of Impairment are Present

As detailed in ASC360-10-35-21, the following are examples of impairment indicators:

A significant decrease in the market price of a long-lived asset (asset group)

A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition

A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator

An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group)

A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group)

A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent.

Other indicators should be considered if we believes that the carrying amount of an asset (asset group) may not be recoverable.

Step 2—Test for Recoverability

If indicators of impairment are present, we are required to perform a recoverability test comparing the sum of the estimated undiscounted cash flows attributable to the long-lived asset or asset group in question to the carrying amount of the long-lived asset or asset group.

ASC 360 does not specifically address how operating lease liabilities and future cash outflows for lease payments should be considered in the recoverability test. Under ASC 360, financial liabilities, or long-term debt, generally are excluded from an asset group while operating liabilities, such as accounts payable, generally are included. ASC 842 characterizes operating lease liabilities as operating liabilities. Because operating lease liabilities may be viewed as having attributes of finance liabilities as well as operating liabilities, it is generally acceptable for a lessee to either include or exclude operating lease liabilities from an asset group when testing whether the carrying amount of an asset group is recoverable provided the approach is applied consistently for all operating leases and when performing Steps 2 and 3 of the impairment model in ASC 360.

In cases where we have received lease incentives, including operating lease liabilities in an asset group may result in the long-lived asset or asset group having a zero or negative carrying amount because the incentives reduce our ROU assets. We elected to exclude operating lease liabilities from the carrying amount of the asset group such that we test ROU assets for operating leases in the same manner that we test ROU assets for financing leases.

Undiscounted Future Cash Flows

The undiscounted future cash flows in Step 2 are based on our own assumptions rather than a market participant. If an election is made to exclude operating lease liabilities from the asset or asset group, all future cash lease payments for the lease should also be excluded. The standard requires lessees to exclude certain variable lease payments from lease payments and, therefore, from the measurement of a lessee’s lease liabilities. Because these variable payments do not reduce the lease liability, we include the variable payments we expect to make in our estimate of the undiscounted cash flows in the recoverability test (Step 2) using a probability-weighted approach.

Step 3—Measurement of an Impairment Loss

If the undiscounted cash flows used in the recoverability test are less than the carrying amount of the long-lived asset (asset group), we are required to estimate the fair value of the long-lived asset or asset group and recognize an impairment loss when the carrying amount of the long-lived asset or asset group exceeds the estimated fair value. We elected to exclude operating lease liabilities from the estimated fair value, consistent with the recoverability test. Any impairment loss for an asset group must reduce only the carrying amounts of a long-lived asset or assets of the group, including the ROU assets. The loss must be allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets, except that the loss allocated to an individual long-lived asset of the group must not reduce the carrying amount of that asset below its fair value whenever the fair value is determinable without undue cost and effort. ASC 360 prohibits the subsequent reversal of an impairment loss for an asset held and used.

Fair Value Considerations

When determining the fair value of a ROU asset, we must estimate what market participants would pay to lease the asset or what a market participant would pay up front in one payment for the ROU asset, assuming no additional lease payments would be due. The ROU asset must be valued assuming its highest and best use, in its current form, even if that use differs from the current or intended use. If no market exists for an asset in its current form, but there is a market for a transformed asset, the costs to transform the asset are considered in the fair value estimate. Refer to Note 15, Fair Value Measurements.

There were no indications of impairment during the period ended March 31, 2019.

Recent Accounting Pronouncements

Changes to accounting principles are established by the FASB in the form of ASUs to the FASB’s Codification. We consider the applicability and impact of all ASUs on our financial position, results of operations, cash flows, or presentation thereof. Described below are ASUs that 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.

In November 2018, the FASB issued ASU2018-18, Collaborative Arrangements (Tope 818): Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic 606. The standard is effective for ~~reporting periods~~fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. We will adopt this standard on its effective date of January 1, 2018 are presented under ASC Topic 606, while prior period amounts continue to be reported in accordance with our historic accounting under Topic 605. The timing and measurement of our revenues under ASC Topic 606 is similar to that recognized under previous guidance, accordingly,2020. We do not expect the adoption of ~~ASC Topic 606 did~~this ASU to have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

In October 2018, the FASB issued ASU2018-17,Targeted Improvements to Related Party Guidance for Variable Interest Entities, that changes the guidance for determining whether a decision-making fee paid to a decision makers and service providers are variable interests. The guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. We will adopt this standard on its effective date of January 1, 2020. We do not expect the adoption of this ASU to have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

In August 2018, the FASB issued ASU2018-15,Intangibles-Goodwill andOther-Internal-Use Software (Subtopic350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtaininternal-use software. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. We will adopt this standard on its effective date of January 1, 2020. We are currently evaluating the impact of this ASU on our financial position, results of operations, cash flows, or presentation thereof.

In August 2018, the FASB issued ASU2018-13,Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU2018-13 removes or modifies certain disclosures and in certain instances requires additional disclosures. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. We will adopt this standard on its effective date of January 1, 2020. We do not expect the adoption of this ASU to have a material impact on our financial position, results of operations, cash flows, or presentation ~~thereof at adoption or~~thereof.

In July 2018, the FASB issued ASU2018-09,Codification Improvements. ASU2018-09 provides minor corrections and clarifications that affect a variety of topics in the Codification. Several updates are effective upon issuance of the update while others have transition guidance for effective dates in the future. We do not expect the adoption of this ASU to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

In June 2016, the FASB issued ASU2016-13,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. Foravailable-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. Subsequent to issuing ASU2016-13, the FASB issued ASU2018-19,Codification Improvements to Topic 326, Financial Instruments—Credit Losses, for the purpose of clarifying certain aspects of ASU2016-13. ASU2018-19 has the same effective date and transition requirements as ASU2016-13. In April 2019, the FASB issued ASU 2019-04,Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which is effective with the ASU 2016-13. We plan to adopt this ASU on its effective date of January 1, 2020. We do not expect the adoption of this ASU to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

NOTE 3. RECENT TRANSACTIONS

During the three month period ended March 31, 2019, we completed or entered into the following transactions:

Debt Transactions

Based on the then existing market conditions, we completed repurchases of the Notes at amounts less than face value as follows during the three months ended March 31, 2019:


Date	Principal Repurchased		Cash Paid		% of Face Value			Bond Issue Costs		Net Gain
	(Dollars in thousands)
March 28, 2019	$	2,000	$	1,830		91.50	%	$	37	$	134
March 28, 2019		2,300		2,125		92.38	%		42		133
February 20, 2019		125		114		91.25	%		2		9
February 19, 2019		350		319		91.25	%		7		24
February 12, 2019		1,325		1,209		91.25	%		25		91
January 10, 2019		570		526		92.25	%		9		35

	$	6,670	$	6,123

Equity Transactions

On March 7, 2019, 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 29, 2019 to all Class A and Class B common stockholders of record as of March 19, 2019.

Acquisition

On March 18, 2019, we acquired the pjmedia.com website for $0.1 million in cash.

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 liabilities assumed based on their estimated fair values as of the date of the transaction. Transactions that do not meet the definition of a business in ASU2017-01Business Combinations (Topic 805) Clarifying the Definition of a Business 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 individual assets acquired based on their relative fair value with no goodwill recognized.

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 as the present value of the expected contingent payments as determined using weighted probabilities of 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.

The initial valuations for business acquisitions 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 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 business acquisition consideration during or after the measurement period.

Property and equipment are recorded at the estimated fair value and depreciated 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 procedures in place to ensure the effective operation of the entity, may also be recorded and tested for impairment. Costs associated with business acquisitions, such as consulting and legal fees, are expensed as incurred. We recognized costs associated with acquisitions of $1,000 during the three month period ended March 31, 2019 compared to $14,000 during the same period of the prior year, which are included in unallocated corporate expenses in the accompanying Condensed Consolidated Statements of Operations.

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 contingentearn-out consideration. We estimate the fair value of contingentearn-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 15—Fair Value Measurements.

The following table summarizes the total acquisition consideration for the three month period ended March 31, 2019:


Description	Total Consideration
Description	(Dollars in thousands)
Cash payments made upon closing	$	100

Total purchase price consideration	$	100

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


	Net Digital
	Assets Acquired
	(Dollars in thousands)
Assets
Subscriber base and lists		100

	$	100

Divestitures

On March 21, 2019, we sold Newport Natural Health, ane-commerce website operated by Eagle Wellness for $0.9 million in cash. We recognized apre-tax gain of $0.1 million associated with the sale reflecting the sales price as compared to the carrying value of the assets and the closing costs.

On February 28, 2019, we sold Mike Turner’s line of investment products, including TurnerTrends.com and other domain names and related assets. We received no cash from the buyer, who assumed all deferred subscription liabilities for Mike Turner’s investment products. We recognized apre-tax loss of $0.2 million associated with the sale reflecting the sales price as compared to the carrying value of the assets and the closing costs.

On February 27, 2019, we sold HumanEvents.com, a conservative opinion website for $0.3 million in cash. We recognized apre-tax loss of $0.2 million associated with the sale reflecting the sales price as compared to the carrying value of the assets and the closing costs.

Other Transactions

On April 30, 2018, we ceased programming radio stationKHTE-FM, in Little Rock, Arkansas. We programmed the station under a Time Brokerage Agreement (“TBA”) beginning on April 1, 2015. We had the option to acquire the station for $1.2 million in cash during the TBA period. We paid the licensee a $0.1 million fee for not exercising our purchase option for the station. The accompanying Condensed Consolidated Statements of Operations reflect the operating results of this station during the three months ended March 31, 2018 within the broadcast operating segment.

On January 2, 2018, we began programming radio stationsKPAM-AM andKKOV-AM in Portland, Oregon under Local Marketing Agreements (“LMAs”) entered on December 29, 2017, with original terms of up to 12 months. The LMAs terminated on March 30, 2018 when the radio stations were sold to another party. We entered a second LMA with the new owner as of the closing date under which we continue to program radio stationKPAM-AM. The accompanying Condensed Consolidated Statements of Operations reflects the operating results of these stations during the LMA terms.

Pending Transactions

On March 19, 2019, we entered into an agreement to sell radio stationWSPZ-AM (previouslyWWRC-AM) in Washington D.C. for $0.8 million. We recognized an estimatedpre-tax loss of $3.8 million as of March 31, 2019, based on the probability of the sale, which reflects the sales price as compared to the carrying value of the radio station assets and the estimated closing costs. The sale is expected to close in the second quarter of 2019.

On April 26, 2018, we entered an agreement to exchange radio stationKKOL-AM, in Seattle, Washington forKPAM-AM in Portland, Oregon. We are currently operating radio stationKPAM-AM under an LMA as described above. The exchange transaction is subject to the approval of the FCC and is expected to close in the first half of 2019.

On January 3, 2017, Word Broadcasting began operating our Louisville radio stations(WFIA-AM;WFIA-FM;WGTK-AM) under a twenty-four month TBA. We received $0.5 million in cash associated with an option for Word Broadcasting Network to acquire the radio stations during the term. In December 2018, Word Broadcasting notified us of their intent to purchase our Louisville radio stations. The TBA contains an extension clause to allow them to continue operating the station until the purchase agreement is executed and the transaction closes.

NOTE 4. CONTINGENTEARN-OUT CONSIDERATION

Our acquisitions may include contingentearn-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 contingentearn-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 theearn-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 15.

Hilary Kramer Financial Newsletters

We acquired the Hilary Kramer Financial Newsletters and related assets on August 9, 2018. We paid $0.4 million in cash upon closing and may pay up to an additional $0.1 million in contingentearn-out consideration over the next two years upon the achievement of income benchmarks as part of the purchase agreement. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of Hilary Kramer Financial Newsletters to achieve the income targets at the time of closing, we estimated the fair value of the contingentearn-out consideration to be $40,617, which was recorded at the discounted present value of $39,360. The discount will be accreted to interest expense over the two yearearn-out period.

We review the fair value of the contingentearn-out consideration quarterly over theearn-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 contingentearn-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 ~~opening retained earnings balance as a result~~estimates of the ~~adoption~~fair value of the contingentearn-out consideration as of the three month period ended March 31, 2019.

Just1Word Mobile Application

We acquired the Just1Word mobile application and related assets on August 7, 2018. We paid $0.3 million in cash upon closing and may pay up to an additional $0.1 million in contingentearn-out consideration over the next two years upon the achievement of income benchmarks as part of the purchase agreement. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of Just1Word to achieve the income targets at the time of closing, we estimated the fair value of the contingentearn-out consideration to be $12,750, which was recorded at the discounted present value of $12,212. The discount will be accreted to interest expense over the two yearearn-out period.

We review the fair value of the contingentearn-out consideration quarterly over theearn-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 contingentearn-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. We recorded an increase of $4,000 in the estimated fair value of the contingentearn-out consideration that is reflected in our results of operations for the period ended December 31, 2018. There were no changes in our estimates of the fair value of the contingentearn-out consideration as of the three month period ended March 31, 2019.

NOTE 5. REVENUE RECOGNITION

We recognize revenue in accordance with ASC Topic ~~606.~~

606,Revenue from Contracts with Customers (“ASC Topic 606”). ASC Topic 606 is a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to our customers at an amount that reflects the consideration that we expect to receive. ~~Application~~The application of ASC Topic 606 requires us to use ~~more~~significant judgment and ~~make more estimates than under former guidance.~~estimates. Application of ASC Topic 606 requires a five-step model applicable to all revenue streams as follows:

Identification of the contract, or contracts, with a customer

A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

Identification of the performance obligations in the contract

Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.

When a contract includes multiple promised goods or services, we apply judgment to determine whether the promised goods or services are capable of being distinct and are distinct within the context of the contract. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.

Determination of the transaction price

The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods or services to our customer. We estimate any variable consideration included in the transaction price using the expected value method that requires the use of significant estimates for discounts, cancellation periods, refunds and returns. Variable consideration is described in detail below.

Allocation of the transaction price to the performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative Stand-Alone Selling Price (“SSP,”) basis. We determine SSP based on the price at which the performance obligation would be sold separately. If the SSP is not observable, we estimate the SSP based on available information, including market conditions and any applicable internally approved pricing guidelines.

Recognition of revenue when, or as, we satisfy a performance obligation

We recognize revenue at the point in time that the related performance obligation is satisfied by transferring the promised goods or services to our customer.

Principal versus Agent Considerations

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

We are primarily responsible for fulfilling the promise to provide the specified good or service.

When we are primarily responsible for providing the goods and services, such as when the other party is acting on our behalf, we have indication that we are the principal to the transaction. We consider if we may terminate our relationship with the other party at any time without penalty or without permission from our customer.

We have inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer.

We may commit to obtaining the services of another party with or without an existing contract with our customer. In these situations, we have risk of loss as principal for any amount due to the other party regardless of the amount(s) we earn as revenue from our customer.

The entity has discretion in establishing the price for the specified good or service.

We have discretion in establishing the price our customer pays for the specified goods or services.

~~Trade Accounts Receivable and~~ Contract Assets

~~Trade accounts receivable, net of allowances:~~ Trade accounts receivable includes amounts billed and due from our customers stated at their net estimated realizable value. Payments are generally due within 30 days of the invoice date. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that may not be collected. The allowance is 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. We do not include extended payment terms in our contracts with customers.

~~Unbilled revenue~~: Unbilled revenue represents revenue recognized in excess of the amounts billed to our customer. Unbilled revenue results from differences in the Broadcast Calendar and the end of the reporting period. The Broadcast Calendar is a uniform billing period adopted by broadcasters, agencies and advertisers for billing and planning functions. The Broadcast Calendar uses a standard broadcast week that starts on Monday and ends on Sunday with month end on the last Sunday of the calendar month. We recognize revenue based on the calendar month end and adjust for unbilled revenue when the Broadcast Calendar billings are at an earlier date as applicable. We bill our customers at the~~end-of-flight,~~ ~~end of the Broadcast Calendar or at calendar month end, as applicable, with standard payments terms of thirty days.~~

Contract ~~Assets -~~ Assets—Costs to Obtain a Contract:We capitalize commissions paid to sales personnel in our self-publishing business when customer contracts are signed and advance payment is received. These capitalized costs are recorded as prepaid commission expense in the ~~Condensed~~ Consolidated Balance Sheets. The amount capitalized is incremental to the contract and would not have been incurred absent the execution of the customer contract. Commissions paid upon the initial acquisition of a contract are expensed at the point in time that related revenue is recognized. Prepaid commission expenses are periodically reviewed for impairment. At ~~September 30, 2018,~~March 31, 2019, our prepaid commission expense was $0.7 million.

Contract Liabilities

Contract liabilities consist of customer advance payments and billings in excess of revenue recognized. We may receive payments from our customers in advance of completing our performance obligations. Additionally, new customers, existing customers without approved credit terms and authors purchasing specific self-publishing services, are required to make payments in advance of the delivery of the products or performance of the services. We record contract liabilities equal to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms. Contract liabilities were historically recorded under the caption “deferred revenue” and are reported as current liabilities on our ~~condensed~~ 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 oftwo-years for which some customers have purchased and paid for multiple years.

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


	Short Term			Long-Term			Short-Term			Long-Term
	(Dollars in thousands)						(Dollars in thousands)
Balance, beginning of period January 1, 2018	$	12,763		$	1,951
Balance, beginning of period January 1, 2019							$	11,537		$	1,379
Revenue recognized during the period that was included in the beginning balance of contract liabilities		(6,864	)		—			(3,259	)		—
Additional amounts recognized during the period		16,448			574			5,524			347
Revenue recognized during the period that was recorded during the period		(10,971	)		—			(2,529	)		—
Transfers		972			(972	)		308			(308	)

Balance, end of period September 30, 2018	$	12,348		$	1,553
Balance, end of period March 31, 2019							$	11,581		$	1,418

Amount refundable at beginning of period	$	12,450		$	1,677		$	11,410		$	1,379
Amount refundable at end of period	$	12,221		$	1,553		$	11,491		$	1,418

We expect to satisfy these performance obligations as follows:


	Amount		Amount
For the Twelve Months Ended September 30,	(Dollars in thousands)
2019	$	12,348
For the Twelve Months Ended March 31,			(Dollars in thousands)
2020		719	$	11,581
2021		354		514
2022		177		426
2023		101		210
2024				99
Thereafter		202		169

	$	13,901	$	12,999

Significant Financing Component

The length of our typical sales agreement is less than 12 months, however, we may sell subscriptions with atwo-year term. The balance of our long-term contract liabilities represent 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 ~~July~~April 1, ~~2019~~2020 and ~~September~~March 30, ~~2020.~~2024. The difference between the promised consideration and the cash selling price of the publications is not significant. Therefore, we have concluded that subscriptions do not contain a significant financing component under ASC 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 time line with payments due in advance of performance. The timing of the transfer of goods and services under self-publishing arrangements are at the discretion of the author and based on future events that are not substantially within our control. We require advance payments to provide us with protection from incurring costs for products that are unique and only sellable to the author. Based on these considerations, we have concluded that our self-publishing contracts do not contain a significant financing component under ASC Topic 606.

Variable Consideration

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

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

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

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 air time 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 air time or digital campaign in favor of customers who purchase the air time or digital campaign for cash. The value of thesenon-cash exchanges is included in revenue in an amount equal to the estimated fair value of the goods or services we receive. Each transaction ~~must be~~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 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,
   2017    2018    2017    2018
   (Dollars in thousands)
Net broadcast barter revenue
   $ 1,580    $ 1,384    $ 4,105    $ 4,915
Net digital media barter revenue
   —      —      —      93
Net publishing barter revenue
   7    3    47    10
Net broadcast barter expense
   $ 1,663    $ 1,458    $ 3,928    $ 4,211
Net digital media barter expense
   —      3    —      3
Net publishing barter expense
   1    7    84    9

~~Practical Expedients and Exemptions~~


	Three Months Ended
	March 31,
	2018		2019
Net broadcast barter revenue	$	1,691	$	1,299
Net digital media barter revenue		45		11
Net publishing barter revenue		1		—
Net broadcast barter expense	$	1,266	$	1,356
Net digital media barter expense		—		—
Net publishing barter expense		—		—

We ~~have~~ elected ~~certain practical expedients and policy elections as~~the following policies permitted under ASC Topic ~~606 as follows:~~606:

~~We applied the transitional guidance to contracts that were not complete at the date of our initial application of ASC Topic 606 on January 1, 2018.~~

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

We made the accounting policy election to not assess promised goods or services as performance obligations if they are immaterial in the context of the contract with the customer;

We made the accounting policy election to exclude sales and similar taxes from the transaction price;

We made the accounting policy election to treat shipping and handling costs that occur after control transfers as fulfillment activities instead of assessing such activities as separate performance obligations; and

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

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

   Nine Months Ended September 30, 2018
   Broadcast    Digital Media    Publishing    Consolidated
   (dollars in thousands)
By Source of Revenue:
Block Programming - National
   $ 37,318    $ —      $ —      $ 37,318
Block Programming - Local
   24,643    —      —      24,643
Spot Advertising - National
   12,126    —      —      12,126
Spot Advertising - Local
   41,224    —      —      41,224
Infomercials
   1,464    —      —      1,464
Network
   14,501    —      —      14,501
Digital Advertising
   4,764    16,159    346    21,269
Digital Streaming
   584    3,316    —      3,900
Digital Downloads and eBooks
   —      3,722    1,155    4,877
Subscriptions
   789    6,052    699    7,540
Book Sales ande-commerce
   360    1,533    9,673    11,566
Self-Publishing fees
   —      —      4,231    4,231
Advertising - Print
   36    —      454    490
Other Revenues
   9,616    269    561    10,446








   $ 147,425    $ 31,051    $ 17,119    $ 195,595








Timing of Revenue Recognition

Point in Time
   $ 145,892    $ 30,969    $ 17,073    $ 193,934
Rental Income(1)
   1,533    82    46    1,661








   $ 147,425    $ 31,051    $ 17,119    $ 195,595


	Three Months Ended March 31, 2019
	Broadcast		Digital Media		Publishing		Consolidated
	(dollars in thousands)
By Source of Revenue:
Block Programming - National	$	12,233	$	—	$	—	$	12,233
Block Programming - Local		7,910		—		—		7,910
Spot Advertising - National		3,900		—		—		3,900
Spot Advertising - Local		12,062		—		—		12,062
Infomercials		390		—		—		390
Network		4,306		—		—		4,306
Digital Advertising		2,352		5,317		85		7,754
Digital Streaming		161		1,011		—		1,172
Digital Downloads and eBooks		—		1,275		162		1,437
Subscriptions		274		2,084		201		2,559
Book Sales ande-commerce, net of estimated sales returns and allowances		37		410		1,841		2,288
Self-Publishing Fees		—		—		1,477		1,477
Print Advertising		2		—		135		137
Other Revenues		2,466		143		235		2,844

	$	46,093	$	10,240	$	4,136	$	60,469

Timing of Revenue Recognition
Point in Time	$	45,472	$	10,225	$	4,136	$	59,833
Rental Income (1)		621		15		—		636

	$	46,093	$	10,240	$	4,136	$	60,469

(1)	Rental income is not applicable to ASC Topic 606, but shown for the purpose of identifying each revenue source presented in total revenue on our Condensed Consolidated Financial Statements within this report on Form10-Q.

A summary of each of our revenue streams under ASC Topic 606 is as follows:

Block Programming. We recognize revenue from the sale of blocks of air time to program producers that typically range from 12¹/₂, 25 or50-minutes of time. We separate block program revenue into three categories, National, Local and Infomercial revenue. Our stations are classified by format, including Christian Teaching and Talk, News Talk, Contemporary Christian Music, Spanish Language Christian Teaching and Talk and Business. National and local programming content is complementary to our station format while infomercials are closely associated with long-form advertisements. Block Programming revenue may include variable consideration for charities and programmers that purchase blocks of air time to generate donations and contributions from our audience. Block programming revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Programming revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.

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

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

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

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

~~In January of this year~~Salem Surround. During 2018, we ~~hired~~launched a ~~VP of Local Digital to expand our role as a digital~~national multimedia advertising agency ~~to provide~~with locations in 35 markets across the United States. Salem Surround offers a ~~full range~~comprehensive suite of digital ~~products~~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 ~~customers.~~radio stations and websites as well as provides a full-service digital marketing strategy for each of our clients. In our role as a digital agency, our sales team provides our customers with integrated digital advertising solutions that optimize the performance of their campaign, which we view as one performance obligation. Our advertising campaigns are designed to be “white label” agreements between Salem and our advertiser, meaning we provide special care and attention to the details of the campaign. We provide custom digital product offerings, including tools for metasearch, retargeting, website design, reputation management, online listing services, and social media marketing. Digital advertising solutions may include third-party websites, such as Google or Facebook, which can be included in a digital advertising social media campaign. We manage all aspects of the digital campaign, including social media placements, review and approval of target audiences, and the monitoring of actual results to make modifications as needed. We may contract directly with a third-party, however, we are responsible for delivering the campaign results to our customer with or without the third-party. We are responsible for any payments due to the third-party regardless of the campaign results and without regard to the status of payment from our customer. We have discretion in setting the price to our customer without input or approval from the third-party. Accordingly, revenue is reported gross, as principal, as the performance obligation is delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation.

Digital Streaming. We recognize revenue from the sale of advertisements and from the placement of ministry content that is streamed on our owned and operated websites and on our owned and operated mobile applications. Each of our radio stations, our digital media entities and certain publishing entities have custom websites and mobile applications that generate streaming revenue. Digital streaming revenue is recognized at the time that the content is delivered, or when the number of impressions delivered meets our customer’s 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 ande-books. We recognize revenue from sale of downloaded materials, including videos, song tracks, sermons, content archives ande-books. Payments for downloaded materials are due in advance of the download, however, the download is often instant upon confirmation of payment. Digital download revenue is recognized at the time of download, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is recorded at the gross amount due from the customer. All sales are final with no allowances made for returns.

Subscriptions. We recognize revenue from the sale of subscriptions for financial publication digital newsletters, digital magazines, podcast subscriptions foron-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 apro-rata basis based on the number of publications issued and delivered. Payments are due in advance of delivery and can be made in full upon subscribing or in quarterly installments. Cash received in advance of the subscription term, including amounts that are refundable, is recorded in contract labilities. Revenue is recognized ratably over the subscription term at the point in time that each publication is transmitted or shipped, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is reported net of estimated cancellations, which are based on our experience and historical cancellation rates during the cancellable period.

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

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

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

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

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

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

~~Recent Accounting Pronouncements~~

~~In August 2018,~~NOTE 6. INVENTORIES

Inventories consist of finished goods including books from Regnery^® Publishing and for the ~~FASB issued ASU~~prior year wellness products. All inventories are valued at the lower of cost or net realizable value as determined on a~~2018-15,~~~~Intangibles-Goodwill andOther-Internal-Use~~First-InFirst-Out ~~Software (Subtopic350-40):~~ ~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.~~ ~~ASU2018-15~~ aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain~~internal-use~~ software. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. We plan to adopt the new standard on its effective date of January 1, 2020. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

~~In August 2018, the FASB issued ASU2018-13,~~~~Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.~~ ~~ASU2018-13~~ removes or modifies certain disclosures and in certain instances requires additional disclosures. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. We plan to adopt this new accounting standard on its effective date of January 1, 2020. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

~~In July 2018, the FASB issued ASUNo. 2018-11,~~~~Leases (Topic 842): Targeted Improvements~~~~which provides a new transition~~cost method and ~~a practical expedient~~reported net of estimated reserves for ~~separating components of a lease contract. ASU2018-11~~ is intended to reduce the costs and ease the implementation of the new leasing standard for financial statement preparers. The effective date and transition requirements for the amendments related to separating components of a contract are the same as the effective date and transition requirements in ASU~~2016-02.~~ ~~The guidance in ASU2016-02~~ is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We will adopt this new accounting standard on January 1, 2019, the effective date of ASU~~2016-02.~~ ~~Refer to the discussion of ASU2016-02~~ ~~below for the impact on our financial position, results of operations, cash flows, or presentation thereof.~~

~~In July 2018, the FASB issued ASU2018-10,~~~~Codification Improvements to Topic 842, Leases~~~~. ASU2018-10~~ ~~affects narrow aspects of the guidance issued in ASU2016-02.~~ ~~ASU2018-10~~ ~~does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications based on comments and suggestions made by various stakeholders. ASU2018-10~~ makes improvements to the following aspects of the guidance in ASC 842: residual value guarantees, rate implicit in the lease, lessee’s reassessment of lease classification, lessor’s reassessment of lease term and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance related to amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under ASC 840, transition guidance related to modifications to leases previously classified as direct financing or sale-type leases under ASC 840, transition guidance related to~~sale-and-leaseback~~ ~~transactions, impairment of net investment in the lease, unguaranteed residual assets, effect of initial direct costs on rate implicit in the lease and failedsale-and-leaseback~~ transaction. Certain updates are applicable immediately while others provide for a transition period to adopt as part of the next fiscal year beginning after December 15, 2018. We will adopt this new accounting standard on January 1, 2019, the effective date of ASU~~2016-02.~~ ~~Refer to the discussion of ASU2016-02~~ ~~below for the impact on our financial position, results of operations, cash flows, or presentation thereof.~~

~~In July 2018, the FASB issued ASU2018-09,~~~~Codification Improvements~~~~. ASU2018-09~~ provides minor corrections and clarifications that affect a variety of topics in the Codification. Several updates are effective upon issuance of the update while others have transition guidance for effective dates in the future. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

~~In June 2018, the FASB issued ASU2018-07,~~~~Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment~~~~. ASU2018-07~~ ~~aligns the accounting for share based payments granted tonon-employees~~ with that of share based payments granted to employees. The standard is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years with early adoption permitted. We plan to adopt this new accounting standard on its effective date of January 1, 2021. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

~~In February 2018, the FASB issued ASU2018-02,~~~~Income Statement - Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~~~. ASU2018-02~~ allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (“The Act”). Consequently, the amendments eliminate the stranded tax effects resulting from the Act to improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted. We plan to adopt this new accounting standard on its effective date of January 1, 2019. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

~~In January 2018, the FASB issued ASU2018-01,~~~~Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842.~~~~ASU2018-01~~ provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current leases guidance in Topic 840. ASU~~2018-01~~ ~~is effective~~

~~with ASU2016-02~~ for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. We will adopt this new accounting standard on January 1, 2019, the effective date of ASU~~2016-02.~~ ~~Refer to the discussion of ASU2016-02~~ ~~below for the impact on our financial position, results of operations, cash flows, or presentation thereof.~~

~~In August 2017, the FASB issued ASU2017-12,~~~~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 application of the hedge accounting guidance in current GAAP. The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. We plan to adopt this new accounting standard on its effective date of January 1, 2019. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

~~In March 2017, the FASB issued ASU2017-08,~~~~Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20),~~ ~~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. ASU2017-08~~ is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We plan to adopt this new accounting standard on its effective date of January 1, 2019. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

~~In October 2016, the FASB issued ASU2016-16~~~~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 entities to immediately recognize the tax consequences on intercompany asset transfers (excluding inventory) at the transaction date, rather than deferring the tax consequences under current GAAP. The guidance is effective for fiscal years beginning after December 15, 2018, and interim reports within those fiscal years, with early adoption permitted only as of the first quarter of a fiscal year. We plan to adopt this new accounting standard on its effective date of January 1, 2019. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

~~In June 2016, the FASB issued ASU2016-13,~~~~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 plan to adopt this new accounting standard on its effective date of January 1, 2020. We do not expect the adoption of this accounting standard to have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

~~In February 2016, the FASB issued ASU2016-02,~~~~Leases (Topic 842)~~~~, which requires that lessees recognize aright-of-use~~ ~~asset and a lease liability for all leases with lease terms greater than twelve months in the balance sheet. ASU2016-02~~ 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 plan to elect the practical expedients upon transition to retain the existing lease classification and retain the treatment of any initial direct costs for leases in existence prior to adoption of the standard. We will adopt the optional transition method allowing entities to recognize a cumulative effect adjustment to the opening balance of stockholders’ equity in the period of adoption, with no restatement of comparative prior years. We are reviewing our existing lease contracts and other agreements, establishing the necessary changes to our systems, and implementing a new software solution designed to account for leases under ASC 842. The adoption of ASC 842 will have a material impact on our consolidated balance sheet, but is not expected to have a material impact on our consolidated income statements. We will adopt this new accounting standard on its effective date of January 1, 2019. We have not yet determined the dollar impact of recording leases on our consolidated balance sheet. 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 consolidated balance sheet will not impact our debt covenants.~~

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

Approximately 71% of our total assets as of September 30, 2018 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 case of our radio stations, we would not be able to operate the properties without the related FCC license for each station. Broadcast licenses are renewed with the FCC every eight years for a nominal cost that is expensed as incurred. We continually monitor our stations’ compliance with the various regulatory requirements. Historically, all of our broadcast licenses have been renewed at the end of their respective periods, and we expect that all broadcast licenses will continue to be renewed 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 93% of our indefinite-lived intangible assets. Goodwill and mastheads account for the remaining 7%. 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 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 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 past experiences and judgment about future operating performance of our markets and business segments. If actual operating results are less favorable than the assumptions and estimates we used, or if we reduce our estimates of future operating results, 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.~~

~~During the second quarter of 2018, we entered into an agreement to sell radio stationKGBI-FM~~ at a price that was less than our carrying amount. When considering the sale price during our qualitative assessment, we noted it was more likely than not that the fair value of the Omaha market cluster was less than its carrying amount. We performed the first step of the~~two-step~~ impairment test by estimating the fair value of the market cluster remaining to the carrying value. The first step test indicated that the fair value of the market cluster exceeded the carrying amount by 7%. We did not perform step 2 of the impairment test based on these results.obsolescence.

The ~~estimated fair value~~following table provides details of the Omaha market cluster was determined using the Greenfield Method, a form of the income approach. The premise of the Greenfield Method is that the value of an FCC license is equivalent to a hypothetical~~start-up~~ ~~in which the only asset owned~~inventory on hand by the station as of the valuation date is the FCC license. This approach eliminates factors that are unique to the operation of the station, including its format and historical financial performance. The method then assumes the entity has to purchase, build, or rent all of the other assets needed to operate a comparable station to the one in which the FCC license is being utilized as of the valuation date. Cash flows are estimated and netted against all~~start-up~~ costs, expenses and investments necessary to achieve a normalized and mature state of operations, thus reflecting only the cash flows directly attributable to the FCC License. A multi-year discounted cash flow approach is then used to determine the net present value of these cash flows to derive an indication of fair value. For cash flows beyond the projection period, a terminal value is calculated using the Gordon constant growth model and long-term industry growth rate assumptions based on long-term industry growth and Gross Domestic Product (“GDP”) inflation rates.

~~The primary assumptions used in the Greenfield Method are:~~segment:

~~(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)~~

~~estimatedstart-up~~ ~~costs (based on market size),~~

~~(6)~~

~~ongoing replacement costs of fixed assets and working capital,~~

~~The assumptions used reflect those of a hypothetical market participant and not necessarily the actual or projected results of Salem. The key estimates and assumptions used in thestart-up~~ ~~income valuation for our broadcast licenses were as follows:~~


~~Long-term market revenue growth rate~~		~~1.9%~~
~~Operating profit margin ranges~~		~~(13.9)% -30.8%~~
~~Risk-adjusted discount rate~~		~~9.0%~~

There were no other indications of impairment during the period ended September 30, 2018. During the period ended June 30, 2017, we recorded an impairment charge of $19,000 associated with mastheads based on our decision to cease publishing Preaching Magazine^™~~, YouthWorker Journal~~^™~~, FaithTalk Magazine~~^™ ~~and Homecoming~~^® ~~The Magazine upon delivery of the May 2017 print publications.~~


	December 31, 2018			March 31, 2019
	(Dollars in thousands)
Regnery^® Publishing book inventories	$	1,317		$	1,612
Reserve for obsolescence – Regnery^® Publishing		(930	)		(1,079	)

Inventory, net - Regnery^® Publishing		387			533

Newport Natural Health Wellness products	$	354		$	—
Reserve for obsolescence –Wellness products		(64	)		—

Inventory, net –Wellness products		290			—

Consolidated inventories, net	$	677		$	533

NOTE ~~3. IMPAIRMENT OF LONG-LIVED ASSETS~~7. PROPERTY AND EQUIPMENT

We account for ~~long-lived assets~~property and equipment in accordance with FASB ASC Topic360-10,Property, Plant and Equipment.

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


	As of December 31, 2018			As of March 31, 2019
	(Dollars in thousands)
Land	$	31,822		$	31,830
Buildings		30,104			30,121
Office furnishings and equipment		36,756			37,019
Antennae, towers and transmitting equipment		85,998			85,827
Studio, production and mobile equipment		29,040			29,261
Computer software and website development costs		27,603			27,845
Record and tape libraries		17			17
Automobiles		1,570			1,570
Leasehold improvements		19,357			19,359
Construction-in-progress		4,833			5,752

	$	267,100		$	268,601
Less accumulated depreciation		(170,756	)		(173,055	)

	$	96,344		$	95,546

Depreciation expense was approximately $2.9 million and $3.0 million for each of the three month periods ended March 31, 2019 and 2018, respectively.

We periodically review our long-lived assets for impairment ~~and reassess the reasonableness of their estimated useful lives~~ whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully ~~recoverable or that an asset’s probability of operating through its estimated remaining useful life changes.~~recoverable. Our 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 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.

There were no indications of impairment during the period ended ~~September 30, 2018. We reviewed long-lived assets associated with Preaching Magazine, YouthWorker Journal, FaithTalk Magazine and Homecoming The Magazine as of~~ March 31, ~~2017, due~~2019.

NOTE 8. OPERATING AND FINANCE LEASERIGHT-OF-USE ASSETS

Leasing Transactions

Our leased assets include offices and studios, transmitter locations, antenna sites, tower and tower sites or land. Our current lease portfolio has remaining terms from less thanone-year up to twenty years. Many of these leases contain options under which we can extend the term for five to twenty years. Renewal options are excluded from our ~~decision~~calculation of lease liabilities unless we are reasonably assured to ~~cease publishing these magazines as~~exercise the renewal option. Our lease agreements do not contain residual value guarantees or material restrictive covenants. We lease certain property from our principal stockholders or trusts and partnerships created for the benefit of the ~~May 2017 issue. We recorded a $1.9 million decrease~~principal stockholders and their families. These leases are designated as Related Party leases in the ~~cost~~details provided.

Operating leases are reflected on our balance sheet within operating lease ROU assets and ~~a $1.9 million decrease in~~ the ~~accumulated amortization for fully amortized~~related current andnon-current operating lease liabilities. ROU assets ~~including subscriber lists and domain names associated with these magazines. There was no impairment loss or adjustment required~~represent the right to ~~the previously estimated useful lives of these assets.~~

~~NOTE 4. ACQUISITIONS AND RECENT TRANSACTIONS~~

~~During the nine month period ended September 30, 2018, we completed or entered into the following transactions:~~

~~Debt~~

~~On May 4, 2018, we repurchased $4.0 million of the 6.75% Senior Secured Notes for $3.8 million, or 94.25% of the face value. This transaction resulted in a netpre-tax~~ ~~gain on the early retirement of debt of approximately $0.1 million after bond issue costs associated with the Notes were adjusted~~use an underlying asset for the ~~repurchase.~~

~~On April 10, 2018, we repurchased $4.0 million of~~lease term, and lease liabilities represent the ~~6.75% Senior Secured Notes for $3.9 million, or 96.25% of the face value. This transaction resulted in a netpre-tax~~ ~~gain on the early retirement of debt of approximately $63,000 after bond issue costs associated with the Notes were adjusted for the repurchase.~~

~~On April 9, 2018, we repurchased $2.0 million of the 6.75% Senior Secured Notes for $1.9 million, or 96.5% of the face value. This transaction resulted in a netpre-tax~~ ~~gain on the early retirement of debt of approximately $27,000 after bond issue costs associated with the Notes were adjusted for the repurchase.~~

~~Equity~~

~~On September 5, 2018, we announced a quarterly equity distribution in the amount of $0.0650 per share on Class A~~obligation to make lease payments arising from lease agreement. Operating lease ROU assets and ~~Class B common stock. The equity distribution of $1.7 million was paid on September 28, 2018 to all Class A and Class B common stockholders of record as of September 17, 2018.~~

On May 31, 2018, 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 29, 2018 to all Class A and Class B common stockholders of record as of June 15, 2018.

On February 28, 2018, 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 28, 2018 to all Class A and Class B common stockholders of record as of March 14, 2018.

~~Acquisitions~~

~~On September 11, 2018, we acquired selected assets of radio stationKTRB-AM~~ in San Francisco from a related party for $5.1 million in cash. The acquisition was accounted for as an asset purchase with transaction costs of $0.2 million capitalized. We had been operating the radio station under an LMA since June 24, 2016. The accompanying Condensed Consolidated Statements of Operations reflect the operating results of this station as of the LMA date within the broadcast operating segment. Our Nominating and Corporate Governance Committee reviewed the transaction, including an appraisal of the station performed by a licensed broker and reports related to the financial performance of the station during the LMA period, and determined that the terms of the transaction were no less favorable to Salem than those that would be available in a comparable transaction in arm’s length dealings with an unrelated third-party.

~~On August 9, 2018, we acquired the Hilary Kramer Financial Newsletter and related assets valued at $2.0 million and we assumed deferred subscription~~ liabilities ~~valued at $1.5 million. We paid $0.4 million in cash upon closing and as part of the purchase agreement, may pay up to an additional $0.1 million of contingentearn-out~~ consideration over the next two years 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 Hilary Kramer Financial Newsletter to achieve the income targetsare recognized at the ~~time of closing, we estimated the fair value of the contingentearn-out~~ ~~consideration to be $40,617, which was recorded at the discounted present value of $39,360. The discount will be accreted to interest expense over the two yearearn-out~~ ~~period. We recorded goodwill of $0.3 million attributable to the expected synergies to be realized when combining the operations of this entity into our existing operations.~~

On August 7, 2018, we acquired the Just1Word mobile applications and related assets for $0.3 million in cash upon closing. As part of the purchase agreement, we may pay up to an additional $0.1 million of contingent~~earn-out~~ consideration over the next two years 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 Just1Word to achieve the income targets at the time of closing, we estimated the fair value of the contingent~~earn-out~~ ~~consideration to be $12,750, which was recorded at the discounted present value of $12,212. The discount will be accreted to interest expense over the two yearearn-out~~ ~~period.~~

~~On July 25, 2018, we acquired selected assets of radio stationKZTS-AM~~ ~~(formerlyKDXE-AM)~~ and an FM Translator in Little Rock, Arkansas for $0.2 million in cash. The acquisition was accounted for as an asset purchase with transaction costs of $30,000 capitalized. The radio station is currently operated under an LMA agreement with another party and is not reflected in the accompanying Condensed Consolidated Statements of Operations.

On July 24, 2018, we acquired the Childrens-Ministry-Deals.com website and related assets for $3.7 million in cash. Childrens-Ministry-Deals.com offers biblically-based curriculums for children ages 3 through age 18. We paid $3.5 million in cash upon closing and may pay an additional $0.2 million in cash within twelve months from the closingcommencement date, provided that the seller meet certain post-closing requirements with regard to intellectual property. We recorded goodwill of $0.7 million attributable to the expected synergies to be realized when combining the operations of this entity into our existing operations.

~~On June 25, 2018, we closed on the acquisition of radio stationKDXE-FM~~ ~~(formerlyKZTS-FM)~~ in Little Rock, Arkansas for $1.1 million in cash. We began programming the station under an LMA that began on April 1, 2018. We recorded goodwill of approximately $7,400 attributable to the additional audience reach obtained and the expected synergies to be realized when combining the operations of this station into our existing cluster in this market. The accompanying Condensed Consolidated Statements of Operations reflect the operating results of this station as of the LMA date within the broadcast operating segment.

~~On April 19, 2018, we acquired the HearItFirst.com domain name and related social media assets for $70,000 in cash.~~

~~A summary of our business acquisitions and asset purchases during the nine month period ended September 30, 2018, 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 11, 2018
   KTRB-AM, San Francisco, California (asset purchase)    $ 5,349
August 9, 2018
   Hilary Kramer Financial Newsletter (business acquisition)    439
August 7, 2018
   Just1Word (business acquisition)    312
July 25, 2018
   KZTS-AM (formerlyKDXE-AM), Little Rock, Arkansas (asset purchase)    210
July 24, 2018
   Childrens-Ministry-Deals.com (business acquisition)    3,700
June 25, 2018
   KDXE-FM (formerlyKZTS-FM), Little Rock, Arkansas (business acquisition)    1,100
April 19, 2018
   HearItFirst.com (asset purchase)    70


      $ 11,180

~~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 liabilities assumed based on their estimated fair values as of~~ the date ofon which the ~~transaction. Transactions that do not meet~~lessor makes the ~~definition of a business in ASU2017-01~~~~Business Combinations (Topic 805) Clarifying the Definition of a Business~~ ~~are recorded as~~underlying asset ~~purchases. Asset purchases are recognized~~available for use, based ~~on their cost to acquire, including transaction costs. The cost to acquire an asset group is allocated to the individual assets acquired based on their relative fair value with no goodwill recognized.~~

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 contingent~~lease payments ~~as determined using weighted probabilities of~~over the ~~payment amounts.~~

The initial valuations for business acquisitions 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 business acquisition consideration during or after the measurement period.

~~Property and equipment are recorded at the estimated fair value and depreciated~~respective 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 procedures~~lease term, subject to any changes in ~~place to ensure~~ the ~~effective operation of~~lease or expectation regarding the ~~entity, may also be recorded and tested for impairment. Costs associated with business acquisitions,~~terms. Variable lease costs such as ~~consulting~~common area maintenance, property taxes and ~~legal fees,~~insurance are expensed as incurred. We recognized costs associated with acquisitions of $0.2 million during the nine month period ended September 30, 2018 compared to $0.1 million during the same period of the prior year, which are included in unallocated corporate expenses in the accompanying Condensed Consolidated Statements of Operations.

~~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 contingentearn-out~~ ~~consideration. We estimate the fair value of contingentearn-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.

Balance Sheet

The ~~following table summarizes~~adoption of ASC 842 resulted in recording anon-cash transitional adjustment to operating lease ROU assets and operating lease liabilities of $65.0 million and $74.4 million, respectively. The difference between the ~~total acquisition consideration for~~operating lease ROU assets and operating lease liabilities at transition represented existing deferred rent expense and prepaid rent that was derecognized upon adoption. During the ~~nine~~three month period ended ~~September 30, 2018:~~March 31, 2019, we recorded an additional ROU asset and corresponding lease liability of $0.3 million.

Description
   Total Consideration
   (Dollars in thousands)
Cash payments made upon closing
   $ 10,854
Deferred payments
   150
Present value of estimated fair value of contingentearn-out consideration
   51
Closing costs accrued for asset acquisitions
   125


Total purchase price consideration
   $ 11,180

~~The fair value of the net assets acquired~~Supplemental balance sheet information related to leases was ~~allocated~~ as follows:

   Net Broadcast
Assets Acquired    Net Digital
Assets Acquired    Net Total
Assets
   (Dollars in thousands)
Assets

Property and equipment
   $ 371    $ 715    $ 1,086
Broadcast licenses
   6,281    —      6,281
Goodwill
   7    986    993
Customer lists and contracts
   —      1,882    1,882
Domain and brand names
   —      1,252    1,252
Subscriber base and lists
   —      875    875
Non-compete agreements
   —      19    19
Other amortizable intangible assets
   —      334    334






   $ 6,659    $ 6,063    $ 12,722






Liabilities

Contract liabilities, long-term
   $ —      $ (1,542 )    $ (1,542 )






   $ 6,659    4,521    11,180


	March 31, 2019
	(Dollars in thousands)
	Related Party		Other		Total
Operating Leases
Operating leases ROU assets	$	9,163	$	53,957	$	63,120

Operating lease liabilities (current)		903		8,561		9,464
Operating lease liabilities (noncurrent)		8,633		53,214		61,847

Total operating lease liabilities	$	9,536	$	61,775	$	71,311

~~Divestitures~~


Weighted Average Remaining Lease Term
Operating leases	8.7 years
Finance leases	3.8 years
Weighted Average Discount Rate
Operating leases	8.05	%
Finance leases	4.28	%

Lease Expense

~~On August 28, 2018, we closed on the sale~~The components of ~~radio station~~lease expense were as follows:


	Three Months Ended March 31, 2019
	(Dollars in thousands)
Amortization of ROU Assets	$	33
Interest on finance lease liabilities		2

Finance lease expense		35
Operating lease expense		3,497
Variable lease expense		252
Short-term lease expense		225

Total lease expense	$	4,009

Supplemental Cash Flow

Supplemental cash flow information related to leases was as follows:


	Three Months Ended March 31, 2019
	(Dollars in thousands)
Operating cash flows from operating leases	$	2,267
Operating cash flows from finance leases		33
Financing cash flows from finance leases		21

Cash paid for amounts included in the measurement of lease liabilities	$	2,321

ROU assets acquired in exchange for new operating lease liabilities		288

Maturities

Future minimum lease payments required under leases that have initial or remaining~~WQVN-AM~~non-cancelable ~~(formerlyWKAT-AM)~~lease terms in ~~Miami, Florida for $3.5 million~~excess of one year as of March 31, 2019, are as follows:


	Operating Leases
	Related Parties		Other		Total		Finance Leases		Total
	(Dollars in thousands)
2019(Apr-Dec)	$	1,227	$	9,349	$	10,576	$	64	$	10,640
2020		1,665		12,785		14,450		66		14,516
2021		1,669		11,660		13,329		51		13,380
2022		1,647		10,081		11,728		43		11,771
2023		1,207		8,925		10,132		22		10,154
Thereafter		7,510		40,120		47,630		3		47,633

Undiscounted Cash Flows	$	14,925	$	92,920	$	107,845	$	249	$	108,094

Less: imputed interest		5,389		31,145		36,534		19		36,553

Total	$	9,536	$	61,775	$	71,311	$	230	$	71,541

Reconciliation to lease liabilities:
Lease liabilities - current	$	903	$	8,561	$	9,464	$	74	$	9,538
Lease liabilities - long-term		8,633		53,214		61,847		156		62,003

Total Lease Liabilities	$	9,536	$	61,775	$	71,311	$	230	$	71,541

Future minimum lease payments under leases that had initial or remaining non-cancelable lease terms in ~~cash. The buyer had been operating the radio station under an LMA since December 1, 2017. We recorded an estimatedpre-tax~~ ~~loss on the sale~~excess of ~~assets of $4.7 million~~one year as of December 31, 2017, based on the probability of the sale at that time, which reflected the sales price as compared to the carrying value of the assets and the estimated costs of the sale. The accompanying Condensed Consolidated Statements of Operations excludes the operating results of this station as of the LMA date from the broadcast operating segment.

~~On August 6, 2018, we closed on the sale of radio stationKGBI-FM~~ ~~in Omaha, Nebraska for $3.2 million. We recorded an estimatedpre-tax~~ ~~loss on the sale of $3.2 million since June 30,~~ 2018, based on the ~~sales price~~former accounting guidance for leases, were as compared to the carrying value of the assets and the estimated cost to sell. As of the closing date, we revised the loss on the sale to $2.4 million, based on the actual assets sold and a reduction in liabilities associated with the radio station. The accompanying Condensed Consolidated Statements of Operations excludes the operating results of this station as of the closing date from the broadcast operating segment.

~~On June 20, 2018, we closed on the sale of radio stationWBIX-AM~~ ~~in Boston, Massachusetts for $0.7 million in cash. The buyer had been operating the station under an LMA since January 8, 2018. We recorded apre-tax~~ gain on the sale of $0.2 million. The accompanying Condensed Consolidated Statements of Operations excludes the operating results of this station as of the LMA date from the broadcast operating segment

On May 24, 2018, we closed on the sale of land in Covina, California for $0.8 million dollars. The original APA was for $1.0 million and was to close in the latter half of 2020. We accepted the revised purchase price of $0.8 million and recorded a $0.2 million~~pre-tax~~ ~~loss based on the earlier closing date. The land, which was not used in operations, was recorded in long-term land held for sale based on the original APA term.~~

~~We programmed radio stationKHTE-FM,~~ in Little Rock, Arkansas, under a TBA that began on April 1, 2015. We had the option to acquire the station for $1.2 million in cash during the TBA period. We ceased operating the station on April 30, 2018 and did not exercise our purchase option. We paid the licensee a $0.1 million fee for not exercising our option to purchase the station.

~~On December 29, 2017, we entered into two LMAs to program radio stationsKPAM-AM~~ ~~andKKOV-AM~~ ~~in Portland, Oregon. We began operating the radio stations on January 2, 2018. The LMAs had an original term of up to12-months.~~ The LMAs terminated on March 30, 2018 when the radio stations were sold to another party. The accompanying Condensed Consolidated Statements of Operations reflects the operating results of these entities during the LMA term.

~~Pending Transactions~~

~~On July 23, 2018, we entered into an APA to sell radio stationsKCRO-AM~~ ~~andKOTK-AM~~ in Omaha, Nebraska for $1.4 million in cash. Based on our intent to sell these assets, we recorded the assets as held for sale at June 30, 2018 and recognized an estimated loss of $1.6 million based on the sale price and the estimated costs to sell. The buyer began programming the stations under an LMA on August 8, 2018. The transaction closed on October 31, 2018.

~~On April 26, 2018, we entered an agreement to exchange radio stationKKOL-AM,~~ ~~in Seattle, Washington forKPAM-AM~~ ~~in Portland, Oregon. We are currently operating radio stationKPAM-AM~~ ~~under an LMA that was entered with the exchange agreement. We previously operatedKPAM-AM~~ under a separate LMA that began on January 2, 2018. The accompanying Condensed Consolidated Statements of Operations reflects the operating results of this station as of January 2, 2018. The exchange transaction is subject to the approval of the FCC and is expected to close in the fourth quarter of 2018.

~~Assets Held for Sale~~

~~We record assets as held for sale in the period in which all of the following criteria are met:~~follows:

~~Management, having the authority to approve the action, commits to a plan to sell the asset or entity;~~

~~the asset or entity is available for immediate sale in its present condition;~~

~~an active program to locate a buyer and other actions required to complete the plan to sell have been initiated;~~

~~the sale is probable and transfer is expected to be completed within one year or as subject to approval of the FCC;~~

~~the asset or entity is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and~~

~~actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.~~

When the held for sale criteria is met, but the disposal does not meet the criteria to be treated as discontinued operations, the assets or disposal group are reclassified from the corresponding balance sheet line items to Assets held for sale. Assets held for sale are carried at the lower of the carrying amount or fair value less cost to sell. We determined the fair value of these assets utilizing offers from third parties, which is a Level 3 measurement as discussed in Note 16.

~~At September 30, 2018, assets held for sale consist of radio stationsKCRO-AM~~ ~~andKOTK-AM~~ ~~in Omaha, Nebraska.~~

~~NOTE 5. CONTINGENTEARN-OUT~~ ~~CONSIDERATION~~

~~Our acquisitions may include contingentearn-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 contingentearn-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 contingentearn-out~~ ~~consideration on a quarterly basis over theearn-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 contingentearn-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 contingentearn-out~~ ~~consideration may materially impact and cause volatility in our operating results.~~

~~Hilary Kramer Financial Newsletters~~

We acquired the Hilary Kramer Financial Newsletters and related assets on August 9, 2018. We paid $0.4 million in cash upon closing and as part of the purchase agreement, may pay up to an additional $0.1 million in contingent~~earn-out~~ consideration over the next two years upon the achievement of income benchmarks. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of Hilary Kramer Newsletters to achieve the income targets at the time of closing, we estimated the fair value of the contingent~~earn-out~~ ~~consideration to be $40,617, which was recorded at the discounted present value of $39,360. The discount will be accreted to interest expense over the two yearearn-out~~ ~~period.~~

~~We review the fair value of the contingentearn-out~~ ~~consideration quarterly over theearn-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 contingentearn-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 period ended September 30, 2018.~~

~~Just1Word Mobile Application~~

We acquired the Just1Word mobile application and related assets on August 7, 2018. We paid $0.3 million in cash upon closing and as part of the purchase agreement, may pay up to an additional $0.1 million in contingent~~earn-out~~ consideration over the next two years upon the achievement of income benchmarks. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of Just1Word to achieve the income targets at the time of closing, we estimated the fair value of the contingent~~earn-out~~ ~~consideration to be $12,750, which was recorded at the discounted present value of $12,212. The discount will be accreted to interest expense over the two yearearn-out~~ ~~period.~~

~~TradersCrux.com~~

~~We acquired the TradersCrux.com website and related assets for $0.3 million in cash on July 6, 2017. We may have paid up to an additional $0.1 million in contingentearn-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 approximated the discounted present value due to theearn-out~~ ~~of less than one year.~~

~~We reviewed the fair value of the contingentearn-out~~ ~~consideration quarterly over theearn-out~~ ~~period to compare actual revenues achieved and projected to the estimates used in our forecasts. Any changes in the estimated fair value of the contingentearn-out~~ consideration were reflected in our results of operations in the period they were identified, up to the maximum future value outstanding under the contract of $0.1 million. We recorded an increase in the estimated fair value of the contingent~~earn-out~~ consideration of $31,000 for the year ended December 31, 2017 and $75,000 for the period ended June 30, 2018 that is reflected in our results of operations. The increases reflect the achievement of the revenue targets based on actual results that exceeded our original estimates. The~~earn-out~~ ~~period ended June 30, 2018 with a cash payment of $125,000 made to the seller during the period ended September 30, 2018.~~

~~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 have paid up to an additional $20,000 in contingentearn-out~~ consideration during the twelve month period ended 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 theearn-out~~ ~~period of less than one year.~~

~~We reviewed the fair value of the contingentearn-out~~ ~~consideration quarterly over theearn-out~~ ~~period to compare actual revenues achieved and projected to the estimates used in our forecasts. Any changes in the estimated fair value of the contingentearn-out~~ consideration were reflected in our results of operations in the period they were identified, up to the maximum future value outstanding under the contract of $20,000. We recorded an increase in the estimated fair value of the contingent~~earn-out~~ consideration of $1,700 for the year ended December 31, 2017 and a net decrease of $3,200 for the period ended June 30, 2018 that is reflected in our operating results. The change reflects the likelihood of achieving the revenue targets based on actual results to date as compared to estimates in our original estimates. As of the end of the~~earn-out~~ ~~period in June 2018, we paid a total of $15,000 to the seller.~~

~~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 have paid up to an additional $0.1 million in contingent~~earn-out~~ consideration payable 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 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 $66,000, which approximated the discounted present value due to theearn-out~~ ~~period of less than one year. We reviewed the fair value of the contingentearn-out~~ ~~consideration quarterly over theearn-out~~ ~~period to compare actual subscriber revenues achieved and projected to the estimated subscriber revenues used in our forecasts. Changes in the estimated fair value of the contingentearn-out~~ ~~consideration were reflected in our results of operations in the period they were identified, up to the maximum future value outstanding under the contract of $0.1 million. As of the end of theearn-out~~ ~~period on September 13, 2017, the estimated fair value of the contingentearn-out~~ ~~consideration was valued at $0.00 based on actual revenue achieved. We made no cash payments to the seller during theearn-out~~ ~~period.~~

~~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 have paid up to an additional $0.3 million in contingentearn-out~~ consideration payable over the next two years based upon on 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 was accreted to interest expense over thetwo-yearearn-out~~ ~~period. As of the end of theearn-out~~ ~~period on May 6, 2017, we recorded a net decrease of $4,000 in the estimated fair value of the contingentearn-out~~ ~~consideration based on actual session results at the end of theearn-out~~ ~~period that was reflected in our operating results for the year ended December 31, 2017. We paid a total of $75,000 to the seller over thetwo-yearearn-out~~ ~~period ended May 6 2017, with no cash payments made during the year ended December 31, 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 contingentearn-out~~ ~~consideration due to the seller is based upon net subscriber revenues achieved over atwo-year~~ period from date of close, of which we will pay the seller 50%. There is 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 thetwo-yearearn-out~~ ~~period. We recorded a net increase of $1,000 to the estimated fair value of the contingentearn-out~~ consideration that was reflected in our results of operations for the six months ending June 30, 2017, due to actual net subscription revenues that were slightly higher than our prior estimate. We paid a total of $91,000 to the seller over the two year~~earn-out~~ ~~period ended February 6, 2017, of which approximately $14,000 was paid during the year ended December 31, 2017.~~

~~NOTE 6. INVENTORIES~~

~~Inventories consist of finished goods including books from Regnery Publishing and wellness products. All inventories are valued at the lower of cost or net realizable value as determined on aFirst-InFirst-Out~~ ~~(“FIFO”) cost method and reported net of estimated reserves for obsolescence.~~

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

   December 31, 2017    September 30, 2018
   (Dollars in thousands)
Regnery Publishing book inventories
   $ 2,038    $ 1,341
Reserve for obsolescence – Regnery Publishing
   (1,621 )    (786 )




Inventory, net - Regnery Publishing
   417    555




Wellness products
   $ 349    $ 346
Reserve for obsolescence – Wellness products
   (36 )    (10 )




Inventory, net - Wellness products
   313    336




Consolidated inventories, net
   $ 730    $ 891

~~NOTE 7. BROADCAST LICENSES~~

The following table presents the changes in broadcasting licenses that include acquisitions and divestitures of radio stations and FM translators as discussed in Note 4 of our Condensed Consolidated Financial Statements.

Broadcast Licenses
   Twelve Months Ended
December 31, 2017    Nine Months Ended
September 30, 2018
   (Dollars in thousands)
Balance, beginning of period before cumulative loss on impairment
   $ 494,058    $ 486,455
Accumulated loss on impairment
   (105,541 )    (105,541 )




Balance, beginning of period after cumulative loss on impairment
   388,517    380,914




Acquisitions of radio stations
   191    6,270
Acquisitions of FM translators and construction permits
   198    11
Capital projects to improve broadcast signal and strength
   5    —
Dispositions of radio stations
   (7,997 )    (8,013 )




Balance, end of period before cumulative loss on impairment
   486,455    484,723




Accumulated loss on impairment
   (105,541 )    (105,541 )




Balance, end of period after cumulative loss on impairment
   $ 380,914    $ 379,182

~~NOTE 8. GOODWILL~~

~~The following table presents the changes in goodwill including acquisitions and divestitures as discussed in Note 4 of our Condensed Consolidated Financial Statements.~~

Goodwill
   Twelve Months Ended
December 31, 2017    Nine Months Ended
September 30, 2018
   (Dollars in thousands)
Balance, beginning of period before cumulative loss on impairment
   $ 27,642    $ 28,453
Accumulated loss on impairment
   (2,029 )    (2,029 )




Balance, beginning of period after cumulative loss on impairment
   25,613    26,424




Acquisitions of radio stations
   14    7
Acquisitions of digital media entities
   810    986
Dispositions of radio stations
   —      (628 )
Sale of income generating broadcast business
   (13 )    —




Balance, end of period before cumulative loss on impairment
   28,453    28,818




Accumulated loss on impairment
   (2,029 )    (2,029 )




Ending period balance
   $ 26,424    $ 26,789


	Operating Leases
	Related Party		Other		Total		Finance Leases		Total
	(Dollars in thousands)
2019	$	1,730	$	11,633	$	13,363	$	58	$	13,421
2020		1,763		11,592		13,355		39		13,394
2021		1,767		10,596		12,363		31		12,394
2022		1,730		9,490		11,220		27		11,247
2023		1,234		8,584		9,818		8		9,826
Thereafter		13,364		48,109		61,473		—		61,473

	$	21,588	$	100,004	$	121,592	$	163	$	121,755

NOTE 9. ~~PROPERTY AND EQUIPMENT~~BROADCAST LICENSES

We account for broadcast licenses in accordance with FASB ASC Topic 350Intangibles—Goodwill and Other. We do not amortize broadcast licenses, but rather test for impairment annually or more frequently if events or circumstances indicate that the value may be impaired. In the case of our broadcast radio stations, we would not be able to operate the properties without the related broadcast license for each property. Broadcast licenses are renewed with the Federal Communications Commission (“FCC”) every eight years for a nominal fee that is expensed as incurred. We continually monitor our stations’ compliance with the various regulatory requirements that are necessary for the FCC renewal and all of our broadcast licenses have been renewed at the end of their respective periods. We expect all of our broadcast licenses to be renewed in the future and therefore, we consider our broadcast licenses to be indefinite-lived intangible assets. We are not aware of any legal, competitive, economic or other factors that materially limit the useful life of our broadcast licenses. There were no indications of impairment during the period ended March 31, 2019.

The following ~~is a summary~~table presents the changes in broadcasting licenses that include acquisitions and divestitures of ~~the categories of our property~~radio stations and ~~equipment:~~FM translators.

   December 31, 2017    September 30, 2018
   (Dollars in thousands)
Land
   $ 32,320    $ 31,686
Buildings
   28,962    28,942
Office furnishings and equipment
   37,583    36,079
Office furnishings and equipment under capital lease obligations
   244    207
Antennae, towers and transmitting equipment
   85,632    85,330
Antennae, towers and transmitting equipment under capital lease obligations
   795    —
Studio, production and mobile equipment
   29,697    28,959
Computer software and website development costs
   24,477    26,308
Record and tape libraries
   27    21
Automobiles
   1,385    1,572
Leasehold improvements
   19,003    19,383
Construction-in-progress
   4,075    6,159




   $ 264,200    $ 264,646
Less accumulated depreciation
   (164,720 )    (167,934 )




   $ 99,480    $ 96,712

Depreciation expense was approximately $3.0 million and $3.1 million for each of the three month periods ended September 30, 2018 and 2017, respectively, and $9.1 million and $9.2 million for the nine month periods ended September 30, 2018 and 2017, respectively. Included in this amount is $5,000 and $48,000 for the three and nine months ended September 30, 2018 and $24,000 and $70,000 for the three and nine month periods ended September 30, 2017, on assets acquired under capital lease obligations. Accumulated depreciation associated with assets acquired under capital lease obligations was $0.2 million and $0.8 million at September 30, 2018 and December 31, 2017, respectively.


Broadcast Licenses	Twelve Months Ended December 31, 2018			Three Months Ended March 31, 2019
	(Dollars in thousands)
Balance, beginning of period before cumulative loss on impairment	$	486,455		$	484,691
Accumulated loss on impairment		(105,541	)		(108,375	)

Balance, beginning of period after cumulative loss on impairment		380,914			376,316

Acquisitions of radio stations		6,270			—
Acquisitions of FM translators and construction permits		19			—
Abandoned capital projects		(40	)		—
Dispositions of radio stations		(8,013	)		(4,291	)
Impairments based on the estimated fair value of broadcast licenses		(2,834	)		—

Balance, end of period before cumulative loss on impairment		484,691			480,400

Accumulated loss on impairment		(108,375	)		(108,375	)

Balance, end of period after cumulative loss on impairment	$	376,316		$	372,025

NOTE 10. GOODWILL

We account for goodwill in accordance with FASB ASC Topic 350Intangibles—Goodwill and Other. We do not amortize goodwill, but rather test for impairment annually or more frequently if events or circumstances indicate that an asset may be impaired. We perform our annual impairment testing during the fourth quarter of each year, which coincides with our budget and planning process for the upcoming year. There were no indications of impairment during the period ended March 31, 2019.

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


Goodwill	Twelve Months Ended December 31, 2018			Three Months Ended March 31, 2019
	(Dollars in thousands)
Balance, beginning of period before cumulative loss on impairment	$	28,453		$	28,818
Accumulated loss on impairment		(2,029	)		(2,029	)

Balance, beginning of period after cumulative loss on impairment		26,424			26,789

Acquisitions of radio stations		7			—
Acquisitions of digital media entities		986			—
Dispositions of radio stations		(628	)		(3	)
Dispositions of digital media entities		—			(341	)

Balance, end of period before cumulative loss on impairment		28,818			28,474

Accumulated loss on impairment		(2,029	)		(2,029	)

Ending period balance	$	26,789		$	26,445

NOTE 11. OTHER INDEFINITE-LIVED INTANGIBLE ASSETS

Other indefinite-lived intangible consists of mastheads, or the graphic elements that identify our publications to readers and advertisers. These include customized typeset page headers, section headers, and column graphics as well as other name and identity stylized elements within the body of each publication. We are not aware of any legal, competitive, economic or other factors that materially limit the useful life of our mastheads. We account for mastheads in accordance with FASB ASC Topic 350Intangibles—Goodwill and Other. We do not amortize mastheads, but rather test for impairment annually or more frequently if events or circumstances indicate that an asset may be impaired. There were no indications of impairment during the period ended March 31, 2019.

NOTE ~~10.~~12. AMORTIZABLE INTANGIBLE ASSETS

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


	September 30, 2018							As of March 31, 2019
			Accumulated							Accumulated
	Cost		Amortization			Net		Cost		Amortization			Net
	(Dollars in thousands)							(Dollars in thousands)
Customer lists and contracts	$	24,673	$	(21,498	)	$	3,175	$	23,456	$	(20,896	)	$	2,560
Domain and brand names		21,358		(16,218	)		5,140		20,236		(16,434	)		3,802
Favorable and assigned leases		2,256		(1,944	)		312		2,188		(1,894	)		294
Subscriber base and lists		9,672		(6,548	)		3,124		9,570		(7,477	)		2,093
Author relationships		2,771		(2,416	)		355		2,771		(2,493	)		278
Non-compete agreements		2,048		(1,571	)		477		2,031		(1,679	)		352
Other amortizable intangible assets		1,666		(1,350	)		316		1,666		(1,406	)		260

	$	64,444	$	(51,545	)	$	12,899	$	61,918	$	(52,279	)	$	9,639


								As of December 31, 2018
										Accumulated
								Cost		Amortization			Net
								(Dollars in thousands)
Customer lists and contracts								$	24,673	$	(21,798	)	$	2,875
Domain and brand names									21,358		(16,758	)		4,600
Favorable and assigned leases									2,256		(1,953	)		303
Subscriber base and lists									9,672		(7,198	)		2,474
Author relationships									2,771		(2,454	)		317
Non-compete agreements									2,048		(1,641	)		407
Other amortizable intangible assets									1,666		(1,378	)		288

								$	64,444	$	(53,180	)	$	11,264

   December 31, 2017
   Cost    Accumulated
Amortization    Net
   (Dollars in thousands)
Customer lists and contracts
   $ 22,865    $ (20,888 )    $ 1,977
Domain and brand names
   20,109    (14,650 )    5,459
Favorable and assigned leases
   2,379    (2,028 )    351
Subscriber base and lists
   8,797    (4,701 )    4,096
Author relationships
   2,771    (2,237 )    534
Non-compete agreements
   2,029    (1,342 )    687
Other amortizable intangible assets
   1,333    (1,333 )    —






   $ 60,283    $ (47,179 )    $ 13,104

Amortization expense was approximately ~~$1.6~~$1.3 million and ~~$1.1~~$1.5 million for ~~each of~~ the three month ~~periods~~period ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $4.6 million and $3.4 million for each of the nine month periods ended September 30, 2018 and 2017,~~ respectively. Based on the amortizable intangible assets as of ~~September 30, 2018,~~March 31, 2019, we estimate amortization expense for the next five years to be as follows:


Year Ended December 31,	Amortization Expense		Amortization Expense
	(Dollars in thousands)
2018 (Oct – Dec)	$	1,635
2019		4,699
Year Ended December 31,			(Dollars in thousands)
Year Ended December 31,			$	3,250
2020		3,275		3,094
2021		1,654		1,614
2022		969		989
2023				479
Thereafter		667		213

Total	$	12,899	$	9,639

NOTE ~~11.~~13. LONG-TERM DEBT

Salem Media Group, Inc. has no independent assets or operations, the subsidiary guarantees relating to certain debt are full and unconditional and joint and several, and any subsidiaries of Salem Media Group, Inc. other than the subsidiary guarantors are minor.

6.75% Senior Secured Notes

On May 19, 2017, we issued in a private placement the Notes, which ~~were~~are 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 they are earlier redeemed or repurchased. Interest initially ~~accrues~~accrued 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~~Guarantors’ 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”)~~FCC licenses to the extent prohibited by law or regulation.

We may redeem the Notes, in whole or in part, at any time on or ~~after~~before June 1, 2020 at a price equal to 100% of the principal amount of the 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, we may redeem some or all of the Notes at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth in the Notes, 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 Notes before June 1, 2020 with the net cash proceeds from certain equity offerings at a redemption price of 106.75% 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 Notes per ~~twelve month~~twelve-month period before June 1, 2020 at a redemption price of 103% of the principal amount plus accrued and unpaid interest to, but not including, the redemption date.

The indenture relating to the Notes (the “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 unless our leverage ratio is less than the incurrence covenant;~~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 amount of dividends or equity distributions made is not to exceed $2.0 million in any fiscal quarter or $20.0 million in the aggregate, so long as, after giving pro forma effect thereto, the Consolidated Total Debt Ratio would be less than or equal to 6.00 to 1.00.

The Indenture provides for the following events of default (each, an “Event of Default”): (i) default in payment of principal or premium on the Notes at maturity, upon repurchase, acceleration, optional redemption or otherwise; (ii) default for 30 days in payment of interest 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 amount of the 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.

~~On April 10, 2018, we repurchased $4.0 million of the 6.75% Senior Secured Notes for $3.9 million, or 96.25% of the face value. This transaction resulted in a netpre-tax~~ ~~gain on the early retirement of debt of approximately $63,000 after bond issue costs associated with the Notes were adjusted for the repurchase.~~

Based on the ~~amount~~balance of ~~bonds~~the Notes currently outstanding, ~~at September 30, 2018,~~ we are required to pay ~~$16.5~~$15.7 million per year in interest on the Notes. As of ~~September 30, 2018,~~March 31, 2019, accrued interest on the Notes was ~~$5.5~~$5.2 million.

We incurred debt issuance costs of $6.3 million that were recorded as a reduction of the debt proceeds that are being amortized tonon-cash interest expense over the life of the Notes using the effective interest method. During the three ~~and nine~~ month ~~periods~~period ended ~~September 30,~~March 31, 2019 and 2018, $0.2 ~~million and $0.7~~ million of debt issuance costs associated with the Notes ~~were recognized as~~was amortized to interest expense. ~~During the three~~

We may from time to time, depending on market conditions and ~~nine month periods ended September 30, 2017, $0.2 million~~prices, contractual restrictions, our financial liquidity and ~~$0.3 million, respectively, of debt issuance costs associated with~~other factors, seek to repurchase the Notes ~~were recognized~~in open market transactions, privately negotiated transactions, by tender offer or otherwise, as ~~interest expense.~~market conditions warrant.

Based on the then existing market conditions, we completed repurchases of our 6.75% Senior Secured Notes at amounts less than face value as follows:


Date	Principal Repurchased		Cash Paid		% of Face Value			Bond Issue Costs		Net Gain
Date	(Dollars in thousands)
March 28, 2019	$	2,000	$	1,830		91.50	%	$	37	$	134
March 28, 2019		2,300		2,125		92.38	%		42		133
February 20, 2019		125		114		91.25	%		2		9
February 19, 2019		350		319		91.25	%		7		24
February 12, 2019		1,325		1,209		91.25	%		25		91
January 10, 2019		570		526		92.25	%		9		35
December 21, 2018		2,000		1,835		91.75	%		38		127
December 21, 2018		1,850		1,702		92.00	%		35		113
December 21, 2018		1,080		999		92.50	%		21		60
November 17, 2018		1,500		1,357		90.50	%		29		114
May 4, 2018		4,000		3,770		94.25	%		86		144
April 10, 2018		4,000		3,850		96.25	%		87		63
April 9, 2018		2,000		1,930		96.50	%		43		27

	$	23,100	$	21,566

Asset-Based Revolving Credit Facility

On May 19, 2017, the Company ~~also~~ 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~~Current proceeds offrom the ABL Facility ~~will be~~are used to provide ongoing working capital and for other general corporate purposes, ~~(including~~including permitted ~~acquisitions).~~acquisitions.

The ABL Facility is a five-year $30.0 million revolving credit facility due May 19, 2022, 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 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.

The ABL Facility is secured by a first-priority lien on the ABL Priority Collateral and by a second-priority lien on the Notes Priority Collateral. There is no direct lien on the Company’s 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 of the fiscal month most recently ended prior 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,~~third party, except as permitted thereby; (viii) to prepay indebtedness; and (ix) to pay dividends. The amount of dividends or equity distributions made is not to exceed $2.0 million in any fiscal quarter or $20.0 million in the aggregate, so long as, after giving pro forma effect thereto, the Consolidated Total Debt Ratio would be less than or equal to 6.00 to 1.00.

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 respect of the collateral.

We incurred debt issue costs of $0.7 million that were recorded as an asset and are being amortized tonon-cash interest expense over the term of the ABL Facility using the effective interest method. During the three month period ended March 31, 2019 and ~~nine month periods ended September 30,~~ 2018, ~~$53,000~~$51,000 and ~~$0.2 million~~$46,000, respectively, of debt issue costs associated with the Notes was ~~recognized as~~amortized to interest expense. ~~During~~At March 31, 2019, the ~~three and nine month periods ended September 30, 2017, $63,000 and $86,000 of debt issue costs associated with the Notes were recognized as interest expense. The~~ blended interest rate on amounts outstanding under the ABL Facility was ~~4.02%~~4.24%.

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 the three and nine months ended September 30, 2017, approximately $0 and $0.1 million, 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 tonon-cash~~ interest expense over the life of the Term Loan B using the effective interest method. For the three and nine months ended September 30, 2017, approximately $0 and $0.2 million, 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 ASU2015-15.~~ ~~The costs were amortized tonon-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 the three and nine month period ended September 30, 2017, we recorded amortization of deferred financing costs of approximately $0 and $26,000, respectively.

Summary of long-term debt obligations

Long-term debt consisted of the following:


	December 31, 2017			September 30, 2018			As of December 31, 2018			As of March 31, 2019
	(Dollars in thousands)						(Dollars in thousands)
6.75% Senior Secured Notes	$	255,000		$	245,000		$	238,570		$	231,900
Less unamortized debt issuance costs based on imputed interest rate of 7.08%		(5,774	)		(4,867	)		(4,540	)		(4,217	)

6.75% Senior Secured Notes net carrying value		249,226			240,133			234,030			227,683

Asset-Based Revolving Credit Facility principal outstanding		9,000			10,200			19,660			16,000
Capital leases and other loans		462			77

Long-term debt and capital lease obligations less unamortized debt issuance costs		258,688			250,410
Total long-term debt less unamortized debt issuance costs								253,690			243,683

Less current portion		(9,109	)		(10,228	)		(19,660	)		(16,000	)

Long-term debt and capital lease obligations less unamortized debt issuance costs, net of current portion	$	249,579		$	240,182
Long-term debt less unamortized debt issuance costs, net of current portion							$	234,030		$	227,683

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, 2018:~~March 31, 2019:

~~Outstanding borrowings of $10.2~~$16.0 million under the ABL Facility, with interest ~~payments ranges~~spread ranging from Base Rate plus 0.50% to 1.00% for base rate borrowings and LIBOR plus 1.50% to 2.00% for LIBOR rate borrowings;

$~~245.0~~231.9 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% per annum 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, 2017 and September 30, 2018 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, 2018~~March 31, 2019 for each of the next five years and thereafter are as follows:


	Amount		Amount
For the Twelve Months Ended September 30,	(Dollars in thousands)
2019	$	10,228
For the Twelve Months Ended March 31,			(Dollars in thousands)
2020		14	$	16,000
2021		15		—
2022		14		—
2023		6		—
2024				—
Thereafter		245,000		231,900

	$	255,277	$	247,900

NOTE ~~12. STOCK INCENTIVE PLAN~~14. DERIVATIVE INSTRUMENTS

We are exposed to market risk from changes in interest rates. We actively monitor these fluctuations and may use derivative instruments primarily for the purpose of reducing the impact of changing interest rates on our variable rate debt and to reduce the impact of changing fair market values on our fixed rate debt. 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 ~~Amended~~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 ~~Restated 1999 Stock Incentive Plan (the “Plan”) provides for grants of equity-based awards to employees,non-employee~~ ~~directors and officers, and advisors~~Hedging, the effective portion of the ~~company (“Eligible Persons”).~~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 ~~Plan is designed to promote~~remaining gain or loss on the ~~interests of the company using equity investment interests to attract, motivate, and retain individuals.~~derivative instrument, if any, shall be recognized currently in earnings.

~~A maximum~~As of ~~5,000,000 shares of common stock are authorized under the Plan. All awards~~March 31, 2019, we did not 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.~~derivative instruments.

~~Under the Plan, the Board, or a committee appointed by the Board, may impose restrictions on the exercise of awards duringpre-defined~~ ~~blackout periods. Insiders may participate in plans established pursuant to Rule10b5-1~~ ~~under the Exchange Act that allow them to exercise awards subject topre-established~~ ~~criteria.~~

~~We recognizenon-cash~~ ~~stock-based compensation expense based on the estimated fair value of awards in accordance with FASB ASC Topic 718~~~~Compensation—Stock Compensation~~~~. Stock-based compensation expense fluctuates over time as a result of the vesting periods for outstanding awards and the number of awards that actually vest.~~

The following table reflects the components of stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2018 and 2017:

   Three Months Ended September 30,    Nine Months Ended September 30,
   2017    2018    2017 2018
   (Dollars in thousands)    (Dollars in thousands)
Stock option compensation expense included in unallocated corporate expenses
   $ 27    $ 120    $ 126 $ 220
Restricted stock shares compensation expense included in unallocated corporate expenses
   225    —      1,100 —
Stock option compensation expense included in broadcast operating expenses
   7    40    41 82
Restricted stock shares compensation expense included in broadcast operating expenses
   —      —      224 —
Stock option compensation expense included in digital media operating expenses
   6    27    25 50
Restricted stock shares compensation expense included in digital media operating expenses
   —      —      124 —
Stock option compensation expense included in publishing operating expenses
   3    4    17 11
Restricted stock shares compensation expense included in publishing operating expenses
   —      —      36 —






Total stock-based compensation expense,pre-tax
   $ 268    $ 191    $ 1,693 $ 363






Tax expense for stock-based compensation expense
   (107 )    (49 )    (677 ) (94 )






Total stock-based compensation expense, net of tax
   $ 161    $ 142    $ 1,016 $ 269

~~Stock Option and Restricted Stock Grants~~

~~Eligible employees may receive stock option awards annually with the number of shares and type of instrument generally determined by the employee’s salary grade and performance level. Incentive andnon-qualified~~ stock option awards allow the recipient to purchase shares of our common stock at a set price, not to be less than the closing market price on the date of award, for no consideration payable by the recipient. The related number of shares underlying the stock option is fixed at the time of the grant. Options generally vest over a four-year period with a maximum term of five years from the vesting date. In addition, certain management 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 tonon-employee~~ ~~directors of the company. Awards granted tonon-employee~~ ~~directors are made in exchange for their services to the company as directors and therefore, the guidance in FASB ASC Topic505-50~~~~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 independent 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.

The weighted-average assumptions used to estimate the fair value of the stock options using the Black-Scholes valuation model were as follows for the three and nine month periods ended September 30, 2018:


	~~Three Months Ended~~ ~~September 30, 2018~~		~~Nine Months Ended~~ ~~September 30, 2018~~
	~~Three Months Ended~~ ~~September 30, 2018~~		~~Nine Months Ended~~ ~~September 30, 2018~~
~~Expected volatility~~		—		~~41.84~~	%
~~Expected dividends~~		—		~~7.89~~	%
~~Expected term (in years)~~		—		~~7.4~~
~~Risk-free interest rate~~		—		~~2.93~~	%

~~Activity with respect to the company’s option awards during the nine month period ended September 30, 2018 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, 2018
   1,428,462 $ 5.20    $ 2.96    3.7 years    $ 653
Granted
   650,000 3.30    1.86
Exercised
   (17,615 ) 2.49    2.11       $ 35
Forfeited or expired
   (71,375 ) 4.42    3.20       $ 28



Outstanding at September 30, 2018
   1,989,472 $ 4.63    $ 2.60    4.3 years    $ 312



Exercisable at September 30, 2018
   1,055,716 $ 5.51    $ 3.38    2.5 years    $ 179



Expected to Vest
   886,601 $ 4.65    $ 2.62    4.3 years    $ 128

The aggregate intrinsic value represents the difference between the company’s closing stock price on September 30, 2018 of $3.40 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, 2018 and 2017 was $0.3 million and $0.9 million, respectively.

~~As of September 30, 2018, there was $0.5 million of total unrecognized compensation cost related tonon-vested~~ ~~stock option awards. This cost is expected to be recognized over a weighted-average period of 2.0 years.~~

~~There were no restricted stock awards granted during the nine month period ended September 30, 2018.~~

NOTE ~~13. EQUITY TRANSACTIONS~~15. FAIR VALUE MEASUREMENTS

~~We account for stock-based compensation expense~~Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in ~~accordance with~~an orderly transaction between market participants at the measurement date.” FASB ASC Topic ~~718,~~820~~Compensation-Stock Compensation~~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).

Under ASC 820, a fair value measurement of a nonfinancial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Therefore, fair value is a market-based measurement and not an entity-specific measurement. It is determined based on assumptions that market participants would use in pricing the asset or liability. The exit price objective of a fair value measurement applies regardless of the reporting entity’s intent and/or ability to sell the asset or transfer the liability at the measurement date.

As ~~a result, $0.2 million~~of March 31, 2019, the carrying value of cash and ~~$0.4 million ofnon-cash~~ ~~stock-based compensation expense has been recorded~~cash equivalents, trade accounts receivables, accounts payable, accrued expenses and accrued interest approximates fair value due to ~~additionalpaid-in~~ ~~capital for~~ the ~~three and nine month periods ended September 30, 2018, respectively, in comparison to $0.3 million and $1.7 million for the three and nine month periods ended September 30, 2017, respectively.~~

~~While we intend to pay regular quarterly distributions, the actual declaration~~short-term nature of such ~~future distributions and the establishment~~instruments. The carrying amount of the ~~per share amount, record dates,~~Notes at March 31, 2019 was $231.9 million compared to the estimated fair value of $212.8 million, based on the prevailing interest rates and ~~payment dates~~trading activity of our Notes.

We have certain assets that are ~~subject~~measured at fair value on anon-recurring basis that are adjusted to ~~final determination by our Board~~fair value only when the carrying values exceed the fair values. The categorization of ~~Directors and dependent upon future earnings, cash flows, financial and legal requirements, and other factors. Any future distributions are likely~~the framework used to ~~be comparable~~price the assets is considered Level 3 due to ~~prior declarations unless there are changes in expected future earnings, cash flows, financial and legal requirements.~~the subjective nature of the unobservable inputs used when estimating the fair value.

The following table ~~shows distributions~~summarizes the fair value of our financial assets and liabilities that ~~have been declared and paid since January 1, 2017:~~are measured at fair value:

Announcement Date
   Payment Date    Amount Per Share    Cash Distributed
(in thousands)
September 5, 2018
   September 28, 2018    $ 0.0650    $ 1,702
May 31, 2018
   June 29, 2018    $ 0.0650    $ 1,701
February 28, 2018
   March 28, 2018    $ 0.0650    $ 1,701
December 7, 2017
   December 29, 2017    $ 0.0650    $ 1,701
September 12, 2017
   September 29, 2017    $ 0.0650    $ 1,701
June 1, 2017
   June 30, 2017    $ 0.0650    $ 1,697
March 9, 2017
   March 31, 2017    $ 0.0650    $ 1,691


	March 31, 2019
	Carrying Value on Balance Sheet		Fair Value Measurement Category
	Carrying Value on Balance Sheet		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets
Estimated fair value of other indefinite-lived intangible assets	$	277		—		—	$	277
Liabilities:
Estimated fair value of contingentearn-out consideration included in accrued expenses		55		—		—		55
Long-term debt less unamortized debt issuance costs		243,683		—		224,551		—

~~Based~~NOTE 16. 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 ~~number~~period that includes the date of ~~shares~~the change. On December 22, 2017, the Tax Cuts and Jobs Act of ~~Class A and Class B currently outstanding, we expect~~2017 (the “Act”) was signed into law making significant changes to ~~pay total annual distributions of approximately $6.8 million during~~ the ~~year ended~~Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, ~~2018.~~2017. We calculated the impact of the Act in our year ending December 31, 2018 income tax provision in accordance with our understanding of the Act and guidance available as of the date of our Form10-K filing.

~~NOTE 14. BASIC AND DILUTED NET EARNINGS PER SHARE~~At December 31, 2018, we had net operating loss carryforwards for federal income tax purposes of approximately $148.1 million that expire in 2021 through 2038 and for state income tax purposes of approximately $783.8 million that expire in years 2019 through 2038. For financial reporting purposes at December 31, 2018, we had a valuation allowance of $5.4 million, net of federal benefit, to offset the deferred tax assets related to the state net operating loss carryforwards. Our evaluation was performed for tax years that remain subject to examination by major tax jurisdictions, which range from 2014 through 2017.

~~Basic~~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 ~~earnings per share has been computed using the weighted average number~~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 ~~Class A and Class B shares~~$5.4 million as of ~~common stock outstanding during the period. Restricted stock awards that vested immediately during the three month period ended~~ March 31, ~~2017, were included~~2019 to offset 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 17. COMMITMENTS AND CONTINGENCIES

The Company enters into various agreements in the ~~weighted average number~~normal course of ~~common shares used~~business that contain minimum guarantees. Minimum guarantees are typically tied to compute basic earnings per share because these restricted stock awards contained dividend participation and voting rights. Diluted net earnings per share is computed using the weighted average number of shares of Class A and Class B common stock outstanding during the period plus the dilutive effects of stock options.

Options to purchase 1,989,472 and 1,454,462 shares of Class A common stock were outstanding at September 30, 2018 and 2017, respectively. Diluted weighted average shares outstanding exclude outstanding stock options whose exercise price isfuture events, such as future revenue earned in excess of the ~~average price~~contractual level. Accordingly, the fair value of these arrangements is zero.

The Company also records contingentearn-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 ~~company’s stock price. These options~~contingentearn-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 contingentearn-out consideration on a quarterly basis over theearn-out period. Actual results are ~~excluded from~~compared to the ~~respective computations~~estimates and probabilities of ~~diluted net income~~achievement used in our forecasts. Should actual results of the acquired business increase or ~~loss per share because their~~decrease as compared to our estimates and assumptions, the estimated fair value of the contingentearn-out consideration liability will increase or decrease, up to the contracted limit, as applicable. Changes in the estimated fair value of the contingentearn-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 contingentearn-out consideration may materially impact and cause volatility in our operating results.

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. The company evaluates claims based on what we believe to be both probable and reasonably estimable. The company maintains insurance that may provide coverage for such matters. Consequently, the company is unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. The Company believes, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect ~~would be anti-dilutive. As~~upon the Company’s condensed consolidated financial position, results of ~~September 30, 2018 and 2017 there were 128,284 and 335,682 dilutive shares, respectively.~~ operations or cash flows.

NOTE ~~15. DERIVATIVE INSTRUMENTS~~18. STOCK INCENTIVE PLAN

~~We are exposed~~Our Amended and Restated 1999 Stock Incentive Plan (the “Plan”) provides for grants of equity-based awards to ~~market risk from changes in interest rates. We actively monitor these fluctuations~~employees,non-employee directors and ~~may use derivative instruments primarily for the purpose of reducing the impact of changing interest rates on our variable rate debt~~officers, and to reduce the impact of changing fair market values on our fixed rate debt. 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~~advisors 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 May 19, 2017, we entered into a new senior credit facility, which is an asset-based revolving credit facility~~company (“~~ABL Facility”~~Eligible Persons”). The ~~ABL Facility~~Plan is designed to promote the interests of the company using equity investment interests to attract, motivate, and retain individuals.

At March 31, 2019, a ~~five-year $30.0 million (subject to borrowing base) revolving credit facility maturing~~maximum of 5,000,000 shares of common stock were authorized under the Plan. At the annual meeting of the company held on May ~~19, 2022. Amounts outstanding~~8, 2019, the company’s stockholders approved a revision to the Plan increasing the number of shares authorized by 3,000,000. As a result, a maximum of 8,000,000 shares are authorized under the ~~ABL Facility bear interest at a rate based on LIBOR plus a spread of 1.50%~~Plan. All awards have restriction periods tied primarily to ~~2.0% per annum based on a pricing grid depending on the average available amount~~employment and/or service. The Plan allows for ~~the most recently ended quarter~~accelerated or ~~at the Base Rate (as~~continued vesting in certain circumstances as defined in the ~~Credit Agreement) plus~~Plan including death, disability, a ~~spread~~change in control, and termination or retirement. The Board of ~~0.50%~~Directors, or a committee appointed by the Board, has discretion subject to ~~1.0% per annum based on~~limits defined in the Plan, to modify the terms of any outstanding award.

Under the Plan, the Board, or a ~~pricing grid depending~~committee appointed by the Board, may impose restrictions on the ~~average available amount for the most recently ended quarter. Additionally, we pay a commitment fee on the unused balance~~exercise of ~~0.25%~~awards duringpre-defined blackout periods. Insiders may participate in plans established pursuant to ~~0.375% per year. If an event of default occurs, the interest rate may increase by 2.00% per annum. Amounts outstanding~~Rule10b5-1 under the ~~ABL Facility may be paid and then~~Exchange Act that allow them to exercise awards subject to~~re-borrowed~~pre-established ~~at our discretion without penalty or premium.~~criteria.

~~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 developedWe recognizenon-cash stock-based compensation expense based on ~~the best information available in the circumstances (which might include the reporting entity’s own data).~~

As of September 30, 2018, 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. The carrying amount of the Notes at September 30, 2018 was $245.0 million compared to the estimated fair value of ~~$221.1 million, based~~awards in accordance with FASB ASC Topic 718Compensation—Stock Compensation. Stock-based compensation expense fluctuates over time as a result of the vesting periods for outstanding awards and the number of awards that actually vest. The following table reflects the components of stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations for the three month period ended March 31, 2019 and 2018:


	Three Months Ended March 31,
	2018			2019
	(Dollars in thousands)
Stock option compensation expense included in corporate expenses	$	24		$	107
Stock option compensation expense included in broadcast operating expenses		13			39
Stock option compensation expense included in digital media operating expenses		5			26
Stock option compensation expense included in publishing operating expenses		4			4

Total stock-based compensation expense,pre-tax	$	46		$	176

Tax benefit (expense) for stock-based compensation expense		(12	)		(46	)

Total stock-based compensation expense, net of tax	$	34		$	130

Stock Option and Restricted Stock Grants

Eligible employees may receive stock option awards annually with the number of shares and type of instrument generally determined by the employee’s salary grade and performance level. Incentive andnon-qualified stock option awards allow the recipient to purchase shares of our common stock at a set price, not to be less than the closing market price on the ~~prevailing interest rates~~date of award, for no consideration payable by the recipient. The related number of shares underlying the stock option is fixed at the time of the grant. Options generally vest over a four-year period with a maximum term of five years from the vesting date. In addition, certain management and ~~trading activity~~professional level employees may receive stock option awards upon the commencement of ~~our Notes.~~employment.

WeThe Plan also allows for awards of restricted stock, which have ~~certain assets that~~been granted periodically tonon-employee directors of the company. Awards granted tonon-employee directors are ~~measured~~made in exchange for their services to the company as directors and therefore, the guidance in FASB ASC Topic505-50Equity 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 independent of option grants and are granted at ~~fair value on anon-recurring~~ ~~basis that~~no cost to the recipient other than applicable taxes owed by the recipient. The awards are ~~adjusted to fair value only when~~considered issued and outstanding from the ~~carrying values exceed the fair values. During the second quarter~~vest date of ~~2018, we estimated the~~grant.

The fair value of assets in our Omaha market cluster using significant unobservable inputs (Level 3) and recorded a loss on the disposition of assets of $4.8 million. At September 30, 2018, assets held for sale consist of radio stations~~KCRO-AM~~ ~~andKOTK-AM~~ ~~in Omaha, Nebraska.~~

~~The categorization of the framework used to price the assets~~each award 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, 2018
   Carrying Value
on Balance Sheet    Fair Value Measurement Category
   Level 1    Level 2    Level 3
   (Dollars in thousands)
Assets

Estimated fair value of assets held for sale
   $ 1,375    $ —      $ —      $ 1,375
Estimated fair value of other indefinite-lived intangible assets
   313    —      —      313
Liabilities:

Estimated fair value of contingentearn-out consideration included in accrued expenses
   51    —      —      51
Long-term debt and capital lease obligations less unamortized debt issuance costs
   250,410    —      221,113    —

~~NOTE 17. INCOME TAXES~~

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017. In March 2018, the FASB issued ASU~~2018-05~~~~, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.~~ ~~118 (SEC Update) Investments—Debt Securities (Topic 320)~~~~. ASU2018-05~~ amends certain SEC material in Topic 740 for the income tax accounting implications of the recently issued Tax Cuts and Jobs Act (the “Act.”) The guidance allows for a measurement period of up to one year from the enactment date to finalize the accounting related to the Act. ASU~~2018-05~~ ~~is effective immediately. We have calculated our best estimate of the impact of the Act in our year end income tax provision in accordance with our understanding of the Act and guidance available~~estimated as of the date of ~~this filing.~~

~~For financial reporting purposes, we recorded~~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 ~~valuation allowance~~six to ten year term commensurate with the expected term of ~~$6.2 million~~the award. Expected dividends reflect the amount of quarterly distributions authorized and declared on our Class A and Class B common stock as of ~~December~~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.

The weighted-average assumptions used to estimate the fair value of the stock options using the Black-Scholes valuation model were as follows for the three month period ended March 31, ~~2017~~2019 and 2018:


	Three Months Ended			Three Months Ended
	March 31, 2018			March 31, 2019
Expected volatility		41.99	%		47.54	%
Expected dividends		6.93	%		9.22	%
Expected term (in years)		7.5			7.5
Risk-free interest rate		2.75	%		2.61	%

Activity with respect to ~~offset $6.0~~the company’s option awards during the three month period ended March 31, 2019 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, 2019		1,980,972		$	4.63	$	2.61		4.1 years	$	—
Granted		5,000			2.82		1.43				—
Exercised		—			—		—				—
Forfeited or expired		(155,750	)		6.43		4.53				2

Outstanding at March 31, 2019		1,830,222		$	4.49	$	2.46		4.1 years	$	10

Exercisable at March 31, 2019		1,112,844		$	5.13	$	2.89		2.7 years	$	10

Expected to Vest		681,150		$	4.51	$	2.47		4.1 years	$	10

The aggregate intrinsic value represents the difference between the Company’s closing stock price on March 31, 2019 of $2.56 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 three month periods ended March 31, 2019 and 2018 was $0.3 million.

As of March 31, 2019, there was $0.1 million of ~~the deferred tax assets~~total unrecognized compensation cost related tonon-vested stock option awards. This cost is expected to be recognized over a weighted-average period of 2.0 years.

There were no restricted stock awards granted during the ~~state net operating loss carryforwards~~three month period ended March 31, 2019 and 2018.

NOTE 19. EQUITY TRANSACTIONS

We account for stock-based compensation expense in accordance with FASB ASC Topic 718,Compensation-Stock Compensation. As a result, $0.2 million ~~associated with asset impairments. For financial reporting purposes,~~and $46,000 ofnon-cash stock-based compensation expense has been recorded to additionalpaid-in capital for the three month period ended March 31, 2019 and 2018, respectively.

While we ~~recorded a valuation allowance~~intend to pay regular quarterly distributions, the actual declaration of ~~$4.5 million as of December 31, 2016 to offset $4.2 million~~such future distributions and the establishment of the ~~deferred tax assets related to the state net operating loss carryforwards~~per share amount, record dates, and ~~$0.3 million associated with asset impairments.~~

At December 31, 2017, we had net operating loss carryforwards for federal income tax purposes of approximately $153.1 million that expire in 2020 through 2037 and for state income tax purposes of approximately $790.4 million that expire in years 2018 through 2037. For financial reporting purposes at December 31, 2017, we had a valuation allowance of $6.2 million, net of federal benefit, to offset $6.0 million of the deferred tax assets related to the state net operating loss carryforwards and $0.2 million associated with asset impairments. Our evaluation was performed for tax years that remainpayment dates are subject to ~~examination~~final determination by ~~major tax jurisdictions, which range from 2013 through 2017.~~our Board of Directors and dependent upon future earnings, cash flows, financial and legal requirements, and other factors. Any future distributions are likely to be comparable to prior declarations unless there are changes in expected future earnings, cash flows, financial and legal requirements.

The ~~amortization~~following table shows distributions that have been declared and paid since January 1, 2018:


Announcement Date	Payment Date	Amount Per Share		Cash Distributed (in thousands)
March 7, 2019	March 29, 2019	$	0.0650	$	1,702
November 26, 2018	December 21, 2018	$	0.0650		1,702
September 5, 2018	September 28, 2018	$	0.0650		1,702
May 31, 2018	June 29, 2018	$	0.0650		1,701
February 28, 2018	March 28, 2018	$	0.0650		1,701

Based on the number of ~~our indefinite-lived intangible assets for tax purposes but not for book purposes creates deferred tax liabilities.~~shares of Class 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,~~Class B currently outstanding, we expect to ~~continue to generate deferred tax liabilities in future periods exclusive~~pay total annual distributions 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 $6.2~~approximately $6.8 million ~~as of September 30, 2018 to offset $6.0 million of~~during the deferred tax assets related to the state net operating loss carryforwards and $0.2 million associated with asset impairments. 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.year ended December 31, 2019.

NOTE ~~18. COMMITMENTS~~20. BASIC AND ~~CONTINGENCIES~~DILUTED NET EARNINGS PER SHARE

~~The Company enters into various agreements in~~Basic net earnings per share has been computed using the ~~normal course~~weighted average number of ~~business that contain minimum guarantees. These minimum guarantees are often tied~~Class A and Class B shares of common stock outstanding during the period. Diluted net earnings per share is computed using the weighted average number of shares of Class A and Class B common stock outstanding during the period plus the dilutive effects of stock options.

Options to ~~future events, such as future revenue earned~~purchase 1,830,222 and 1,443,087 shares of Class A common stock were outstanding at March 31, 2019 and 2018, respectively. Diluted weighted average shares outstanding exclude outstanding stock options whose exercise price is in excess of the ~~contractual level. Accordingly, the fair value of these arrangements is zero.~~

~~The Company also records contingentearn-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 valueaverage price of the ~~contingentearn-out~~ ~~consideration is estimated as~~company’s stock price. These options are excluded from the respective computations of ~~the acquisition date as the present value~~diluted net income or loss per share because their effect would be anti-dilutive. As 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 theearn-out~~ ~~period. Actual results are compared to the estimates~~March 31, 2019 and ~~probabilities of achievement used in our forecasts. Should actual results of the acquired business increase or decrease as compared to our estimates~~2018 there were 7,195 and ~~assumptions, the estimated fair value of the contingentearn-out~~ ~~consideration liability will increase or decrease, up to the contracted limit, as applicable. Changes in the estimated fair value of the contingentearn-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 contingentearn-out~~ ~~consideration may materially impact and cause volatility in our operating results.~~

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. 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. The company believes, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon the Company’s consolidated financial position, results of operations or cash flows.

Salem leases various land, offices, studios and other equipment under operating leases that generally expire over the next ten to twenty-five years. The majority of these leases are subject to escalation clauses and may be renewed for successive periods ranging from one to five years on terms similar to current agreements and except for specified increases in lease payments.133,352 dilutive shares, respectively.

NOTE ~~19.~~21. SEGMENT DATA

FASB ASC Topic 280,Segment Reporting, requires companies to provide certain information about their operating segments. We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) ~~Publishing.~~

Publishing, which also qualify as reportable segments. Our operating segments reflect how our chief operating decision makers, which we define as a collective group of senior executives, ~~assess~~assesses the performance of each operating segment and ~~determine~~determines the appropriate allocations of resources to each segment. We ~~continue to~~continually review our operating segment classifications to align with operational changes in our business and may make ~~future~~ changes as necessary.

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 include~~treasury, which are reported as unallocated corporate expenses in our condensed consolidated statements of operations included in this quarterly report on Form10-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 testnon-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 3,200 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”) and Singing News^® Radio.

Salem Media Representatives (“SMR”) is our national advertising sales firm with offices in 13 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.

During 2018, we launched Salem Surround, a national multimedia advertising agency with locations in 35 markets across the United States. Salem Surround 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 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; 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, and ConservativeRadio.com. We also publish digital newsletters through Eagle Financial Publications, which provide market analysis andnon-individualized investment strategies from financial commentators on a subscription basis.

Our churche-commerce websites, including SermonSearch^™.com, ChurchStaffing.com, WorshipHouseMedia.com, SermonSpice^™.com, WorshipHouseKids.com, Preaching.com, ChristianJobs.com and Youthworker.com, offer a variety of digital resources including videos, song tracks, sermon archives and job listings to pastors and Church leaders.E-commerce also included Newport Natural Health, a seller of nutritional supplements through the date of sale on March 21, 2019.

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, 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, a self-publishing service for authors through Xulon Press and Mill City Press; and (3) Singing News^®, which produces and distributes a print magazine.

The table below presents financial information for each operating segment as of ~~September 30,~~March 31, 2019 and 2018 ~~and 2017:~~based on the composition of our operating segments:


	Broadcast			Digital Media			Publishing			Unallocated Corporate Expenses			Consolidated			Broadcast		Digital Media			Publishing			Unallocated Corporate Expenses			Consolidated
	(Dollars in thousands)															(Dollars in thousands)
Three Months Ended September 30, 2018
Three Months Ended March 31, 2019
Net revenue	$	48,812		$	10,397		$	6,319		$	—		$	65,528		$	46,093	$	10,240		$	4,136		$	—		$	60,469
Operating expenses		37,158			8,021			6,210			3,987			55,376			36,449		8,058			4,822			3,871			53,200

Net operating income (loss) before depreciation, amortization and net loss on the disposition of assets	$	11,654		$	2,376		$	109		$	(3,987	)	$	10,152
Net operating income (loss) before depreciation, amortization and net (gain) loss on the disposition of assets																$	9,644	$	2,182		$	(686	)	$	(3,871	)	$	7,269

Depreciation		1,923			777			128			204			3,032			1,860		774			116			183			2,933
Amortization		9			1,370			225			—			1,604			9		1,075			212			—			1,296
Net loss on the disposition of assets		(759	)		—			—			—			(759	)
Net (gain) loss on the disposition of assets																	3,783		239			—			2			4,024

Net operating income (loss)	$	10,481		$	229		$	(244	)	$	(4,191	)	$	6,275		$	3,992	$	94		$	(1,014	)	$	(4,056	)	$	(984	)


Three Months Ended September 30, 2017
Three Months Ended March 31, 2018
Net revenue	$	48,424		$	10,446		$	6,563		$	—		$	65,433		$	48,050	$	10,394		$	5,351		$	—		$	63,795
Operating expenses		37,040			8,169			6,686			4,233			56,128			35,750		8,374			5,587			3,921			53,632

Net operating income (loss) before depreciation, amortization, change in the estimated fair value of contingentearn-out consideration, impairment and net gain on the disposition of assets	$	11,384		$	2,277		$	(123	)	$	(4,233	)	$	9,305
Net operating income (loss) before depreciation, amortization and net (gain) loss on the disposition of assets																$	12,300	$	2,020		$	(236	)	$	(3,921	)	$	10,163

Depreciation		1,920			792			159			211			3,082			1,858		802			131			218			3,009
Amortization		11			860			264			—			1,135			10		1,225			243			—			1,478
Change in the estimated fair value of contingentearn-out consideration		—			(12	)		—			—			(12	)
Net gain on the disposition of assets		97			—			—			(2	)		95
Net (gain) loss on the disposition of assets																	5		—			—			—			5

Net operating income (loss)	$	9,356		$	637		$	(546	)	$	(4,442	)	$	5,005		$	10,427	$	(7	)	$	(610	)	$	(4,139	)	$	5,671

   Broadcast Digital
Media Publishing Unallocated
Corporate
Expenses Consolidated
   (Dollars in thousands)
Nine Months Ended September 30, 2018

Net revenue
   $ 147,425 $ 31,051 $ 17,119 $ —   $ 195,595
Operating expenses
   110,151 24,792 17,319 11,938 164,200


Net operating income (loss) before depreciation, amortization and net loss on the disposition of assets
   $ 37,274 $ 6,259 $ (200 ) $ (11,938 ) $ 31,395


Depreciation
   5,692 2,346 388 650 9,076
Amortization
   29 3,818 710 1 4,558
Change in the estimated fair value of contingentearn-out consideration
   —   72 —   —   72
Net loss on the disposition of assets
   4,400 —   —   —   4,400


Net operating income (loss)
   $ 27,153 $ 23 $ (1,298 ) $ (12,589 ) $ 13,289


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 contingentearn-out consideration, impairment and net gain on the disposition 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 contingentearn-out consideration
   —   (54 ) —   —   (54 )
Impairment of indefinite-lived long-term assets other than goodwill
   —   —   19 —   19
Net gain on the disposition of assets
   (399 ) —   (9 ) (2 ) (410 )


Net operating income (loss)
   $ 31,357 $ 1,928 $ (1,061 ) $ (13,781 ) $ 18,443


   Broadcast Digital
Media Publishing Unallocated
Corporate Consolidated
   (Dollars in thousands)
As of September 30, 2018

Inventories, net
   $ —   $ 336 $ 555 $ —   $ 891
Property and equipment, net
   81,552 6,442 1,000 7,718 96,712
Broadcast licenses
   379,182 —   —   —   379,182
Goodwill
   2,960 21,933 1,888 8 26,789
Other indefinite-lived intangible assets
   —   —   313 —   313
Amortizable intangible assets, net
   312 10,347 2,237 3 12,899
As of December 31, 2017

Inventories, net
   $ —   $ 313 $ 417 $ —   $ 730
Property and equipment, net
   83,901 6,173 1,281 8,125 99,480
Broadcast licenses
   380,914 —   —   —   380,914
Goodwill
   3,581 20,947 1,888 8 26,424
Other indefinite-lived intangible assets
   —   —   313 —   313
Amortizable intangible assets, net
   351 9,801 2,947 5 13,104


	Broadcast		Digital Media		Publishing		Unallocated Corporate		Consolidated
	(Dollars in thousands)
As of March 31, 2019
Inventories, net	$	—	$	—	$	533	$	—	$	533
Property and equipment, net		80,505		6,093		866		8,082		95,546
Broadcast licenses		372,025		—		—		—		372,025
Goodwill		2,957		21,592		1,888		8		26,445
Other indefinite-lived intangible assets		—		—		277		—		277
Amortizable intangible assets, net		295		7,533		1,809		2		9,639
As of December 31, 2018
Inventories, net	$	—	$	290	$	387	$	—	$	677
Property and equipment, net		81,269		6,184		933		7,958		96,344
Broadcast licenses		376,316		—		—		—		376,316
Goodwill		2,960		21,933		1,888		8		26,789
Other indefinite-lived intangible assets		—		—		277		—		277
Amortizable intangible assets, net		303		8,937		2,021		3		11,264

NOTE ~~20.~~22. SUBSEQUENT EVENTS

At the annual meeting of the Company held on May 8, 2019, the company’s stockholders approved a revision to the Plan increasing the number of shares authorized under the Plan by 3,000,000. As a result, a maximum of 8,000,000 shares are authorized under the Plan.

On ~~October 31, 2018,~~April 29, 2019, we ~~closed on~~entered an agreement to exchange FM Translator W276CR, in Bradenton, FL with FM Translator W262CP in Bayonet Point, FL. No cash will be exchanged for the assets.

On April 3, 2019, we entered a TBA effective April 12, 2019, under which radio stationWSPZ-AM in Washington DC, is operated by the buyer pending the closing of the sale of ~~radio stationsKCRO-AM~~ ~~andKOTK-AM~~ ~~in Omaha, Nebraska for $1.4 million in cash. Based on our then intent to sell these assets, we recorded~~ the assets as held for sale at June 30, 2018 and recognized an estimated loss of $1.6 million based on the sale price and the estimated costs to sell. The buyer began programming the stations under an LMA on August 8, 2018.station.

Subsequent events reflect all applicable transactions through the date of the filing.

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

~~GENERAL~~

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 Form10-K~~ for the year ended December 31, 2017. 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 and are not guarantees of future performance.General

Salem Media Group, Inc. (“Salem”) is a domestic multimedia company specializing in Christian and conservative content, with media properties comprising radio broadcasting, digital media, and publishing. ~~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. Our annual reports on Form10-K, quarterly reports on Form10-Q, current reports on Form8-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 Consolidated Financial Statements and related notes included elsewhere in this report on Form10-Q and our audited Consolidated Financial Statements in our Annual Report on Form10-K for the year ended December 31, 2018. Our Consolidated Financial Statements are not directly comparable from period to period due to acquisitions and dispositions. Refer to Note 3 of our Consolidated Financial Statements on Form10-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, risks and uncertainties relating to the need for additional funds to service our debt and 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 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 risk factors described from time~~

Certain reclassifications have been made to ~~time in our filings with~~ the ~~Securities and Exchange Commission, including our Annual Report on Form10-K~~ ~~for~~prior year financial statements to conform to the current year ~~ended December 31, 2017 and any subsequently filed Forms10-Q~~ ~~and Forms8-K.~~ Many of these risks and uncertainties are beyond our control, and the unexpected occurrence or failure to occur of any such events or matters could significantly alter our actual results of operations or financial condition.presentation.

Our Condensed Consolidated Financial Statements are not directly comparable from period to period due to acquisitions and dispositions of radio stations, digital media entities and publishing entities. Refer to Note 4 of our Condensed Consolidated Financial Statements for details of each of these transactions. We are also subject to seasonal and political fluctuations in revenue. Our cash flows from radio 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.

~~OVERVIEW~~Overview

We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which also qualify as reportable segments. Our operating segments reflect how our chief 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.

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 ~~social~~digital media campaigns ~~specifically~~ for our ~~advertisers;~~advertisers through Salem Surround;

the sale of advertising time on our national network;

the syndication of programming on our national network;

product sales and royalties foron-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 ouron-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;

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 ande-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.

In each of our operating segments, the rates we are able to charge forair-time, advertising and other products and services are dependent upon several factors, including:

audience share;

how well our programs and advertisements perform for our clients;

the size of the market and audience reached;

the number of 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 forair-time 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 own~~markets, our national networks and ~~operate~~our national sales firms including Salem ~~Radio Network~~^TM ~~(“SRN”), SRN News Network (“SNN”), Today’s Christian Music (“TCM”), Singing News Radio, and Salem Media Representatives~~^TM (“SMR”). SRN, SNN, TCM and Singing News Radio 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 geographically and demographically diverse portfolio of radio stations and formats, allows us to deliver targeted messages to specific audiences for advertisers.

~~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 39 of~~Surround. Revenues generated from our radio stations, networks and sales firms are reported as broadcast media revenue in our ~~foundational format, Christian Teaching and Talk, which is talk programming emphasizing Christian and family themes. Through~~Condensed Consolidated Financial Statements included in Part 1 of 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 materialsquarterly report on ~~a subject matter or receive study guides based on what they have learned on the radio.~~

~~Block Programming.~~~~We recognize revenue from the sale of blocks of air time to program producers that typically range from 12~~¹/₂~~, 25 or~~Form~~50-minutes~~10-Q. of time. 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. National programmers, such as established~~non-profit~~ religious and educational organizations, typically purchase time on a Monday through Friday basis with supplemental programming blocks available for weekend release. Local programmers, such as community organizations and churches, typically purchase blocks for weekend releases. 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 has generated 41% 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 allows us to leverage syndicated talk programming produced by SRN to radio stations throughout the United States. Syndication of our programs allows us to reach audiences in markets in which we do not own or operate radio stations.

~~Contemporary Christian Music.~~~~We currently program 12 of our radio stations in a Contemporary Christian Music (“CCM”) format, branded The FISH~~^® in most markets. Through the CCM format, we bring listeners the words of inspirational recording artists, set to upbeat contemporary music. Our music format, branded “Safe for the Whole Family”, features sounds and lyrics that listeners of all ages can enjoy and appreciate. 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 seven 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.

~~Business~~. We currently program 11 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 byon-air~~ advertisers, and links to our other digital media sites. A growing source of revenue generated from our broadcast markets is from digital product offerings and advertising solutions that allow for enhanced audience interaction and participation. Broadcast digital advertising revenue consists of local digital advertising, such as the sale of banner advertisements on our owned and operated websites, the sale of advertisements on our own and operated mobile applications, and advertisements in digital newsletters that we produce, as well an national digital advertising, or the sale of custom digital advertising solutions, such as web pages and social media campaigns, that we offer to our customers. Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.

In January of this year we hired a VP of Local Digital to expand our role as a digital advertising agency to provide a full range of digital products to our customers. In our role as a digital agency, our sales team provides our customers with integrated digital advertising solutions that optimize the performance of their campaign, which we view as one performance obligation. Our advertising campaigns are designed to be “white label” agreements between Salem and our advertiser, meaning we provide special care and attention to the details of the campaign. We provide custom digital product offerings, including tools for metasearch, retargeting, website design, reputation management, online listing services, and social media marketing. Digital advertising solutions may include third-party websites, such as Google or Facebook, which can be included in a digital advertising social media campaign. We manage all aspects of the digital campaign, including social media placements, review and approval of target audiences, and the monitoring of actual results to make modifications as needed. We may contract directly with a third-party, however, we are responsible for delivering the campaign results to our customer with or without the third-party. We are responsible for any payments due to the third-party regardless of the campaign results and without regard to the status of payment from our customer. We have discretion in setting the price to our customer without input or approval from the third-party. Accordingly, revenue is reported gross, as principal, as the performance obligation is delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation.

~~Revenues generated from our radio stations are reported as broadcast revenue in our Condensed Consolidated Financial Statements included in Part 1 of this quarterly report on Form10-Q.~~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 ~~quarterly~~monthly reports measuring a radio station’s audience share in the demographic groups targeted by advertisers. Each of our radio stations and our networks has apre-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.

As is typical in the radio broadcasting industry, 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. Additionally, we experience increased demand for advertising during election years by way of political advertisements. During election years, or even numbered years, we benefit from a significant increase in political advertising revenue overnon-election or odd numbered years. Political advertising revenue varies based on the number and type of candidates as well as the number and type of debated issues. Quarterly block programming revenue tends not to vary significantly because program rates are generally set annually and recognized on a per program basis.

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.

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 air time 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 air time or digital campaign in favor of customers who purchase the air time or digital campaign for cash. The value of thesenon-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~~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 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 period~~three months ended ~~September 30, 2018,~~March 31, 2019, 97% of our broadcast revenue was sold for cash as compared to ~~98%~~96% during the same period of the prior year.

Broadcast operating expenses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as ~~rent~~lease 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 us and~~ continues to be a focus of future development. 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; BibleStudyTools.com™, Crosswalk.com~~^®~~, GodVine.com™, iBelieve.com, GodTube.com™, OnePlace.com™, Christianity.com™, GodUpdates.com~~^TM~~, CrossCards.com™, ChristianHeadlines.com~~^TM~~, LightSource.com™, AllCreated.com,~~^TM ~~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~~^TM~~, RedState.com~~^TM~~, BearingArms.com~~^TM~~, HumanEvents.com~~^TM~~, and ConservativeRadio.com~~^TM~~. We also publish digital newsletters through Eagle Financial Publications~~^TM~~, which provide market analysis andnon-individualized~~ ~~investment strategies from financial commentators on a subscription basis.~~

~~Our churche-commerce~~ ~~websites, including SermonSpice.com™, ChurchStaffing.com™, WorshipHouseMedia.com~~^TM~~, SermonSearch.com~~^TM~~, WorshipHouseKids.com~~^TM~~, Preaching.com~~^TM~~, ChristianJobs.com™, Youthworker.com~~^TM~~, and Childrens-Ministry-Deals.com offer a variety of digital resources including videos, song tracks, sermon archives, job listings and Sunday school curriculum to pastors and Church leaders.~~

~~E-commerce~~ ~~also includes wellness products through Newport Natural Health~~^TM~~, which is a seller of nutritional supplements.~~

~~The revenues~~Revenues generated ~~from~~ this segment are reported as digital media revenue in our Condensed Consolidated Financial Statements ~~of Operations~~ included in Part 1 of this quarterly report on Form10-Q.

Digital media revenues are 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. Additionally, we experience increased demand for advertising time and placement during election years for political advertisements.

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

Publishing

Our publishing operations include book publishing through Regnery^® Publishing, a print magazine and our self-publishing services. Regnery Publishing has published dozens of bestselling books by leading conservative authors and personalities, including David Limbaugh, Sebastian Gorka, Ed Klein, Mark Steyn, and Second Lady Karen Pence. Books are sold in traditional printed form and as eBooks.

~~Salem Author Services includes Xulon Press™, Mill City Press, and Bookprinting.com, which offerprint-on-demand~~ ~~self-publishing services for authors. Xulon Press™ publishes books for Christian authors while Mill City Press and Bookprinting.com publish books for all general market publications.~~

~~Singing News~~^®~~, a print magazine is produced and distributed through our publishing operations. ..~~

~~The revenues~~Revenues 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 Form10-Q.

Publishing revenue is impacted by the retail price of books ande-books sold, 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 ~~rent~~lease 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~~ Known Trends and Uncertainties

~~Broadcast~~We believe that broadcast revenue growth remains challenged ~~which we believe is~~ due to several factors, including increasing competition from other forms of content distribution and time spent listening by audio streaming services, podcasts and satellite radio. This increase in competition and mix of radio listening time may lead advertisers to conclude that the effectiveness of radio has diminished. To minimize the impact of these factors, we continue to enhance our digital assets to complement our broadcast content. We also support industry initiatives to increase the number of smartphones and other wireless devices that contain an enabled FM tuner, as well as provide initiatives for wireless carriers in the United States to permit these FM tuners to receive the free~~over-the-air~~ ~~local radio stations.~~ The increase use of voice activated platforms, or smart speakers, that provide audiences with the ability to access AM and FM radio stations show increased potential for broadcasters to reach audiences.

Our broadcast revenues are particularly dependent on advertising from our Los Angeles and Dallas markets, which generated ~~14.5%~~14.3% and ~~19.8%~~20.4%, respectively, of our net broadcast advertising revenue for the ~~nine~~three month period ended ~~September 30, 2018.~~March 31, 2019.

Revenues from print magazines, including advertising revenue and subscription revenues, are challenged due to lower demand from the audiences that increasingly use 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. Digital revenue is impacted by the nature and delivery of page ~~views and the number of advertisements carried per page.~~views. We have experienced a shift in the number of page views from desktop devices to mobile ~~devices that~~devices. While mobile page views have increased dramatically, they carry a lower number of advertisements per page ~~and~~which are generally sold at lower rates. Digital media revenue is impacted by page views and the number of advertisements per page. Declines in desktop page views ~~adversely~~negatively impact revenue as mobile devices carry lower rates and less advertisement per page. ~~Additionally, we have experienced declines in national digital revenue due to an increase in advertisers deciding to cut or eliminate advertising on political websites.~~

Revenues from print magazines, including advertising revenue and subscription revenues, are challenged both economically and by the increasing use of other mediums that deliver comparable information. Book sales are contingent upon overall economic conditions and our ability to attract and retain authors.

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.

We ~~have also expanded~~may from time to time, depending on market conditions and prices, seek to renew or renegotiate lease terms under a “blend and extend” option that we believe provides us with favorable lease terms over an extended period from five to twenty years. As lease expense is recorded on a straight-line basis over the lease term, we expect our ~~role~~lease expense to increase by approximately $0.6 million per annum as compared to prior periods. Actual cash payments for leased properties are expected to remain consistent with annual increases of generally up to 3% or a ~~digital advertising agency to provide a full range~~percentage of ~~integrated digital advertising solutions to our customers.~~

the Consumer Price Index.

~~KEY FINANCIAL PERFORMANCE INDICATORS~~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 anas-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 Station basis. Same Station is aNon-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~~companies. Refer to“NON-GAAP FINANCIAL MEASURES” ~~presented after our results of operation~~below for a reconciliation of thesenon-GAAP performance measures to the most comparable GAAP measures.

~~RESULTS OF OPERATIONS~~

~~Three months ended September 30, 2018 compared to the three months ended September 30, 2017~~

~~The following factors affected our results of operations and/or cash flows for the three months ended September 30, 2018 as compared to the same period of the prior year:~~

~~Acquisitions / Divestitures~~

~~On September 11, 2018, we acquired selected assets of radio stationKTRB-AM~~Non-GAAP in San Francisco from a related party for $5.1 million in cash. The acquisition was accounted for as an asset purchase with transaction costs of $0.2 million capitalized. We had been operating the radio station under an LMA since June 24, 2016. The accompanying Condensed Consolidated Statements of Operations reflect the operating results of this station as of the LMA date within the broadcast operating segment.

~~On August 28, 2018, we closed on the sale of radio stationWQVN-AM~~ ~~(formerlyWKAT-AM)~~ ~~in Miami, Florida for $3.5 million in cash. The buyer had been operating the radio station under an LMA since December 1, 2017. We recorded an estimatedpre-tax~~ loss on the sale of assets of $4.7 million as of December 31, 2017, based on the probability of the sale at that time, which reflected the sales price as compared to the carrying value of the assets and the estimated costs of the sale. The accompanying Condensed Consolidated Statements of Operations excludes the operating results of this station as of the LMA date from the broadcast operating segment.

~~On August 9, 2018, we acquired the Hilary Kramer~~ Financial Newsletter and related assets valued at $2.0 million and we assumed deferred subscription liabilities valued at $1.5 million. We paid $0.4 million in cash upon closing and as part of the purchase agreement, may pay up to an additional $0.1 million of contingent~~earn-out~~ consideration over the next two years 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 Hilary Kramer Financial Newsletter to achieve the income targets at the time of closing, we estimated the fair value of the contingent~~earn-out~~ ~~consideration to be $40,617, which was recorded at the discounted present value of $39,360. The discount will be accreted to interest expense over the two yearearn-out~~ ~~period. We recorded goodwill of $0.3 million attributable to the expected synergies to be realized when combining the operations of this entity into our existing operations.~~

~~On August 6, 2018, we closed on the sale of radio stationKGBI-FM~~ ~~in Omaha, Nebraska for $3.2 million. We recorded an estimatedpre-tax~~ loss on the sale of $3.2 million as of June 30, 2018, based on the sales price as compared to the carrying value of the assets and the estimated cost to sell. As of the closing date, we revised the loss on the sale to $2.4 million, based on the actual assets sold and a reduction in liabilities associated with the radio station. The accompanying Condensed Consolidated Statements of Operations excludes the operating results of this station as of the closing date from the broadcast operating segment.

On July 24, 2018, we acquired the Childrens-Ministry-Deals.com website and related assets for $3.7 million in cash. Childrens-Ministry-Deals.com offers biblically-based curriculums for children ages 3 through age 18. We paid $3.5 million in cash upon closing and may pay an additional $0.2 million in cash within twelve months from the closing date provided that the seller meet certain post-closing requirements with regard to intellectual property. We recorded goodwill of $0.7 million attributable to the expected synergies to be realized when combining the operations of this entity into our existing operations.

~~On June 25, 2018, we closed on the acquisition of radio stationKDXE-FM~~ ~~(formerlyKZTS-FM)~~ in Little Rock, Arkansas for $1.1 million in cash. We began programming the station under an LMA that began on April 1, 2018. The accompanying Condensed Consolidated Statements of Operations reflect the operating results of this station as of the LMA date within the broadcast operating segment.

~~On April 19, 2018, we acquired the HearItFirst.com domain name and related social media assets for $70,000 in cash.~~

~~On May 24, 2018, we closed on the sale of land in Covina, California for $0.8 million dollars resulting in a $0.2 millionpre-tax~~ ~~loss.~~

~~We programmed radio stationKHTE-FM,~~ in Little Rock, Arkansas, under a TBA that began on April 1, 2015. We ceased operating the station on April 30, 2018 and paid the licensee a $0.1 million fee for not exercising our option right to purchase the station.

~~Net Broadcast Revenue~~

   Three Months Ended September 30,
   2017    2018    Change $    Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Net Broadcast Revenue
   $ 48,424    $ 48,812    $ 388    0.8 % 74.0 % 74.5 %
Same Station Net Broadcast Revenue
   $ 46,893    $ 47,792    $ 899    1.9 %

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

   Three Months Ended September 30,
   2017 2018
   (Dollars in thousands)
Block Programming:

National
   $ 12,014    24.8 % $ 12,516    25.6 %
Local
   8,640    17.8 8,341    17.1






   20,654    42.6 20,857    42.7
Broadcast Advertising:

National
   3,325    6.9 3,870    7.9
Local
   14,341    29.6 13,435    27.4






   17,666    36.5 17,305    35.5
Station Digital (local)
   1,639    3.4 2,221    4.6
Infomercials
   605    1.2 458    0.9
Network
   4,558    9.4 4,902    10.1
Other Revenue
   3,302    6.8 3,069    6.3






Net Broadcast Revenue
   $ 48,424    100.0 % $ 48,812    100.0 %

Block programming revenue increased $0.2 million on a consolidated basis including a $0.5 million increase in national programming revenue from our Christian Teaching and Talk and News Talk format radio stations that was offset with a $0.3 million decline in local programming revenue also from our Christian Teaching and Talk and News Talk format radio stations. Increases in

~~national programming revenue were attributable to an increase in the number of programmers featuredon-air~~ that in turn creates a higher demand for premium time slots. The higher demand for premium time slots often results in realization of higher rates. Declines in local programming revenue resulted from program cancellations that we believe are due to increased competition from other broadcasters and from the loss of broadcast customers to digital.

Advertising revenue, net of agency commissions, declined by $0.4 million on a consolidated basis, including a $0.5 million benefit from political advertising during the period. Political revenues reflect the current (even) year election period and are typically not as significant during~~non-election~~ (odd) years. Excluding political, advertising revenue declined by $0.9 million of which a $1.3 million decline in local advertising revenue was offset by a $0.4 million increase in national advertising revenue. Declines in local advertising, net of political, include a $0.8 million decline from our CCM format radio stations, a $0.3 million decline from our Christian Teaching and Talk format radio stations and a $0.2 million decline from our Spanish Christian Teaching and Talk stations. Our CCM format radio stations, particularly in our Dallas, Atlanta and Los Angeles markets, have experienced declines in advertising rates largely attributable to higher competition. We also have lost broadcast advertisers to digital. Additionally, $0.1 million of the decline resulted from the sale of radio station~~KGBI-FM~~ ~~in Omaha, Nebraska.~~

We continue to expand our digital product offerings to include social media campaigns, search engine optimization, retargeted advertising and other services to address the move of advertising dollars from broadcasting to digital. In January of this year we hired a VP of Local Digital to expand our role as a digital advertising agency to provide a full range of digital products to our customers. Digital revenues generated locally from our radio stations and network increased $0.6 million due to a higher volume of digital sales with no changes in rates as compared to the same period of the prior year.

~~Declines in infomercial revenue were due to a reduction in the number of infomercials aired with no changes in rates as compared to the same period of the prior year.~~

Network revenue increased by $0.3 million overall including a $0.6 million increase in political advertising that was offset by $0.2 million decline in national advertising revenue due to lower advertising rates from an increase in competition and a $0.1 million decline in revenue generated from donor development campaigns. Political revenues reflect the current (even) year election period and are typically not as significant during~~non-election~~ ~~(odd) years.~~

Declines in other revenue include a $0.3 million decline in event revenue due to a lower number of events held as compared to the same period of the prior year that was offset by a $0.1 million increase in LMA fees. Event revenue varies from period to period based on the nature and timing of the events, audience demand, and in some cases, the weather that can impact attendance. LMA fees vary with the number of agreements in place at any one time.

~~On a Same Station basis, net broadcast revenue increased $0.9 million, which reflects these items net of the impact of stations with acquisitions, dispositions and format changes.~~

~~Net Digital Media Revenue~~

   Three Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Net Digital Media Revenue
   $ 10,446    $ 10,397    $ (49 ) (0.5 )% 16.0 % 15.9 %

~~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,
   2017 2018
   (Dollars in thousands)
Digital Advertising, net
   $ 6,111    58.5 % $ 5,282    50.8 %
Digital Streaming
   1,107    10.6 1,053    10.1
Digital Subscriptions
   1,646    15.8 2,253    21.7
Digital Downloads
   950    9.1 1,226    11.8
e-commerce
   545    5.2 491    4.7
Other Revenues
   87    0.8 92    0.9






Net Digital Media Revenue
   $ 10,446    100.0 % $ 10,397    100.0 %

National digital advertising revenue, net of agency commissions, decreased $0.8 million on a consolidated basis including a $0.5 million decline from Salem Web Network and a $0.4 million decline from our conservative opinion websites that were offset by a $0.1 million increase from Eagle Financial Publications due to increases in sales volume associated with the acquisition of Traders Crux in July 2017. These declines in national digital advertising were largely attributable to changes in the Facebook newsfeed algorithm that negatively affects both the rate and volume of our page views, a loss of advertisers who moved spending to Facebook and an increase in advertisers deciding to cut or eliminate advertising on political websites. Page views from Facebook declined 42% as compared to the same period of the prior year. To offset declines in page views generated from Facebook, we continue to acquire, develop and promote the use of mobile applications, particularly for our Christian mobile applications. Refer to Note 4 of our Condensed Consolidated Financial Statements for details of each mobile application and digital media acquisition. 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 from the mobile applications.

~~Digital streaming revenue was consistent with the same period of the prior year with negligible changes in sales volume and rates.~~

Digital subscription revenue increased $0.6 million on a consolidated basis including a $0.4 million increase from the Hilary Kramer Newsletter that was acquired in August 2018 and a $0.2 million increase from Intelligence Reporter that was acquired in August 2017. There were no changes in subscriber rates as compared to the same period of the prior year.

~~Digital download revenue increased $0.3 million due to the acquisition of Childrens-Ministry-Deals.com in July 2018. There were no changes in rates as compared to the same period of the prior year.~~

~~E-commerce~~ revenue declined slightly as compared to the same period of the prior year. There was a 23% decrease in the number of products sold through our wellness website that was offset by an increase in the average unit price of 21%. The decrease in the number of products sold was related to a reduction in the amount of discounts that were offered during the period and a lower volume of new customers.

~~Other revenue includes revenue sharing arrangements for mobile applications and mail list rentals. There were no changes in volume or rates as compared to the same period of the prior year.~~

~~Net Publishing Revenue~~

   Three Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Net Publishing Revenue
   $ 6,563    $ 6,319    $ (244 ) (3.7 )% 10.0 % 9.6 %

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

   Three Months Ended September 30,
   2017 2018
   (Dollars in thousands)
Book Sales
   $ 5,633    85.8 % $ 6,089    96.4 %
Estimated Sales Returns & Allowances
   (1,595 )    (24.3 ) (2,472 )    (39.1 )
E-Book Sales
   621    9.5 513    8.1
Self-Publishing Fees
   1,182    18.0 1,451    23.0
Print Magazine Subscriptions
   287    4.4 216    3.4
Print Magazine Advertisements
   183    2.8 186    2.9
Digital Advertising
   106    1.6 110    1.7
Other Revenue
   146    2.2 226    3.6






Net Publishing Revenue
   $ 6,563    100.0 % $ 6,319    100.0 %

The $0.5 million increase in book sales includes a $1.0 million increase from Regnery Publishing that was offset by a $0.5 million decrease from Salem Author Services. Regnery Publishing sales reflect a 20% increase in volume with a 2% increase in the average price per unit sold. The increase in volume for Regnery Publishing was primarily from the sale of print books. Print books were sold at heavily discounted prices during the period due to a change in distribution partners under which it was more beneficial to sell the inventory than to move it. We recognized an increase of $0.9 million or 55% in the estimates sales returns and allowances based on the increase in the number of books sold and the acceleration of returns based on the change in our distribution partner. Book sales 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 $0.5 million decrease from Salem Author Services was due to a reduction in the number of books sold and the discontinuation of BookPrinting.com.

~~Regnery Publishinge-book~~ ~~sales decreased $0.1 million due to a 46% decline in sales volume that was offset by 10% increase 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 increased $0.3 million due to an increase in the number of authors utilizing editorial services. There were no changes in the self-publishing fees charged to authors as compared to the same period of the prior year.

~~Declines in print magazine subscriptions are due to lower sales volume associated with Singing News magazine.~~

~~Print magazine advertising revenue was consistent with the same period of the prior year with no changes in volume and rates as compared to the same period of the prior year.~~

~~Digital adverting revenue was consistent with the same period of the prior year with no changes in sales volume and rates as compared to the same period of the prior year.~~

Other revenue includes change fees, video trailers and website revenues. The increase of $0.1 million was due to an increase in audio book rights sold by Regnery Publishing. There were no changes in volume or rates as compared to the same period of the prior year.

~~Broadcast Operating Expenses~~

   Three Months Ended September 30,
   2017    2018    Change $    Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Broadcast Operating Expenses
   $ 37,040    $ 37,158    $ 118    0.3 % 56.6 % 56.7 %
Same Station Broadcast Operating Expenses
   $ 35,061    $ 35,687    $ 626    1.8 %

Broadcast operating expenses increased by $0.1 million including a $0.8 million increase in employee-related expenses including sales commissions and employee benefit costs, a $0.1 million increase in bad debt expense, a $0.1 million increase in professional services including legal expenses, a $0.1 million increase in facility-related expenses and a $0.1 million increase in production and programming expenses, offset by a $1.1 million decrease in advertising and events expense.

~~On a same-station basis, broadcast operating expenses increased by $0.6 million. The increase in broadcast operating expenses on a same station basis reflects these items net of the impact ofstart-up~~ ~~costs associated with acquisitions, station dispositions and format changes.~~

~~Digital Media Operating Expenses~~

   Three Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Digital Media Operating Expenses
   $ 8,169    $ 8,021    $ (148 ) (1.8 )% 12.5 % 12.2 %

Digital media operating expense declined by $0.1 million including a $0.3 million decrease in employee-related expenses due to a reduction in headcount and a $0.2 million decrease in royalties that was offset by a $0.2 million increase in advertising and promotion expenses, a $0.1 million increase in software fees and a $0.1 million increase in professional services.

~~Publishing Operating Expenses~~

   Three Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Publishing Operating Expenses
   $ 6,686    $ 6,210    $ (476 ) (7.1 )% 10.2 % 9.5 %

Publishing operating expenses declined by $0.5 million of which $0.5 million was due to a reduction in the consolidated cost of goods sold. Cost of goods sold includes a $0.4 million decrease from a lower sales volume for Salem Author Services. The gross profit margin for Regnery Publishing was 64% for the three months ended September 30, 2018 as compared to 56% for the same period of the prior year. The increase in the gross profit margin reflects the $1.0 million increase in book sales and the $0.1 million increase in audio book rights sold. Regnery Publishing’s profit 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 Salem Author Services was 68% for the three months ended September 30, 2018 as compared to 56% for the same period of the prior year. The increase in the gross profit margin reflects a $0.3 million increase in self-publishing fees revenue which has higher margins then book sales. Additionally, there was a $0.1 million decrease in advertising and promotion expense that was offset by $0.1 million increase in employee-related expenses.

~~Unallocated Corporate Expenses~~

   Three Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Unallocated Corporate Expenses
   $ 4,233    $ 3,987    $ (246 ) (5.8 )% 6.5 % 6.1 %

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 decrease includes a $0.1 million decrease in professional services and a $0.1 million decrease in~~non-cash~~ ~~stock-based compensation. Stock-based compensation expense fluctuates over time as a result of the vesting periods for outstanding awards and the number of awards that actually vest.~~

~~Depreciation Expense~~

   Three Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Depreciation Expense
   $ 3,082    $ 3,032    $ (50 ) (1.6 )% 4.7 % 4.6 %

Depreciation expense decreased $50,000 compared to the same period of the prior year. The decrease reflects the impact of capital expenditures made in prior years for data processing equipment and computer software that have shorter estimated useful lives than towers and broadcast assets and are fully depreciated as of the current 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,
   2017    2018    Change $    Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Amortization Expense
   $ 1,135    $ 1,604    $ 469    41.3 % 1.7 % 2.4 %

Amortization expense increased by $0.5 million compared to the same period of the prior year due to the acquisition of Intelligence Report and TeacherTube.com in August 2017, Childrens-Ministry-Deals.com in July 2018 and Hilary Kramer newsletter in August 2018, that was partially offset by reductions in the amortization of intangible assets associated with Mill City Press that are now fully amortized. 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 ContingentEarn-Out~~ ~~Consideration~~

   Three Months Ended September 30,
   2017 2018    Change $    Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Change in the Estimated Fair Value of ContingentEarn-Out Consideration
   $ (12 ) $ —      $ 12    (100.0 )% —   % —   %

~~Acquisitions may include contingentearn-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 theearn-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. 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 contingentearn-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 contingentearn-out~~ ~~consideration may materially impact and cause volatility in our operating results.~~

~~Net (Gain) Loss on the Disposition of Assets~~

   Three Months Ended September 30,
   2017    2018 Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Net (Gain) Loss on the Disposition of Assets
   $ 95    $ (759 ) $ (854 ) (898.9 )% 0.1 % (1.2 )%

~~The net gain on the disposition of assets of $0.8 million for the three months period ended September 30, 2018, reflects the impact of the sale of radio stationKGBI-FM~~ ~~in Omaha, Nebraska that was adjusted as of the closing date based on the actual assets sold and a reduction in liabilities associated with the radio station and various other fixed asset disposals.~~

The net loss on the disposition 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 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.

~~Other Income (Expense)~~

   Three Months Ended September 30,
   2017 2018 Change $    Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Interest Income
   $ 1 $ 2 $ 1    100.0 % —   % —   %
Interest Expense
   (4,802 ) (4,507 ) 295    (6.1 )% (7.3 )% (6.9 )%
Net Miscellaneous Income and (Expenses)
   (80 ) 1 81    (101.3 )% (0.1 )% —   %

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

~~Interest expense includes interest due on outstanding debt balances andnon-cash~~ ~~accretion associated with deferred installments and contingentearn-out~~ consideration associated with our acquisition activity. The decrease of $0.3 million reflects the lower balance outstanding on the Notes during the three month period ended September 30, 2018 as compared to the same period of the prior year. Future changes in interest rates will not impact our fixed rate Notes, but an increase in interest rates may impact the variable rate at which we can borrow under our ABL Facility and result in higher interest charges.

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

~~Provision for (Benefit from) Income Taxes~~

   Three Months Ended September 30,
   2017    2018    Change $    Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Provision for (Benefit from) Income Taxes
   $ 170    $ 564    $ 394    231.8 % 0.3 % 0.9 %

The provision for income taxes increased $0.4 million to $0.6 million from $0.2 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 31.8% for the three months ended September 30, 2018 compared to 137.1% for the same period of the prior year based on~~pre-tax~~ ~~income that increased $1.6 million to $1.7 million from $0.1 million for the same period of the prior year. As a result of the $0.1 millionpre-tax~~ income for the three months ended September 30, 2017, the calculated tax provision caused the effective rate to reach 137.1% for that period. The effective tax rate for each period differs from the federal statutory income rate of 21.0% due to the effect of the Tax Act, 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)~~

   Three Months Ended September 30,
   2017 2018    Change $    Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Net Income (Loss)
   $ (46 ) $ 1,207    $ 1,253    2,723.9 % (0.1 )% 1.8 %

We recognized a net income of $1.2 million for the three month period ending September 30, 2018 compared to a net loss of $46,000 during the same period of the prior year. Net operating income was impacted by a $1.1 million decrease in operating expenses that includes the $0.8 million favorable variance from the net (gain) loss on the disposition of assets and a $0.1 million increase in net revenues. The impact of our operating results resulted in a $0.4 million increase in our provision for income taxes that was offset by a $0.3 million decrease in interest expense.

~~Nine months ended September 30, 2018 compared to the nine months ended September 30, 2017~~

~~The following factors affected our results of operations and/or cash flows for the nine months ended September 30, 2018 as compared to the same period of the prior year:~~

~~Financing~~

~~Acquisitions / Divestitures~~

On August 9, 2018, we acquired the Hilary Kramer Financial Newsletter and related assets valued at $2.0 million and we assumed deferred subscription liabilities valued at $1.5 million. We paid $0.4 million in cash upon closing and as part of the purchase agreement, may pay up to an additional $0.1 million of contingent~~earn-out~~ consideration over the next two years 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 Hilary Kramer Financial Newsletter to achieve the income targets at the time of closing, we estimated the fair value of the contingent~~earn-out~~ ~~consideration to be $40,617, which was recorded at the discounted present value of $39,360. The discount will be accreted to interest expense over the two yearearn-out~~ ~~period. We recorded goodwill of $0.3 million attributable to the expected synergies to be realized when combining the operations of this entity into our existing operations.~~

On July 24, 2018, we acquired the Childrens-Ministry-Deals.com website and related assets for $3.7 million in cash. Childrens-Ministry-Deals.com offers biblically-based curriculums for children ages 3 through age 18. We paid $3.5 million in cash upon closing and may pay an additional $0.2 million in cash within twelve months from the closing date provided that the seller meet certain post-closing requirements with regard to intellectual property. We recorded goodwill of $0.7 million attributable to the expected synergies to be realized when combining the operations of this entity into our existing operations.

~~On June 25, 2018, we closed on the acquisition of radio stationKDXE-FM~~ ~~(formerlyKZTS-FM)~~ in Little Rock, Arkansas for $1.1 million in cash. We began programming the station under an LMA that began on April 1, 2018. The accompanying Condensed Consolidated Statements of Operations reflect the operating results of this station as of the LMA date within the broadcast operating segment.

~~On April 19, 2018, we acquired the HearItFirst.com domain name and related social media assets for $70,000 in cash.~~

~~On June 20, 2018, we closed on the sale of radio stationWBIX-AM~~ ~~in Boston, Massachusetts for $0.7 million in cash. The buyer had been operating the station under an LMA since of January 8, 2018. We recorded apre-tax~~ gain on the sale of $0.2 million. The accompanying Condensed Consolidated Statements of Operations excludes the operating results of this station as of the LMA date from the broadcast operating segment.

~~On May 24, 2018, we closed on the sale of land in Covina, California for $0.8 million dollars resulting in a $0.2 millionpre-tax~~ ~~loss.~~

~~Net Broadcast Revenue~~

   Nine Months Ended September 30,
   2017    2018    Change $    Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Net Broadcast Revenue
   $ 145,479    $ 147,425    $ 1,946    1.3 % 74.0 % 75.4 %
Same Station Net Broadcast Revenue
   $ 142,343    $ 144,882    $ 2,539    1.8 %

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

   Nine Months Ended September 30,
   2017 2018
   (Dollars in thousands)
Block Programming:

National
   $ 36,439    25.0 % $ 37,318    25.3 %
Local
   25,852    17.8 24,643    16.7






   62,291    42.8 61,961    42.0
Broadcast Advertising:

National
   9,961    6.8 12,126    8.2
Local
   43,365    29.8 41,224    28.0






   53,326    36.6 53,350    36.2
Station Digital (local)
   5,239    3.6 6,497    4.4
Infomercials
   1,821    1.3 1,464    1.0
Network
   13,198    9.1 14,501    9.8
Other Revenue
   9,604    6.6 9,652    6.6






Net Broadcast Revenue
   $ 145,479    100.0 % $ 147,425    100.0 %

The net decline in block programming revenue of $0.3 million reflects a $1.2 million decline in local programming revenue that was offset by a $0.9 million increase in national programming revenue. Declines in local programming revenue include $0.7 million from~~WQVN-AM~~ ~~(formerlyWKAT-AM)~~ that was operated under an LMA prior to the closing of the station sale and the remainder from program cancellations that we believe are due to increased competition from other broadcasters and from the loss of broadcast customers to digital. The increase in national programming revenue includes a $0.8 million increase from our Christian Teaching and Talk format radio stations and a $0.3 million increase from our News Talk format radio stations due to an increase in the number of programmers featured~~on-air~~ that creates a higher demand for premium time slots, that was partially offset by a $0.2 million decrease from our Business format radio stations. The higher demand for premium time slots often results in realization of higher rates. Annual renewals reflect a low single digit average rate increase with 95% of the programmers renewing.

Total advertising revenue, net of agency commissions, increased by $24,000 on a consolidated basis, which includes a $1.7 million increase in political advertising as compared to the same period of the prior year. Political revenues reflect the current (even) year election period and are typically not as significant during~~non-election~~ (odd) years. Excluding political, advertising revenue declined by $1.3 million comprised of a $2.9 million decline in local advertising that was offset by a $1.6 million increase in national advertising revenue. Declines in local advertising, net of political, include $2.0 million from our CCM format radio stations that were largely attributable to declines in rates due to higher competition primarily in our Dallas, Atlanta and Los Angeles markets, $0.8 million from our Christian Teaching and Talk format radio stations and $0.1 million from our Spanish Christian Teaching and Talk format radio stations that were offset by $0.4 million increase from our News Talk format radio stations. We have also lost broadcast advertisers to digital. Additionally, $0.2 million of the decline resulted from the sale of radio station~~KGBI-FM~~ in Omaha, Nebraska. The increase in national advertising, net of political, includes $1.3 million from our CCM format radio stations and $0.2 million from our Christian Teaching and Talk format stations

We continue to expand our digital product offerings to include social media campaigns, search engine optimization, retargeted advertising and other services to address the move of advertising dollars from broadcast to digital. In January of this year we hired a VP of Local Digital to expand our role as a digital advertising agency to provide a full range of digital products to our customers. Digital revenues generated from our radio stations and network increased $1.3 million, including a $0.5 million increase from our CCM format radio stations, $0.4 million increase from our News Talk format radio stations and a $0.2 million increase from our Christian Teaching and Talk format stations. There were no changes in rates as compared to the same period of the prior year.

~~Declines in infomercial revenue were due to a reduction in the number of infomercials aired with no changes in rates as compared to the same period of the prior year.~~

Network revenue increased by $1.3 million of which $1.0 million was due to an increase in political advertising revenue, $0.3 million was generated from donor development campaigns and $0.1 million was generated from national advertising revenue through SMR. Political revenues reflect the current (even) year election period and are typically not as significant during~~non-election~~ ~~(odd) years.~~

~~Other revenue increased $48,000 including a $0.2 million increase in LMA fees associated with radio stationsWQVN-AM~~ ~~(formerlyWKAT-AM),~~ ~~Miami, Florida andWBIX-AM,~~ Boston Massachusetts and a $0.1 million increase in sponsorship revenue, offset by a $0.2 million decrease in listener purchasing program revenue and a $0.1 million decline in event revenue due to a reduction in the number of events held. Event revenue varies from period to period based on the nature and timing of the events, audience demand, and in some cases, the weather that can impact attendance.

~~On a Same Station basis, net broadcast revenue increased $2.5 million, which reflects these items net of the impact of stations with acquisitions, dispositions and format changes.~~

~~Net Digital Media Revenue~~

   Nine Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Net Digital Media Revenue
   $ 31,998    $ 31,051    $ (947 ) (3.0 )% 16.3 % 15.9 %

~~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,
   2017 2018
   (Dollars in thousands)
Digital Advertising, net
   $ 18,391    57.5 % $ 16,159    52.0 %
Digital Streaming
   3,371    10.5 3,316    10.7
Digital Subscriptions
   4,766    14.9 6,052    19.5
Digital Downloads
   3,644    11.4 3,722    12.0
e-commerce
   1,558    4.9 1,533    4.9
Other Revenues
   268    0.8 269    0.9






Net Digital Media Revenue
   $ 31,998    100.0 % $ 31,051    100.0 %

National digital advertising revenue, net of agency commissions, decreased $2.2 million on a consolidated basis including a $1.5 million decline from Salem Web Network and a $1.2 million decline from our conservative opinion websites that was offset by a $0.5 million increase from Eagle Financial Publications due to a $0.1 million increase in sales volume and a $0.3 million increase from Traders Crux, that was acquired on July 6, 2017. These declines in national digital advertising were largely attributable to changes in the Facebook newsfeed algorithm that negatively affects both the rate and volume of our page views, a loss of advertisers who moved spending to Facebook and an increase in advertisers deciding to cut or eliminate advertising on political websites. Page views from Facebook declined 32% as compared to the same period of the prior year. To offset declines in page views generated from Facebook, we continue to acquire, develop and promote the use of mobile applications, particularly for our Christian mobile applications. Refer to Note 4 of our Condensed Consolidated Financial Statements for details of each mobile application and digital media acquisition. 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 from the mobile applications.

~~Digital streaming revenue was consistent with the same period of the prior year with negligible changes in sales volume and rates.~~

Digital subscription revenue increased by $1.3 million on a consolidated basis due to the August 2017 acquisition of Intelligence Reporter and the August 2018 acquisition of the Hilary Kramer newsletter. Salem Web Network’s Churchstaffing.com increased $0.1 million due to increased marketing efforts combined with a~~re-design~~ ~~of the website. There were no changes in subscriber rates as compared to the same period of the prior year.~~

Digital download revenue increased by $0.1 million due to the acquisition of Childrens-Ministry-Deals.com on July 24, 2018 offset by lower volume of downloads generated from our church product websites, WorshipHouseMedia.com and SermonSpice.com. There were no changes in rates as compared to the same period of the prior year.

~~E-commerce~~ ~~revenue was consistent with the same period of the prior year with negligible changes in sales volume and rates.~~

~~Other revenue includes revenue sharing arrangements for mobile applications and mail list rentals. There were no changes in volume or rates as compared to the same period of the prior year.~~

~~Net Publishing Revenue~~

   Nine Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Net Publishing Revenue
   $ 19,048    $ 17,119    $ (1,929 ) (10.1 )% 9.7 % 8.8 %

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

   Nine Months Ended September 30,
   2017 2018
   (Dollars in thousands)
Book Sales
   $ 13,594    71.4 % $ 13,693    80.0 %
Estimated Sales Returns & Allowances
   (2,969 )    (15.6 ) (4,020 )    (23.5 )
E-Book Sales
   1,463    7.7 1,155    6.7
Self-Publishing Fees
   4,374    22.9 4,231    24.7
Print Magazine Subscriptions
   892    4.7 699    4.1
Print Magazine Advertisements
   605    3.2 454    2.7
Digital Advertising
   545    2.8 346    2.0
Other Revenue
   544    2.9 561    3.3






Net Publishing Revenue
   $ 19,048    100.0 % $ 17,119    100.0 %

The $0.1 million increase in book sales includes a $1.8 million increase from Regnery Publishing that was offset by a $1.7 million decrease from Salem Author Services. Regnery Publishing sales reflect a 16% increase in volume with a 1% increase in the average price per unit sold. The increase in volume for Regnery Publishing was primarily from the sale of print books. Print books were sold at heavily discounted prices during the period due to a change in distribution partners under which it was more beneficial to sell the inventory than to move it. We recognized an increase of $1.1 million or 36% in the estimates sales returns and allowances based on the increase in the number of books sold and the acceleration of returns based on the change in our distribution partner. Book sales 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 $1.7 million decrease from Salem Author Services was due to a reduction in the number of books sold and the discontinuation of BookPrinting.com.

~~Regnery Publishinge-book~~ ~~sales decreased $0.3 million due to a decrease of 5% in the average price per unit sold due to sales incentives offered and a 14% decrease 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 bestseller lists, which can increase awareness and demand for the book.

Self-publishing fees decreased $0.1 million due to a decline in the number authors that utilized the service as compared to the same period of the prior year. Self-publishing fees charged to authors were comparable with the same period of the prior year.

Declines in print magazine subscription and print magazine advertising revenue are due to the closure of Preaching Magazine, YouthWorker Journal, FaithTalk Magazine and Homecoming The Magazine as of May 2017. Lower demand and distribution levels resulted in corresponding declines in advertising revenues.

Digital adverting revenue decreased $0.2 million primarily due to the closure of the Salem Publishing Homecoming website. Following the end of print publications for Preaching Magazine and YouthWorker Journal, the Preaching.com and YouthWorker.com websites are operated within SWN. Sales volume and rates were comparable to the same period of the prior year.

~~Other revenue includes change fees, video trailers and website revenues. There were no changes in volume or rates as compared to the same period of the prior year.~~

~~Broadcast Operating Expenses~~

   Nine Months Ended September 30,
   2017    2018    Change $    Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Broadcast Operating Expenses
   $ 108,807    $ 110,151    $ 1,344    1.2 % 55.4 % 56.3 %
Same Station Broadcast Operating Expenses
   $ 104,882    $ 106,381    $ 1,499    1.4 %

Broadcast operating expenses increased by $1.3 million including a $1.3 million increase in salaries and wages including commissions, a $0.3 million increase in facility-related expenses and a $0.3 million increase in production and programming expenses, that was offset by a $0.6 million decrease in advertising and event expenses.

~~On a same-station basis, broadcast operating expenses increased by $1.5 million. The increase in broadcast operating expenses on a same station basis reflects these items net of the impact ofstart-up~~ ~~costs associated with acquisitions, station dispositions and format changes.~~

~~Digital Media Operating Expenses~~

   Nine Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Digital Media Operating Expenses
   $ 25,241    $ 24,792    $ (449 ) (1.8 )% 12.8 % 12.7 %

Digital media operating expense declined by $0.4 million due to a $0.8 million decrease in employee-related expenses due to a reduction in headcount, a $0.3 million decrease in royalties, a $0.2 million reduction in sales-based commissions and incentives consistent with lower revenues and a $0.1 million decrease in facility-related expenses that were offset with a $0.5 million increase in advertising and promotion expenses, a $0.3 million increase in software fees, and a $0.2 million increase in professional services.

~~Publishing Operating Expenses~~

   Nine Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Publishing Operating Expenses
   $ 18,705    $ 17,319    $ (1,386 ) (7.4 )% 9.5 % 8.9 %

Publishing operating expenses declined by $1.4 million of which $0.9 million was due to a reduction in the consolidated cost of goods sold. Cost of goods sold includes a $1.1 million decrease from a lower sales volume for Salem Author Services and a $0.1 million decline for magazine publishing due to a reduction in the number of magazine titles published offset by a $0.3 million increase in Regnery Publishing due to an increase in book sales. The gross profit margin for Regnery Publishing was 58% for the nine months ended September 30, 2018 as compared to 54% for the same period of the prior year as revenue growth outpaced expense growth. 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 67% for the nine months ended September 30, 2018, as compared to 62% for the same period of the prior year due to lower print costs based on sales volume. Additionally, there was a $0.3 million decrease in advertising and promotion expense, a $0.1 million decline in payroll-related expenses due to reductions in headcount, a $0.1 million decrease in employee benefit costs due to lower volume of claims under our health insurance plan and a $0.1 million decrease in facility-related expenses offset by a $0.2 million increase in travel related expenses associated with publishing conventions and seminars.

~~Unallocated Corporate Expenses~~

   Nine Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Unallocated Corporate Expenses
   $ 13,183    $ 11,938    $ (1,245 ) (9.4 )% 6.7 % 6.1 %

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 decrease of $1.2 million includes a $1.0 million reduction in~~non-cash~~ stock-based compensation and a $0.2 million net decrease in employee-related expenses. Stock-based compensation expense fluctuates over time as a result of the vesting periods for outstanding awards and the number of awards that actually vest.

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

   Nine Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollarsin thousands)

% of Total Net Revenue
Impairment of Indefinite-Lived Long Term Assets Other Than Goodwill
   $ 19    $ —      $ (19 ) (100.0 )% —   % —   %

Due to operating results 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. 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. There were no indications of impairment during the period ended September 30, 2018.

~~Depreciation Expense~~

   Nine Months Ended September 30,
   2017    2018    Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Depreciation Expense
   $ 9,171    $ 9,076    $ (95 ) (1.0 )% 4.7 % 4.6 %

Depreciation expense decreased $0.1 million compared to the same period of the prior year. The decrease reflects the impact of capital expenditures made in prior years associated with data processing equipment and computer software that have shorter estimated useful lives than towers and broadcast assets and are fully depreciated as of 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,
   2017    2018    Change $    Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Amortization Expense
   $ 3,420    $ 4,558    $ 1,138    33.3 % 1.7 % 2.3 %

Amortization expense increased by $1.1 million compared to the same period of the prior year due to the acquisitions of Trader’s Crux in July 2017 and Intelligence Report and TeacherTube.com in August 2017, Childrens-Ministry-Deals.com in July 2018 and Hilary Kramer newsletter in August 2018, that were partially offset by reductions in the amortization of intangible assets acquired with Mill City Press that are now fully amortized. 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 ContingentEarn-Out~~ ~~Consideration~~

   Nine Months Ended September 30,
   2017 2018    Change $    Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Change in the Estimated Fair Value of ContingentEarn-Out Consideration
   $ (54 ) $ 72    $ 126    (233.3 )% —   % —   %

~~Net (Gain) Loss on the Disposition of Assets~~

   Nine Months Ended September 30,
   2017 2018    Change $    Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Net (Gain) Loss on the Disposition of Assets
   $ (410 ) $ 4,400    $ 4,810    (1,173.2 )% (0.2 )% 2.2 %

~~The net loss on the disposition of assets of $4.4 million for the nine month period ended September 30, 2018 includes a $2.4 millionpre-tax~~ ~~loss on the sale of radio stationKGBI-FM~~ ~~in Omaha, Nebraska, a $1.6 million estimatedpre-tax~~ ~~loss on the pending sale of radio stationsKCRO-AM~~ ~~andKOTK-AM~~ ~~in Omaha, Nebraska, a $0.3 millionpre-tax~~ ~~loss on the sale of land in Muth Valley, California, and a $0.2 millionpre-tax~~ ~~loss on the sale of land in Covina, California offset by a $0.2 millionpre-tax~~ ~~gain on the sale of radio stationWBIX-AM~~ ~~in Boston, Massachusetts.~~

The net gain on the disposition 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.

~~Other Income (Expense)~~

   Nine Months Ended September 30,
   2017 2018 Change $ Change % 2017 2018
   (Dollars in thousands)

% of Total Net Revenue
Interest Income
   $ 3 $ 4 $ 1 33.3 % —   % —   %
Interest Expense
   (12,156 ) (13,779 ) (1,623 ) 13.4 % (6.2 )% (7.0 )%
Change in the Fair Value of Interest Rate Swap
   357 —   (357 ) (100.0 )% 0.2 % —   %
Gain (Loss) on Early Retirement of Long-Term Debt
   (2,775 ) 234 3,009 (108.4 )% (1.4 )% 0.1 %
Net Miscellaneous Income and (Expenses)
   (80 ) (12 ) 68 (85.0 )% —   % —   %

~~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, andnon-cash~~ ~~accretion associated with deferred installments and contingentearn-out~~ consideration associated with our acquisition activity. The increase of $1.6 million reflects the Notes and ABL Facility outstanding during the nine months ended September 30, 2018 as compared to the Term Loan B and Revolver that were outstanding through May 19, 2017 of the prior year. Future changes in interest rates will not impact our fixed rate Notes, but an increase in interest rates may impact the variable rate at which we can borrow under our ABL Facility and result in higher interest charges.

~~The $0.4 million decline in the fair value of interest rate swap reflects the termination of our swap agreement on May 19, 2017, as comparted to themark-to-market~~ ~~fair value adjustment during the same period of the prior year.~~

~~The gain on early retirement of long-term debt reflects the $10.0 million of repurchases of the 6.75% Senior Secured Notes at a price below face value resulting in apre-tax~~ gain of $0.2 million. The loss on early retirement of long-term debt for the same period of the prior year 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.

Net miscellaneous income and expenses includes miscellaneous receipts such as usage fees for real estate properties and miscellaneous expenses. During the period ended September 30, 2018, we paid a contract termination fee of $0.1 million for not exercising our option right to purchase radio station~~KHTE-FM~~ ~~in Little Rock, Arkansas. This was offset by insurance proceeds associated with hurricane Irma in Tampa, Florida market. During the nine months ending September 30, 2017, we recorded anon-recurring~~ ~~loss of $78,000 on an investment.~~

~~Provision for (Benefit from) Income Taxes~~

   Nine Months Ended September 30,
   2017    2018 Change $ Change % 2017 2018
   (Dollars in thousands) % of Total Net Revenue
Provision for (Benefit from) Income Taxes
   $ 1,506    $ (132 ) $ (1,638 ) (108.8 )% 0.8 % (0.1 )%

We had an income taxes benefit of $0.1 million compared to a tax provision of $1.5 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 50.0% for the nine months ended September 30, 2018 compared to 39.7% for the same period of the prior year.~~Pre-tax~~ ~~income decreased $4.1 million to a $0.3 millionpre-tax~~ ~~loss from $3.8 million of revenue for the same period of the prior year. The decrease inpre-tax~~ ~~income is primarily due to losses on the sale of radio stations during the current period. As a result of the $0.3 millionpre-tax~~ loss for the nine months ended September 30, 2018, the calculated tax provision caused the effective rate to reach 50%. The effective tax rate for each period differs from the federal statutory income rate of 21.0% due to the effect of the Tax Act, 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,
   2017    2018 Change $ Change % 2017 2018
   (Dollars in thousands) % of Total Net Revenue
Net Income (Loss)
   $ 2,286    $ (132 ) $ (2,418 ) (105.8 )% 1.2 % (0.1 )%

We recognized a net loss of $0.1 million compared to net income of $2.3 million during the same period of the prior year. Net operating income decreased $5.1 million due to a $4.2 million increase in operating expenses that reflect the $4.8 unfavorable impact on losses from the disposition of assets and a $0.9 million decrease in net revenues. The impact of our operating results resulted in a $1.6 million decrease in our provision for income taxes that was offset by a $1.6 million increase in interest expense and the $0.4 million favorable impact of the~~mark-to-market~~ on our results during the same period of the prior year and the $3.0 million favorable impact of the loss on early-retirement of long-term debt in our results during the same period of the prior year.

~~NON-GAAP~~ ~~FINANCIAL MEASURES~~Measures

Management uses certainnon-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 thesenon-GAAP financial measures to evaluate financial results, develop budgets, manage expenditures and as a measure of performance under compensation programs.

Our presentation of thesenon-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.

Item 101 of RegulationS-K defines and prescribes the conditions under which certainnon-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, all of which arenon-GAAP financial measures. We believe that thesenon-GAAP financial measures provide useful information about our core operating results, and thus, are appropriate to enhance the overall understanding of our financial performance. Thesenon-GAAP financial measures are intended to provide management and investors a more complete understanding of our underlying operational results, trends and performance.

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 usefulnon-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, anon-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 thesenon-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 are usefulnon-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 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 gains or losses on the sale or disposition of assets, before changes in the estimated fair value of contingentearn-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 debt, before (gain) loss from discontinued operations and beforenon-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.

For allnon-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 usenon-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.

~~RECONCILIATION OF~~Reconciliation of~~NON-GAAP~~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 in the table following our calculation of Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of thesenon-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,
   2017    2018    2017    2018
   (Dollars in thousands)
Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue

Net broadcast revenue
   $ 48,424    $ 48,812    $ 145,479    $ 147,425
Net broadcast revenue – acquisitions
   —      (219 )    —      (649 )
Net broadcast revenue – dispositions
   (814 )    (309 )    (1,108 )    (540 )
Net broadcast revenue – format change
   (717 )    (492 )    (2,028 )    (1,354 )








Same Station net broadcast revenue
   $ 46,893    $ 47,792    $ 142,343    $ 144,882


															Three Months Ended March 31,
															2018			2019
															(Dollars in thousands)
Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue														Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue
Net broadcast revenue															$	48,050		$	46,093
Net broadcast revenue – acquisitions																(162	)		(173	)
Net broadcast revenue – dispositions																(656	)		(25	)
Net broadcast revenue – format change																(388	)		(419	)

Same Station net broadcast revenue															$	46,844		$	45,476

Reconciliation of Broadcast Operating Expenses To Same Station Broadcast Operating Expenses	Reconciliation of Broadcast Operating Expenses To Same Station Broadcast Operating Expenses													Reconciliation of Broadcast Operating Expenses To Same Station Broadcast Operating Expenses
Broadcast operating expenses		$	37,040		$	37,158		$	108,807		$	110,151			$	35,750		$	36,449
Broadcast operating expenses – acquisitions			—			(377	)		—			(1,102	)			(271	)		(269	)
Broadcast operating expenses – dispositions			(1,084	)		(468	)		(1,653	)		(700	)			(756	)		6
Broadcast operating expenses – format change			(895	)		(626	)		(2,272	)		(1,968	)			(647	)		(582	)

Same Station broadcast operating expenses		$	35,061		$	35,687		$	104,882		$	106,381			$	34,076		$	35,604


Reconciliation of Operating Income to Same Station Operating Income
Reconciliation of Operating Income (Loss) to Same Station Operating Income														Reconciliation of Operating Income (Loss) to Same Station Operating Income
Station Operating Income		$	11,384		$	11,654		$	36,672		$	37,274			$	12,300		$	9,644
Station operating loss –acquisitions			—			158			—			453				109			96
Station operating loss – dispositions			270			159			545			160
Station operating (income) loss – dispositions																100			(31	)
Station operating loss – format change			178			134			244			614				259			163

Same Station – Station Operating Income		$	11,832		$	12,105		$	37,461		$	38,501			$	12,768		$	9,872

In the table below, we present our calculations of Station Operating Income, Digital Media Operating Income and Publishing Operating ~~Income.~~Loss. Our presentation of thesenon-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							Three Months Ended
	September 30,						September 30,							March 31,
	2017			2018			2017			2018				2018			2019
	(Dollars in thousands)													(Dollars in thousands)
Calculation of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
Calculation of Station Operating Income, Digital Media Operating Income and Publishing Operating Loss													Calculation of Station Operating Income, Digital Media Operating Income and Publishing Operating Loss
Net broadcast revenue	$	48,424		$	48,812		$	145,479		$	147,425			$	48,050		$	46,093
Less broadcast operating expenses		(37,040	)		(37,158	)		(108,807	)		(110,151	)			(35,750	)		(36,449	)

Station Operating Income	$	11,384		$	11,654		$	36,672		$	37,274			$	12,300		$	9,644

Net digital media revenue	$	10,446		$	10,397		$	31,998		$	31,051			$	10,394		$	10,240
Less digital media operating expenses		(8,169	)		(8,021	)		(25,241	)		(24,792	)			(8,374	)		(8,058	)

Digital Media Operating Income	$	2,277		$	2,376		$	6,757		$	6,259			$	2,020		$	2,182

Net publishing revenue	$	6,563		$	6,319		$	19,048		$	17,119			$	5,351		$	4,136
Less publishing operating expenses		(6,686	)		(6,210	)		(18,705	)		(17,319	)			(5,587	)		(4,822	)

Publishing Operating Income (Loss)	$	(123	)	$	109		$	343		$	(200	)
Publishing Operating Loss														$	(236	)	$	(686	)

In the table below, we present a reconciliation of net income, the most directly comparable GAAP measure to Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of thesenon-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,
   2017    2018    2017    2018
   (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)
   $ (46 )    $ 1,767    $ 2,286    $ 428
Plus provision for (benefit from) income taxes
   170    4    1,506    (692 )
Plus net miscellaneous income and (expenses)
   80    (1 )    80    12
Plus (gain) loss on early retirement of long-term debt
   —      —      2,775    (234 )
Plus change in fair value of interest rate swap
   —      —      (357 )    —
Plus interest expense, net of capitalized interest
   4,802    4,507    12,156    13,779
Less interest income
   (1 )    (2 )    (3 )    (4 )








Net operating income
   $ 5,005    $ 6,275    $ 18,443    $ 13,289








Plus (gain) loss on the disposition of assets
   95    (759 )    (410 )    4,400
Plus change in the estimated fair value of contingentearn-out
consideration
   (12 )    —      (54 )    72
Plus impairment of indefinite-lived long-term assets other than goodwill
   —      —      19    —
Plus depreciation and amortization
   4,217    4,636    12,591    13,634
Plus unallocated corporate expenses
   4,233    3,987    13,183    11,938








Combined Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
   $ 13,538    $ 14,139    $ 43,772    $ 43,333








Station Operating Income
   $ 11,384    $ 11,654    $ 36,672    $ 37,274
Digital Media Operating Income
   2,277    2,376    6,757    6,259
Publishing Operating Income (Loss)
   (123 )    109    343    (200 )








   $ 13,538    $ 14,139    $ 43,772    $ 43,333


	Three Months Ended
	March 31,
	2018			2019
	(Dollars in thousands)
Reconciliation of Net Income to Operating Income and Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
Net income	$	828		$	322
Plus provision for (benefit from) income taxes		402			(5,303	)
Plus net miscellaneous income and (expenses)		(75	)		(1	)
Plus gain on early retirement of long-term debt		—			(426	)
Plus interest expense, net of capitalized interest		4,518			4,425
Less interest income		(2	)		(1	)

Net operating income (loss)	$	5,671		$	(984	)

Plus net (gain) loss on the disposition of assets		5			4,024
Plus depreciation and amortization		4,487			4,229


Plus unallocated corporate expenses		3,921			3,871

Combined Station Operating Income, Digital Media Operating Income and Publishing Operating Loss	$	14,084		$	11,140

Station Operating Income	$	12,300		$	9,644
Digital Media Operating Income		2,020			2,182
Publishing Operating Loss		(236	)		(686	)

	$	14,084		$	11,140

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 arenon-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
		Three Months Ended September 30,						Nine Months Ended September 30,							March 31,
		2017			2018			2017			2018				2018			2019
		(Dollars in thousands)													(Dollars in thousands)
Reconciliation of Adjusted EBITDA to EBITDA to Net Income	Reconciliation of Adjusted EBITDA to EBITDA to Net Income													Reconciliation of Adjusted EBITDA to EBITDA to Net Income
Net income (loss)		$	(46	)	$	1,207		$	2,286		$	(132	)
Net income															$	828		$	322
Plus interest expense, net of capitalized interest			4,802			4,507			12,156			13,779				4,518			4,425
Plus provision for (benefit from) income taxes			170			564			1,506			(132	)			402			(5,303	)
Plus depreciation and amortization			4,217			4,636			12,591			13,634				4,487			4,229
Less interest income			(1	)		(2	)		(3	)		(4	)			(2	)		(1	)

EBITDA		$	9,142		$	10,912		$	28,536		$	27,145			$	10,233		$	3,672

Plus (gain) loss on the disposition of assets			95			(759	)		(410	)		4,400
Plus change in the estimated fair value of contingentearn-out consideration			(12	)		—			(54	)		72
Plus impairment of indefinite-lived long-term assets other than goodwill			—			—			19			—
Plus changes the fair value of interest rate swap			—			—			(357	)		—
Plus net miscellaneous income and expenses			80			(1	)		80			12
Plus (gain) loss on early retirement of long-term debt			—			—			2,775			(234	)
Plus net (gain) loss on the disposition of assets																5			4,024
Plus net miscellaneous (income) and expenses																(75	)		(1	)
Plus gain on early retirement of long-term debt																—			(426	)
Plusnon-cash stock-based compensation			268			191			1,693			363				46			176
Plus ASC 842 lease adoption																—			171

Adjusted EBITDA		$	9,573		$	10,343		$	32,282		$	31,758			$	10,209		$	7,616

RESULTS OF OPERATIONS

Three months ended March 31, 2019 compared to the three months ended March 31, 2018

The following factors affected our results of operations and cash flows for the three months ended March 31, 2019 as compared to the same period of the prior year:

Financing

Based on the then existing market conditions, we completed repurchases of the Notes at amounts less than face value as follows during the three months ended March 31, 2019:


Date	Principal Repurchased		Cash Paid		% of Face Value			Bond Issue Costs		Net Gain
	(Dollars in thousands)
March 28, 2019	$	2,000	$	1,830		91.50	%	$	37	$	134
March 28, 2019		2,300		2,125		92.38	%		42		133
February 20, 2019		125		114		91.25	%		2		9
February 19, 2019		350		319		91.25	%		7		24
February 12, 2019		1,325		1,209		91.25	%		25		91
January 10, 2019		570		526		92.25	%		9		35

	$	6,670	$	6,123

Acquisitions, Divestitures and Other Transactions

On March 21, 2019, we sold Newport Natural Health for $0.9 million in cash. We recognized apre-tax gain of $0.1 million associated with the sale reflecting the sales price as compared to the carrying value of the assets and the closing costs.

On March 18, 2019, we acquired the pjmedia.com website for $0.1 million in cash.

On February 28, 2019, we sold Mike Turner’s line of investment products, including TurnerTrends.com and other domain names and related assets. We received no cash from the buyer who assumed all deferred subscription liabilities for Mike Turner’s investment products. We recognized apre-tax loss of $0.2 million associated with the sale reflecting the sales price as compared to the carrying value of the assets and the closing costs.

On February 27, 2019, we sold HumanEvents.com, for $0.3 million in cash. We recognized apre-tax loss of $0.2 million associated with the sale reflecting the sales price as compared to the carrying value of the assets and the closing costs.

Net Broadcast Revenue


	Three Months Ended March 31,
	2018		2019		Change $			Change %			2018			2019
	(Dollars in thousands)							Change %			% of Total Net Revenue
Net Broadcast Revenue	$	48,050	$	46,093	$	(1,957	)		(4.1	)%		75.3	%		76.2	%
Same Station Net Broadcast Revenue	$	46,844	$	45,476	$	(1,368	)		(2.9	)%

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


	Three Months Ended March 31,
	2018				2019
	(Dollars in thousands)
Block Programming:
National	$	12,406	25.8	%	$	12,233	26.5	%
Local		8,374	17.4	%		7,910	17.2	%

		20,780	43.2	%		20,143	43.7	%
Broadcast Advertising:
National		4,133	8.6	%		3,900	8.5	%
Local		13,235	27.5	%		12,062	26.2	%

		17,368	36.1	%		15,962	34.7	%
Station Digital (local)		1,846	3.9	%		2,824	6.1	%
Infomercials		499	1.0	%		390	0.8	%
Network		4,610	9.6	%		4,306	9.3	%
Other Revenue		2,947	6.2	%		2,468	5.4	%

Net Broadcast Revenue	$	48,050	100.0	%	$	46,093	100.0	%

The net decline in block programming revenue of $0.6 million reflects a $0.4 million decline in local programming revenue and a $0.2 million decrease in national programming revenue. Declines in local programming revenue include $0.1 million previously generated from stations we no longer operate(KCRO-AM andKOTK-AM, in Omaha, Nebraska andKHTE-FM, in Little Rock, Arkansas) and the remainder due to cancellations that we believe are due to increased competition from other broadcasters. The decrease in national programming revenue includes a $0.1 million decrease from our Christian Teaching and Talk format radio stations impacted by the sale ofKCRO-AM in Omaha, Nebraska and a $0.1 million decrease from our Business format radio stations that have increased restrictions on content to ensure compliance with securities rules and regulation.

Total advertising revenue, net of agency commissions, declined by $1.4 million, which includes a $0.4 million decrease in political advertising. Excluding political, net advertising revenue declined by $1.0 million due to declines in local advertising. Declines in local advertising, net of political, include a $0.4 million decline from our CCM format radio stations that were largely attributable to lower spot rates charged due to competition from other broadcasters that offer lower rates primarily in the Dallas and Los Angeles markets, a $0.3 million decline from our News Talk format radio stations and a $0.2 million decline from our Christian Teaching and Talk format radio stations. Additionally, $0.1 million of the decline resulted from the sale of radio stationKGBI-FM in Omaha, Nebraska.

Station digital revenue, or digital revenue generated locally from our radio stations and networks, increased $1.0 million over the prior year due to the launch of Salem Surround during 2018. Salem Surround is our national multimedia digital advertising agency that offers digital marketing services to our customers. We continue to expand our digital product offerings to include social media campaigns, search engine optimization, retargeted advertising and other services to address the move of advertising dollars from broadcast to digital. There were no significant changes in rates as compared to the same period of 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 same period of 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 declined by $0.3 million due to declines in national advertising revenue attributable to a change in network hosts effective January 1 of this year. The number of affiliates carrying network programming initially declined upon this change, but we have been growing the number of affiliates. With fewer affiliates, the rate we can charge advertisers is reduced.

Other revenue declined by $0.5 million due to a $0.3 million decrease in listener purchase program revenue due to lower demand from listeners to participate in sales incentives and discounts offered under vendor discount programs, a $0.2 million decrease in event revenue due to a reduction in the number of events held and a $0.1 million decrease in LMA fees associated with radio stationWQVN-AM, Miami, Florida offset by a $0.1 million increase in broadcast tower lease revenue. Event revenue varies from period to period based on the nature and timing of the events, audience demand, and in some cases, the weather that can affect attendance.

On a Same Station basis, net broadcast revenue decreased $1.4 million, which reflects these items net of the impact of stations with acquisitions, dispositions and format changes.

Net Digital Media Revenue


	Three Months Ended March 31,
	2018		2019		Change $			Change %			2018			2019
	(Dollars in thousands)							Change %			% of Total Net Revenue
Net Digital Media Revenue	$	10,394	$	10,240	$	(154	)		(1.5	)%		16.3	%		16.9	%

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


	Three Months Ended March 31,
	2018				2019
	(Dollars in thousands)
Digital Advertising, net	$	5,440	52.3	%	$	5,317	51.9	%
Digital Streaming		1,142	11.0			1,011	9.9
Digital Subscriptions		1,885	18.1			2,084	20.4
Digital Downloads		1,298	12.5			1,275	12.4
e-commerce		538	5.2			410	4.0
Other Revenues		91	0.9			143	1.4

Net Digital Media Revenue	$	10,394	100.0	%	$	10,240	100.0	%

Digital advertising revenue, net of agency commissions, decreased $0.1 million on a consolidated basis including a $0.3 million decline from our conservative opinion websites within Townhall Media that were offset by a $0.1 million increase from Salem Web Network and a net increase of $26,000 from Eagle Financial Publications due to a $46,000 increase from Traders Crux that was offset by a $20,000 decrease from Investing Channel. The decline at Townhall Media was largely attributable to loss of advertisers who moved spending to digital programmatic advertisers, specifically Facebook and Google, and an increase in advertisers deciding to cut or eliminate advertising on political content websites. We continue to acquire, develop and promote the use of mobile applications, particularly for our Christian mobile applications, to reduce our dependency on page views from digital programmatic advertisers. Acquisitions of mobile applications and digital media assets are discussed in Note 3 of our Condensed Consolidated Financial Statements. Mobile page views carry fewer advertisements and tend to have shorter site visits as compared to desktop. As a result, our growth in mobile page views exceeds our growth in revenue from the mobile applications.

Digital streaming revenue decreased $0.1 million as compared to the same period of the prior year based on lower usage of content available on our Christian websites. There were no significant changes in sales volume or rates as compared to the prior year.

Digital subscription revenue increased by $0.2 million on a consolidated basis reflecting a $0.4 million increase from our August 2018 acquisition of Hilary Kramer financial newsletter which was offset by a $0.2 million decline in revenue from a reduction in the number of subscribers to other digital publications, including a 18% decline in the number of subscribers to Dr. Mark Skousen and a 33% decline in the number of subscribers James Woods.

Digital download revenue increased by $0.4 million due to our July 2018 acquisition of Childrens-Ministry-Deals.com which was offset by a $0.4 million decline in revenue generated from our church product websites, WorshipHouseMedia.com and SermonSpice^TM.com. Revenue from our church product websites is impacted by the timing of the Easter holiday, which falls in the second quarter of 2019 as compared to generating $0.3 million of revenue in the first quarter of 2018. There were no significant changes in rates as compared to the same period of the prior year.

E-commerce revenue decreased by $0.1 million due to a 32% decrease in volume which was partially offset by a 2% increase in average price per unit sold. The decrease in the number of products sold was due to a reduction in the discounts offered during the period and a lower volume of new customers as compared to the prior year. On March 21, 2019, we sold Newport Natural Health, ane-commerce website operated by Eagle Wellness.

Other revenue includes revenue sharing arrangements for mobile applications and mail list rentals. We recognized revenue of $31,000 related to transfer services provided to the buyer of Newport Natural Health. SWN revenues increased $24,000 due to the acquisition of the Just1Word mobile application in August 2018. There were no changes in volume or rates as compared to the same period of the prior year.

Net Publishing Revenue


	Three Months Ended March 31,
	2018		2019		Change $			Change %			2018			2019
	(Dollars in thousands)							Change %			% of Total Net Revenue
Net Publishing Revenue	$	5,351	$	4,136	$	(1,215	)		(22.7	)%		8.4	%		6.8	%

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


	Three Months Ended March 31,
	2018					2019
	(Dollars in thousands)
Book Sales	$	3,916		73.2	%	$	2,762		66.8	%
Estimated Sales Returns & Allowances		(1,024	)	(19.1	)		(921	)	(22.3	)
E-Book Sales		344		6.4			162		3.9
Self-Publishing Fees		1,427		26.6			1,477		35.7
Print Magazine Subscriptions		251		4.7			201		4.9
Print Magazine Advertisements		135		2.5			135		3.3
Digital Advertising		110		2.1			85		2.0
Other Revenue		192		3.6			235		5.7

Net Publishing Revenue	$	5,351		100.0	%	$	4,136		100.0	%

On a consolidated basis, book sales declined by $1.2 million of which $0.9 million was from Regnery^® Publishing and $0.2 million was from Salem Author Services. The $0.2 million decrease in Salem Author Service book sales was due to a reduction in the number of new authors obtained, the number of books sold and thephase-out of operations for BookPrinting.com, a small printing-only division of Hillcrest Media, for which our operating margins did not meet our expectations. Regnery^® Publishing book sales decreased 34% in volume with no change in the average price per unit sold. We recognized a decrease of $0.1 million or 10% in the estimated sales returns and allowances based on the lower volume of print book sales. Book sales 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.

Regnery^® Publishinge-book sales decreased $0.2 million due to a decrease of 14% in the average price per unit sold due to sales incentives offered and 20% decrease 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 bestseller lists, which can increase awareness and demand for the book.

Self-publishing fees increased $0.1 million due to an increase in sales volume from Xulon Press^™. Self-publishing fees charged to authors were comparable with the same period of the prior year.

Declines in print magazine subscription declined due to lower demand and distribution levels resulted in corresponding declines in advertising revenues.

Print magazine advertisements was consistent with the same period of the prior year with no notable changes in volume or rates.

Declines in digital adverting revenue were primarily due to the discontinuation of the Conservative Book Club website operated by Regnery^® Publishing which was partially offset by increases in digital advertising from the History on the Net website. Sales volume and rates were comparable to the same period of the prior year.

Other revenue includes change fees, video trailers, public-relation services and website revenues. Regnery^® Publishing recognized an increase of $61,000 in other revenues from royalties. There were no changes in volume or rates as comparted to the same period of the prior year.

Broadcast Operating Expenses


	Three Months Ended March 31,
	2018		2019		Change $		Change %			2018			2019
	(Dollars in thousands)						Change %			% of Total Net Revenue
Broadcast Operating Expenses	$	35,750	$	36,449	$	699		2.0	%		56.0	%		60.3	%
Same Station Broadcast Operating Expenses	$	34,076	$	35,604	$	1,528		4.5	%

Broadcast operating expenses increased by $0.7 million including a $0.4 million increase in costs associated with Salem Surround, a $0.4 million increase in lease expense including a $0.2 million increase from lease renewals, a $0.2 million increase in bad debt expense, a $0.1 million increase in employee-related expenses from higherper-employee costs of salary, hourly wages and benefits, and a $0.1 million increase in production and programming expenses, that was offset by a $0.2 million decline in non-lease facility related costs, a $0.1 million decrease in acquisition-related expenses, a $0.1 million decrease in professional services and a $0.1 million decrease in advertising expenses.

On a same-station basis, broadcast operating expenses increased by $1.5 million. This increase reflects these expenses net of the impact ofstart-up costs associated with acquisitions, station dispositions and format changes.

Digital Media Operating Expenses


	Three Months Ended March 31,
	2018		2019		Change $			Change %			2018			2019
	(Dollars in thousands)							Change %			% of Total Net Revenue
Digital Media Operating Expenses	$	8,374	$	8,058	$	(316	)		(3.8	)%		13.1	%		13.3	%

Digital media operating expense declined by $0.3 million due to a $0.2 million decrease in costs of sales consistent with lower revenues, a $0.1 million decrease in streaming and hosting fees, a $0.1 million decrease in royalties and a $0.1 million decrease in facility-related expenses, that was partially offset by a $0.1 million increase in software fees, a $0.1 million increase sales-based commissions and incentives and a $0.1 million increase in professional services.

Publishing Operating Expenses


	Three Months Ended March 31,
	2018		2019		Change $			Change %			2018			2019
	(Dollars in thousands)							Change %			% of Total Net Revenue
Publishing Operating Expenses	$	5,587	$	4,822	$	(765	)		(13.7	)%		8.8	%		8.0	%

Publishing operating expenses declined by $0.8 million of which $0.6 million was due to a reduction in the consolidated cost of goods sold. Cost of goods sold includes a $0.5 million decrease from a lower sales volume for Regnery^® Publishing and a $0.1 million decrease from a lower sales volume for Salem Author Services. The gross profit margin for Regnery^® Publishing was 59% for the three months ended March 31, 2019 as compared to 53% 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 ofe-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 68% for the three months ended March 31, 2019, as compared to 66% for the same period of the prior year due to lower print costs based on sales volume. Additionally, there was a $0.1 million decline in payroll-related expenses due to reductions in headcount and a $36,000 decline in advertising and promotion expenses.

Unallocated Corporate Expenses


	Three Months Ended March 31,
	2018		2019		Change $			Change %			2018			2019
	(Dollars in thousands)							Change %			% of Total Net Revenue
Unallocated Corporate Expenses	$	3,921	$	3,871	$	(50	)		(1.3	)%		6.1	%		6.4	%

Depreciation Expense


	Three Months Ended March 31,
	2018		2019		Change $			Change %			2018			2019
	(Dollars in thousands)							Change %			% of Total Net Revenue
Depreciation Expense	$	3,009	$	2,933	$	(76	)		(2.5	)%		4.7	%		4.9	%

Depreciation expense decreased $0.1 million compared to the same period of the prior year. The decrease reflects the higher depreciation expense recognized in 2018 related to data processing equipment and computer software that are depreciated over a shorter estimated useful lives than other assets and fully depreciated at the end of 2018. There were no changes in our depreciation methods or in the estimated useful lives of our asset groups.

Amortization Expense


	Three Months Ended March 31,
	2018		2019		Change $			Change %			2018			2019
	(Dollars in thousands)							Change %			% of Total Net Revenue
Amortization Expense	$	1,478	$	1,296	$	(182	)		(12.3	)%		2.3	%		2.1	%

Amortization expense decreased by $0.2 million compared to the same period of the prior year. Decreases in amortization expense reflect fully amortized domain names, customer lists and contracts and subscriber base lists that have estimated useful lives of from one to five years. These items were fully amortized at or near the beginning of the 2019 calendar year resulting in lower amortization expense for this year. This was offset by acquisitions, including Childrens-Ministry-Deals.com in July 2018 and Hilary Kramer in August 2018. 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 March 31,
	2018		2019		Change $		Change %			2018			2019
	(Dollars in thousands)						Change %			% of Total Net Revenue
Net (Gain) Loss on the Disposition of assets	$	5	$	4,024	$	4,019		80,380.0	%		—	%		6.7	%

The net (gain) loss on the disposition of assets of $4.0 million for the three month period ending March 31, 2019 includes a $3.8 million estimated loss on the sale of radio stationWSPZ-AM in Washington, D.C., a $0.2 millionpre-tax loss on the sale Mike Turner’s line of investment products, a $0.2 millionpre-tax loss on the sale of HumanEvents.com offset by a $0.1 millionpre-tax gain on the sale of Newport Natural Health.

The net (gain) loss on the disposition of assets for the three month period ending March 31, 2018, represents various fixed asset disposals.

Other Income (Expense)


	Three Months Ended March 31,
	2018		2019		Change $		Change %			2018			2019
	(Dollars in thousands)									% of Total Net Revenue
Interest Income	$	2	$	1	$	(1)		(50.0)	%		—	%		—	%
Interest Expense		(4,518)		(4,425)		93		(2.1)	%		(7.1)	%		(7.3)	%
Gain on Early Retirement of Long-Term Debt		—		426		426		100.0	%		—	%		0.7	%
Net Miscellaneous Income and (Expenses)		75		1		(74)		(98.7)	%		0.1	%		—	%

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

Interest expense includes interest due on outstanding debt balances, andnon-cash accretion associated with deferred installments and contingentearn-out consideration from certain acquisitions. The increase of $0.1 million reflects the balance of the Notes, ABL and finance lease obligations outstanding during the period ending March 31, 2019. Future changes in interest rates will not impact our fixed rate Notes, but an increase in interest rates may impact the variable rate at which we can borrow under our ABL Facility and result in higher interest charges.

The gain on the early retirement of long-term debt reflects $6.7 million of repurchases of the Notes at prices below face value resulting in apre-tax gain of $0.4 million.

Net miscellaneous income and expenses includes miscellaneous receipts including usage fees for real estate properties.

Provision for (Benefit from) Income Taxes


	Three Months Ended March 31,
	2018		2019			Change $			Change %			2018			2019
	(Dollars in thousands)											% of Total Net Revenue
Provision for (Benefit from) Income Taxes	$	402	$	(5,303	)	$	(5,705	)		(1,419.2	)%		0.6	%		(8.8	)%

We recognized a tax benefit of $5.3 million for the three months ended March 31, 2019 compared to a provision for income taxes of $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 106.5% for the three months ended March 31, 2019 compared to 32.7% for the same period of the prior year. The effective tax rate for each period differs from the federal statutory income rate of 21.0% due to the effect of the sale of business assets in various states, 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. State income tax provision is an accumulation of applicable state income taxes calculated in accordance with each state tax laws; and it amounts to 62.4% of the effective tax rate of 106.5%. Additionally, certain expenses are not deductible for income tax purposes; and they represent 25.5% of the effective tax rate of 106.5%

Net Income


	Three Months Ended March 31,
	2018		2019		Change $			Change %			2018			2019
	(Dollars in thousands)										% of Total Net Revenue
Net Income	$	828	$	322	$	(506	)		(61.1	)%		1.3	%		0.5	%

Net income decreased by $0.5 million to $0.3 million for the three months ended March 31, 2019 compared to $0.8 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, 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.

Significant areas for which management uses estimates include:

revenue recognition,

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

probabilities associated with the potential for contingentearn-out consideration;

fair value measurements;

contingency reserves;

allowance for doubtful accounts;

sales returns and allowances;

barter transactions;

inventory reserves;

reserves for royalty advances;

fair value of equity awards;

self-insurance reserves;

estimated lives for tangible and intangible assets;

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

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

income tax valuation allowances; and

uncertain tax ~~positions.~~positions

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.

Revenue Recognition

Significant management judgments and estimates must be made in connection with determining the amount of revenue to be recognized in any accounting period. We must assesses the promises within each sales contract to determine if they are distinct performance obligations. Once the performance obligation(s) are determined, the transaction price is allocated to the performance obligation(s) based on a relative standalone selling price basis. If a sales contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price. If the stand-alone selling price is not determinable, an estimate is used.

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

A growing source of revenue is generated from digital product offerings, which allow for enhanced audience interaction and participation, and integrated digital advertising solutions. When offering digital products, another party may be involved in providing the goods or services that make up a performance obligation to the customer. These include the use of third-party websites for social media campaigns. We must evaluate if we are the principal or agent in order to determine if revenue should be reported gross as principal or net as agent. In this evaluation, we consider if we obtain control of the specified goods or services before they are transferred to our customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price. The determination of whether we control a specified good or service immediately prior to the good or service being transferred requires us to make reasonable judgments on the nature of each agreement. We have determined that we are acting as principal when we manage all aspects of a social media campaign, including reviewing and approving target audiences, monitoring actual results and making modifications as needed and when we are responsible for delivering campaign results to our customers regardless of the use of a third-party or parties.

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 air time 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 air time or digital campaign in favor of customers who purchase the air time or digital campaign for cash. The value of thesenon-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.

~~Goodwill,~~ Broadcast Licenses, Goodwill and Other Indefinite-Lived Intangible Assets

~~We have accounted for~~Approximately 65% of our total assets at March 31, 2019 consisted of indefinite-lived intangible assets including broadcast licenses, goodwill and mastheads. These indefinite-lived intangible assets originated from acquisitions ~~for~~in which a significant amount of the purchase price was allocated to broadcast licenses and goodwill. Approximately 71% of our total assets at September 30, 2018 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.

Impairment testing requires an estimate of the fair value of our indefinite-lived intangible assets. We believe that ~~our estimate~~these estimates of ~~the~~fair value ~~of our broadcast licenses, mastheads, and goodwill is a~~are critical accounting ~~estimate~~estimates as the value is significant in relation to our total assets and ~~our~~the estimates incorporate variables and assumptions ~~that are~~ based on our experiences and judgment about our 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~~performance. Fair 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 in our estimates, 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.~~15 of our Financial Statements and Supplementary Data.

~~We are permitted~~The first step of our impairment testing is 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 inwhen considering the events and circumstances that may affect the estimated fair value of our indefinite-lived intangible ~~assets and requires that we weigh these~~assets. 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.

~~ASU2012-02~~ ~~provides examples of events and circumstances that could affect the estimated fair value of indefinite-lived intangible assets; however, the examples~~ are notall-inclusive and are not by themselves indicators of impairment. We consider ~~these events and circumstances, as well as other~~ external and internal ~~considerations. Our analysis includes~~factors when reviewing the following events and circumstances, which are 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.

If it is more likely than not that an impairment exists, we are required to perform a second step to preparing a quantitative analysis to estimate the ~~results~~fair or enterprise value of the assets. We did not find reconciliation to our current market capitalization meaningful in the determination of our ~~qualitative assessment indicate~~enterprise value given current factors that impact our market capitalization, including but not limited to: limited trading volume, the ~~fair value~~impact of ~~a reporting unit is less than its carrying value, we~~our publishing segment operating losses and the significant voting control of our Chairman and Chief Executive Officer. We engage an independent third-party appraisal and valuation firm to assist us with determining the enterprise value as part of our quantitative review.

When performing a quantitative review of broadcast licenses, we estimate the fair value of each market cluster using the Greenfield Method, a form of the income approach. The premise of the Greenfield Method is that the value of an FCC license is equivalent to a hypothetical~~start-up~~ in which the only asset owned by the station as of the valuation date is the FCC license. This approach eliminates factors that are unique to the operation of the station, including its format and historical financial performance. The method then assumes the entity has to purchase, build, or rent all of the other assets needed to operate a comparable station to the one in which the FCC license is being utilized as of the valuation date. Cash flows are estimated and netted against all~~start-up~~ costs, expenses and investments necessary to achieve a normalized and mature state of operations, thus reflecting only the cash flows directly attributable to the FCC License. A multi-year discounted cash flow approach is then used to determine the net present value of these cash flows to derive an indication of fair value. For cash flows beyond the projection period, a terminal value is calculated using the Gordon constant growth model and long-term industry growth rate assumptions based on long-term industry growth and Gross Domestic Product (“GDP”) inflation rates.

~~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)~~

~~estimatedstart-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 performing our annual impairment testing for goodwill, the fair value of each applicable accounting 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 our expected future performance. We also make assumptions regarding working capital requirements and ongoing capital expenditures for fixed assets. Future net free cash flows are calculated on a debt free basis and discounted to present value using a risk adjusted discount rate. The terminal year value is calculated using the Gordon constant growth method and long-term growth rate assumptions based on long-term industry growth and GDP inflation rates. The resulting fair value estimates, net of any interest bearing debt, are compared to the carrying value of each reporting unit’s net assets.

When performing 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.

If the results of our quantitative analysis indicate that the fair value of a reporting unit is less than its carrying value, an impairment is recorded equal to the amount by which the carrying value exceeds the estimated fair value.

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 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 Licenses, Goodwill and Other Indefinite-Lived Intangible Assets 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 prepared a sensitivity analysis of these assumptions and the hypothetical~~non-cash~~ ~~impairment charge that would have resulted if our estimated discount rate were increased.~~

~~Impairment of Long-Lived Assets~~

~~We account for property and equipment in accordance with FASB ASC Topic360-10,~~~~Property, Plant and Equipment~~. We periodically review our long-lived assets for impairment whenever events or 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.

Business Acquisitions

We account for business acquisitions in accordance with the acquisition method of accounting as specified in FASB ASC Topic 805Business 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 performre-measurements to verify that the consideration paid, assets acquired, and liabilities assumed have been properly valued.

Acquisitions may include contingentearn-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. Under ASU2017-01, that was effective on January 1, 2018, a fewer number of our radio station acquisitions will qualify as business acquisitions and instead be accounted for 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 individual assets acquired based on their relative fair value with no goodwill recognized.

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.

ContingentEarn-Out Consideration

Our acquisitions often include contingentearn-out consideration as part of the purchase price. The fair value of the contingentearn-out consideration is estimated as of the acquisition date based on the present value of the contingent payments expected to be made using a weighted probability of possible payments. The unobservable inputs used in the determination of the fair value of the contingentearn-out consideration include our own assumptions about the likelihood of payment based on the established benchmarks and discount rates based on our internal rate of return analysis. The fair value measurements includes inputs that are Level 3 measurement as discussed in Note 1615 in the notes of our Condensed Consolidated Financial Statements contained in Part 1 in this quarterly report on Form~~10-Q~~10-Q. .

We review the probabilities of possible future payments to the estimated fair value of any contingentearn-out consideration on a quarterly basis over theearn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results increase or decrease as compared to the assumption used in our analysis, the fair value of the contingentearn-out consideration obligations will increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of the contingentearn-out consideration could cause a material impact and volatility in our operating results. ~~During~~There were no changes in our estimates during the ~~nine~~three month period ended ~~September 30, 2018, we recognized a net increase of $72,000 to our estimated contingentearn-out~~ ~~liabilities as compared to a net decrease to our estimated contingentearn-out~~ ~~liabilities of $54,000 for the same period of the prior year.~~March 31, 2019. The changes in our estimates reflect volatility from variables, such as revenue growth, page views and session time as discussed in Note 54 – ContingentEarn-Out Consideration in the notes to our Condensed Consolidated Financial Statements contained in Part 1 of this quarterly report on Form10-Q.

We believe that we have used reasonable estimates and assumptions to calculate the estimated fair value of all remaining contingentearn-out consideration however, these estimates and assumptions are highly judgmental in nature. Actual results can be materially different from estimates and assumptions.

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.

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 associated 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;

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 1615 in the notes to our Condensed Consolidated Financial Statements contained in Part 1 of this quarterly report on Form10-Q.

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,~~17, 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 consolidated financial position, results of operations or cash flows. We believe that our 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 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 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 notwritten-off until all of our collection efforts have been unsuccessful, 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 our wellness division. 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.

~~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. 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. 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.

Inventory Reserves

Inventories consist of finished goods, including published books and wellness products. Inventory is recorded at the lower of cost or net realizable value as determined on aFirst-InFirst-Out ~~(“FIFO”)~~ cost method. We reviewed historical data associated with book and wellness product inventories held by Regnery^® Publishing and oure-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 afirst-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.

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 $0.7 million and $0.8 million ~~and $0.7 million~~ at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates.

Lease

We adopted Accounting Standards Codification (“ASC”) Topic 842,Leases (“ASC 842”) issued under ASU2016-02 on January 1, 2019. Under ASC 842, we consider all relevant facts and circumstances, to determine whether a contract is or contains a lease at inception. Our analysis includes whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This consideration involves judgment with respect to whether we have the right to obtain substantially all of the economic benefits from the use of the identified asset and whether we have has the right to direct the use of the identified asset.

Lease Term – Impact onRight-of-Use Assets and Lease Liabilities

The lease term can materially impact the value of theRight-of-Use (“ROU”) assets and lease liabilities recorded on our balance sheet as required under ASC 842. We calculate the term for each lease agreement to include the noncancellable period specified in the agreement together with (1) the periods covered by options to extend the lease if we are reasonably certain to exercise that option, (2) periods covered by an option to terminate if we are reasonably certain not to exercise that option and (3) period covered by an option to extend (or not terminate) if controlled by the lessor. The assessment of whether we are reasonably certain to exercise an option to extend a lease requires significant judgement surrounding contract-based factors, asset-based factors, entity-based factors and market-based factors. These factors, detailed below, are evaluated based on the facts and circumstances at the time we enter a lease agreement.

Contract-Based Factors:

The existence of a bargain renewal option

The existence of contingent or variable payments

The nature and terms of renewal or termination options

The costs the lessee would incur to restore the asset before returning it to the lessor

Asset-Based Factors:

The existence of significant lessee-installed leasehold improvements that would still have economic value when the option becomes exercisable

The physical location of the asset

The costs that would be incurred to replace or find an alternative asset

Entity-Based Factors:

Historical practice

Management’s intent

Common industry practice

The financial impact on the entity of extending or terminating the lease

The importance of the leased asset to the entity’s operations

Market-Based Factors:

Market rental or purchase rates for comparable assets

Potential implications of local regulations and statutory requirements

We have not modified our estimate methodology since adopting ASC 842 on January 1, 2019.

Incremental Borrowing Rate

We performed an analysis as of January 1, 2019 to estimate the IBR applicable to Salem upon transition to ASC 842. Our analysis required the use of significant judgement and estimates, including the estimated value of the underlying leased asset, and the following available evidence:

The credit history of Salem Media Group

Our most recent credit facility consisted of 6.75% Senior Secured Notes and an ABL revolver. As of each month end, the weighted average interest rate on outstanding debt was calculated. The weighted average interest rate on the outstanding debt ranged from a low of 2.97% for the ABL to a high of 6.75% for the Notes. On a combined basis, the weighted average interest rate for the ABL and the Notes ranged from 99 to 257 basis points above prime.

Based on market conditions and prevailing interest rates in 2018 that were higher than our Notes, we completed various open-market repurchases of the Notes at prices below face value. At December 31, 2018, the Notes were trading at 91.5% of the face value.

The credit worthiness of Salem Media Group

At January 1, 2019, our Moody’s rating was “B2,” consistent with the last ten years. A B2 credit rating is considered speculative in nature and subject to high credit risk.

Class of the underlying asset and the remaining term of the arrangement

We elected to use a portfolio approach applying a single IBR to leases with reasonably similar characteristics, including the remaining lease term, the underlying assets and the economic environment. As of the date of adoption, we grouped each lease according to the nature of leased asset and further grouped the items by the remaining lease term as of the date of adoption.

We have six main categories of leases:

Building

Equipment

Land

Other (Parking Facilities)

Tower

Vehicle

We considered vehicles to have a higher risk for collateral that is mitigated by the shorter term of the lease that would typically range from three to five years. We considered building and towers to have a higher risk based on (1) the longer lease term of up to thirty years and (2) a higher outstanding balance that is mitigated by the lower risk that the collateralized asset would lose significant value.

The debt incurred under the lease liability as compared to amounts that would be borrowed

We reviewed the cost to finance comparable amounts under our ABL and based on the current market environment as derived from available economic data.

We referred to the Bloomberg Single B Rated Communications Yield Curve (unsecured) and considered adjustments for industry risk factors and the estimated value of the underlying leased asset to be collateral for the debt incurred.

From this analysis, we developed a matrix to estimate the IBR for each major category of leases. We will review our IBR estimates on a quarterly basis and update as necessary. We have not modified our estimate methodology since adopting ASC 842 on January 1, 2019.

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 ~~$6.2~~$5.4 million as of ~~September 30, 2018 and December~~March 31, ~~2017~~2019 to offset ~~$6.0 million of~~ the deferred tax assets related to the state net operating loss ~~carryforwards and $0.2 million associated with asset impairments.~~carryforwards.

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~~three months ended ~~September 30, 2018,~~March 31, 2019, we did not recognize liabilities associated with uncertain tax positions. Accordingly, we have no liabilities for uncertain tax positions recorded at ~~September 30, 2018.~~March 31, 2019. Our evaluation was performed for all tax years that remain subject to examination, which range from ~~2013~~2014 through 2017. 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 been operating cash flow, 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. We have assessed the current and expected economic outlook and our current and expected needs for funds and we believe that the borrowing capacity under our current credit facilities allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve ~~months.~~months, including our working capital deficit at March 31, 2019.

Generally, we keep ~~our~~the balance of cash and cash equivalents low in order to ~~focus on reducing our overall~~reduce the balance of outstanding debt. Our ABL Facility automatically covers any shortfalls in operating cash flows such that we are not required to ~~have~~hold excess cash balances on hand. Our cash and cash equivalents ~~increased~~decreased to ~~$17,000~~$4,000 as of ~~September 30, 2018~~March 31, 2019 as compared to ~~$3,000 at December 31, 2017. Working capital decreased $10.3 million to a negative working capital of $5.7 million at September 30, 2018 compared to $4.6~~$0.1 million at December 31, ~~2017. The $10.3~~2018. Working capital decreased $17.4 million to $(26.6 million) at March 31, 2019 compared to ($9.2 million) at December 31, 2018 due to the recognition of ROU assets of $9.5 million, the derecognition of prepaid rent of $1.1 million, a decrease in ~~working capital includes~~trade account receivables of $2.6 million, an increase in accounts payable of $3.0 million and a ~~$1.1~~$3.8 million increase in accrued interest associated with thebi-annual payments due on the Notes, that was partially offset with a $3.7 million decrease in the outstanding balance on the ABL Facility, a $6.5 million increase in accounts payable and accrued expenses and a $4.1 million increase in accrued interest. The increase in accounts payable and accrued expenses includes a $2.8 million increase in the book overdraft, a $1.9 million increase in accrued compensation and related expenses, a $0.3 million increase in accrued music license fees, a $0.2 million increase in accrued legal fees and a $0.2 million increase in deferred payments and the estimated fair value of contingent~~earn-out~~ consideration on acquisitions. The $4.1 million increase in accrued interest reflects the semi-annual interest payment on the Notes that is due in December 2018 that had been paid as of the December 2017 reporting period.ABL.

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. 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.

Net cash provided by operating activities during the ~~nine~~three month period ended ~~September 30, 2018~~March 31, 2019 decreased by ~~$5.0~~$3.9 million to ~~$20.2~~$9.0 million compared to ~~$25.2~~$12.9 million during the same period of the prior year. The decrease in cash provided by operating activities includes the impact of the following items:

~~We had a~~Total net ~~loss of $0.1~~revenue declined by $3.3 million, ~~compared to net income of $2.3 million for the same period of the prior year;~~

~~Net~~Operating expenses exclusive of depreciation, amortization and net gain (loss) on the disposition of assets, decreased by $0.4 million;

Trade accounts ~~receivable increased $2.5 million due to a change in our Regnery Publishing distributor arrangement under which there is a six month hold back on payment pending the processing~~receivables, net of ~~returns;~~allowances, decreased by $2.6 million;

Unbilled revenue decreased ~~$0.1~~$0.4 million;

Our Day’s Sales Outstanding, or the average number of days to collect cash from the date of sale, ~~increased to 68~~remained consistent at 59 days at ~~September 30, 2018 compared to 66 days at September 30, 2017;~~March 31, 2019 and 2018;

Net accounts payable and accrued expenses increased ~~$10.6~~$3.7 million to ~~$30.5~~$23.6 million ~~for the nine month period ended September 30, 2018 compared to an increase of $4.0~~from $19.9 million ~~to $29.8 million for the same period~~as of the prior year ~~due to our $2.8~~including a $1.5 million ~~book overdraft,~~increase in accrued compensation and related expenses of $1.9 million, accrued music license fees of $0.3 million, accrued legal fees of $0.2 million and $0.2 million of deferred payments and the estimated fair value of contingent~~earn-out~~ ~~consideration on acquisitions,~~compensation; and

Net inventories on hand ~~increased $0.2~~decreased $0.1 million to ~~$0.9~~$0.5 million at ~~September 30, 2018~~March 31, 2019 compared to an increase of $0.1 million to $0.8 million for the same period of the prior year.

Investing Cash Flows

Our primary source of investing cash inflows includes proceeds from the ~~disposition~~sale of assets or businesses. ~~Our investing~~Investing 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~~we entered acquisition agreements ~~have contained~~that contain contingentearn-out arrangements that are payable in the future based on the achievement of predefined operating results. We believe that these contingentearn-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.~~

We undertake projects from time to time to upgrade our radio station technical facilities and/or FCC broadcast licenses, expand our digital andweb-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, we expect to incur additional capital expenditures of approximately ~~$1.7~~$5.7 million during the remainder of ~~2018.~~

2019.

We plan to fund future purchases and any acquisitions from cash on hand, operating cash flow or our credit facilities.

Net cash used in investing activities decreased from $2.4 million during the ~~nine~~three month period ended ~~September 30,~~March 31, 2018 ~~decreased $0.5 million~~ to ~~$9.3 million compared to $9.8~~$1.4 million during the ~~same~~three month period ~~of the prior year.~~ended March 31, 2019. The decrease in cash used for investing activities ~~includes:~~

~~Cash paid for acquisitions increased $7.5 million to $10.9 million compared to $3.4 million during~~was the ~~same period of the prior year;~~result of:

~~Cash paid for capital expenditures decreased $0.3 million to $6.5 million compared to $6.8 million during the same period of the prior year; and~~

We received ~~$8.5~~$1.3 million ~~proceeds~~in cash from asset sales during the current period compared to a $0.5 million escrow receipt for the sale of radio stationWQVN-AM (formerlyWKAT-AM) in Miami, Florida ~~radio stationKGBI-FM~~ ~~in Omaha, Nebraska, radio stationWBIX-AM~~ ~~in Boston, Massachusetts~~during the prior year;

We paid $0.1 million for acquisitions compared to no acquisition activity during the same period of the prior year; and

Cash paid for capital expenditures decreased $0.1 million to $2.4 million compared to $2.5 million during the ~~sale~~same period of ~~land in Covina, California.~~the prior year.

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 equity distributions and payments of amounts due under deferred installments and contingencyearn-out consideration associated with acquisition activity.

During the ~~nine~~three month period ending ~~September 30, 2018,~~March 31, 2019, the principal balances outstanding under the Notes and ABL Facility ranged from ~~$249.5~~$244.4 million to ~~$264.0~~$258.2 million. These outstanding balances were ordinary and customary based on our operating and investing cash needs during this time.

Any future equity distributions are likely to be comparable to prior declarations unless there are changes in expected future earnings, cash flows, financial and legal requirements. 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 ~~2018.~~2019. 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.

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.

Net cash used in financing activities decreased $2.8 million to $7.7 million during the ~~nine~~three month period ended ~~September 30, 2018 decreased by $4.5 million to $10.9 million~~March 31, 2019 from ~~$15.4~~$10.5 million during the same period of the prior year. The decrease in cash used for financing activities includes:

~~We repaid $5.0~~A $3.6 million ~~of principal outstanding on~~increase in the ~~Term Loan B the same period~~book overdraft to $3.8 million from $0.2 million of the prior year;

We ~~paid the remaining principal balance outstanding on the Term Loan B of $258.0 million and terminated the Term Loan B;~~

~~We issued the 6.75% Senior Secured Notes and received gross proceeds of $255.0 million upon issuance;~~

We used ~~$9.5~~$6.1 million of cash to repurchase ~~$10.0~~$6.7 million in face value of the 6.75% Senior Secured Notes; and

~~We received $111.3 million at various times from the~~Net repayments on our ABL Facility aswere $3.6 million during the three months ended March 31, 2019 compared to ~~$60.1~~$9.0 million ~~at various times~~ during the same period of the prior ~~year on the Revolver;~~

~~We repaid $110.1 million at various times against the ABL Facility as compared to $54.0 million at various times during the same period of the prior year on the Revolver;~~

~~We paid $0.2 million of cash against deferred installments due under our purchase agreements during the same period of the prior year;~~

~~The book overdraft increased $3.8 million to a $2.8 million source of cash for the period ended September 30, 2018 compared to a $1.1 million use of cash 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.~~year.

6.75% Senior Secured Notes

(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 amount of the 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.

~~On April 10, 2018, we repurchased $4.0 million of the 6.75% Senior Secured Notes for $3.9 million, or to 96.25% of the face value. This transaction resulted in a netpre-tax~~ ~~gain on the early retirement of debt of approximately $63,000 after bond issue costs associated with the Notes were adjusted for the repurchase.~~

Based on the then existing market conditions, we completed repurchases of our 6.75% Senior Secured Notes at amounts less than face value as follows:


Date	Principal Repurchased		Cash Paid		% of Face Value			Bond Issue Costs		Net Gain
Date	(Dollars in thousands)
March 28, 2019	$	2,000	$	1,830		91.50	%	$	37	$	134
March 28, 2019		2,300		2,125		92.38	%		42		133
February 20, 2019		125		114		91.25	%		2		9
February 19, 2019		350		319		91.25	%		7		24
February 12, 2019		1,325		1,209		91.25	%		25		91
January 10, 2019		570		526		92.25	%		9		35
December 21, 2018		2,000		1,835		91.75	%		38		127
December 21, 2018		1,850		1,702		92.00	%		35		113
December 21, 2018		1,080		999		92.50	%		21		60
November 17, 2018		1,500		1,357		90.50	%		29		114
May 4, 2018		4,000		3,770		94.25	%		86		144
April 10, 2018		4,000		3,850		96.25	%		87		63
April 9, 2018		2,000		1,930		96.50	%		43		27

	$	23,100	$	21,566

Asset-Based Revolving Credit Facility

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,~~third party, except as permitted thereby; (viii) to prepay indebtedness; and (ix) to pay dividends. The amount of dividends or equity distributions made is not to exceed $2.0 million in any fiscal quarter or $20.0 million in the aggregate, so long as, after giving pro forma effect thereto, the Consolidated Total Debt Ratio would be less than or equal to 6.00 to 1.00.

The Credit Agreement provides for the following events of default: (i) default fornon-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 respect of the collateral.

~~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 the three and nine months ended September 30, 2017, approximately $0 and $0.1 million, respectively, of the discount associated with the Term Loan B was recognized as interest expense.

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 tonon-cash~~ interest expense over the life of the Term Loan B using the effective interest method. For the three and nine months ended September 30, 2017, approximately $0 and $0.2 million respectively, of the debt issuance costs associated with the Term Loan B were recognized as interest expense.

Summary of long-term debt obligations

Long-term debt consisted of the following:

   December 31,
2017    September 30,
2018
   (Dollars in thousands)
6.75% Senior Secured Notes
   $ 255,000    $ 245,000
Less unamortized debt issuance costs based on imputed interest rate of 7.08%
   (5,774 )    (4,867 )




6.75% Senior Secured Notes net carrying value
   249,226    240,133




Asset-Based Revolving Credit Facility principal outstanding
   9,000    10,200
Capital leases and other loans
   462    77




Long-term debt and capital lease obligations less unamortized debt issuance costs
   258,688    250,410
Less current portion
   (9,109 )    (10,228 )




Long-term debt and capital lease obligations less unamortized debt issuance costs, net of current portion
   $ 249,579    $ 240,182


	As of December 31, 2018			As of March 31, 2019
	(Dollars in thousands)
6.75% Senior Secured Notes	$	238,570		$	231,900
Less unamortized debt issuance costs based on imputed interest rate of 7.08%		(4,540	)		(4,217	)

6.75% Senior Secured Notes net carrying value		234,030			227,683

Asset-Based Revolving Credit Facility principal outstanding		19,660			16,000

Total long-term debt less unamortized debt issuance costs		253,690			243,683

Less current portion		(19,660	)		(16,000	)

Long-term debt less unamortized debt issuance costs, net of current portion	$	234,030		$	227,683

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, 2018:~~March 31, 2019:

$~~245.0~~231.9 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% per annum on the unused portion of the ABL Facility.

~~Other Debt~~

~~We have several capital leases related~~In anticipation of the expectedphase-out of LIBOR in 2021, we are monitoring alternative indexes that may apply to ~~office equipment.~~our ABL Facility. The ~~obligation recorded at December 31, 2017 and September 30, 2018 represents~~ABL Facility matures on May 19, 2022, providing the ~~present value of future commitments under the capital lease agreements.~~opportunity to enter a new credit arrangement with terms that are tied to alternative indexes.

Maturities of Long-Term Debt ~~and Capital Lease Obligations~~

Principal repayment requirements under all long-term debt agreements outstanding at ~~September 30, 2018~~March 31, 2019 for each of the next five years and thereafter are as follows:


	Amount		Amount
For the Twelve Months Ended September 30,	(Dollars in thousands)
2019	$	10,228
For the Twelve Months Ended March 31,			(Dollars in thousands)
2020		14	$	16,000
2021		15		—
2022		14		—
2023		6		—
2024				—
Thereafter		245,000		231,900

	$	255,277	$247,900

Impairment Losses on Goodwill and Indefinite-Lived Intangible Assets

Under FASB ASC Topic 350Intangibles—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 regard to our indefinite-lived intangible assets.

~~Due to operating results 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. 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. There were no indications of impairment during the period ended September 30, 2018.

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 past experiences and judgment about future operating performance of our markets and business segments. 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.~~15.

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 arenon-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, 2018,~~March 31, 2019, 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 facilitatingoff-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.

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.~~

~~DERIVATIVE INSTRUMENTS~~

~~We are exposed to market risk from changes in interest rates. We actively monitor these fluctuations and may use derivative instruments primarily~~Not required for the purpose of reducing the impact of changing interest rates on our variable rate debt and to reduce the impact of changing fair market values on our fixed rate debt. In accordance with our risk management strategy, we 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.smaller reporting companies

~~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. The swap was valued based on observable inputs for similar assets and liabilities and other observable inputs for interest rates and yield curves, which are classified within Level 2 inputs in the fair value hierarchy described below and in Note 16 to the accompanying Condensed Consolidated Financial Statements included in this quarterly report on Form~~10-Q.~~

On May 19, 2017, we entered into the 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 0.375% 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.~~

~~As of September 30, 2018, we did not have any outstanding derivative instruments.~~

~~FAIR VALUE OF DEBT~~

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”). The carrying amount of the Notes at September 30, 2018, was $245.0 million compared to the estimated fair value of $221.1 million based on the prevailing interest rates and trading activity of our Notes.

~~ACCOUNTS RECEIVABLE~~

Our credit exposure related to our accounts receivable does not represent a significant concentration of credit risk due to the quantity of advertisers, the minimal reliance on any one advertiser, the multiple markets in which we operate and the wide variety of advertising business sectors.

~~ITEM 4.~~

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 Rules13a-15(e) and15d-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.

~~There~~Changes in Internal Control over Financial ReportingOn January 1, 2019, we adopted the lease accounting guidance in ASC 842 described elsewhere in this report. The implementation of this guidance had a material impact on our balance sheet as of March 31, 2019. The impact on our results of operations and cash flows for the three months ended March 31, 2019 was ~~no change~~not material.

During the quarter ended March 31, 2019, we implemented changes to our internal controls related to the implementation ASC 842 to provide reasonable assurance that we have properly applied the guidance in our financial statements. These changes included: (i) monitoring the adoption process and developing new disclosures required under the standard; (ii) performing an analysis of our leases; (iii) establishing policies and procedures to determine the incremental borrowing rate when an implicit rate cannot be readily determined and (iv) establishing internal controls surrounding the implementation and use of a new lease accounting system.to calculateRight-of-Use assets and lease liabilities.

As the implementation process continues, there may be additional changes in internal control over financial reporting. We will continue to evaluate the impact of any related changes to our internal control over financial reporting. Other than any changes in our internal control over financial reporting related to the implementation of the amended accounting guidance for leases, there were no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rule13a-15(d) and15d-15(d) of the Exchange Act that occurred during the ~~nine month~~ period ~~ended September 30, 2018~~covered by this Quarterly Report on Form10-Q that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

~~ITEM 1.~~

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 Form10-K~~ITEM 1A. RISK FACTORS.

Not required for the year ended December 31, 2017 (the “2017 Annual Report”) a description of certain risks and uncertainties that could affect our business, future performance or financial condition. 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 2017 Annual Report for the quarter ended September 30, 2018.smaller reporting companies.

~~ITEM 2.~~

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

None.

~~ITEM 3.~~

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

None.

~~ITEM 4.~~

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable

~~ITEM 5.~~

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

~~EXHIBITS.~~

See “Exhibit Index” ~~below.~~below

EXHIBIT INDEX


Exhibit Number		Exhibit Description	Form		File No.		Date of First Filing		Exhibit Number		Filed Herewith
31.1		Certification of Edward G. Atsinger III Pursuant to Rules13a-14(a) and15d-14(a) under the Exchange Act.		—		—		—		—		X

31.2		Certification of Evan D. Masyr Pursuant to Rules13a-14(a) and15d-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, 2018,~~March 31, 2019, 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

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 7, 2018~~May 10, 2019

		By: /s/ EDWARD G. ATSINGER III
		Edward G. Atsinger III
		Chief Executive Officer
		(Principal Executive Officer)

~~November 7, 2018~~May 10, 2019

		By: /s/ EVAN D. MASYR
		Evan D. Masyr
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

7462


	Nine Months Ended September 30, 2018
	Broadcast		Digital Media		Publishing		Consolidated
	(dollars in thousands)
By Source of Revenue:
Block Programming - National	$	37,318	$	—	$	—	$	37,318
Block Programming - Local		24,643		—		—		24,643
Spot Advertising - National		12,126		—		—		12,126
Spot Advertising - Local		41,224		—		—		41,224
Infomercials		1,464		—		—		1,464
Network		14,501		—		—		14,501
Digital Advertising		4,764		16,159		346		21,269
Digital Streaming		584		3,316		—		3,900
Digital Downloads and eBooks		—		3,722		1,155		4,877
Subscriptions		789		6,052		699		7,540
Book Sales ande-commerce		360		1,533		9,673		11,566
Self-Publishing fees		—		—		4,231		4,231
Advertising - Print		36		—		454		490
Other Revenues		9,616		269		561		10,446

	$	147,425	$	31,051	$	17,119	$	195,595

Timing of Revenue Recognition
Point in Time	$	145,892	$	30,969	$	17,073	$	193,934
Rental Income(1)		1,533		82		46		1,661

	$	147,425	$	31,051	$	17,119	$	195,595


Acquisition Date	Description	Total Cost
		(Dollars in thousands)
September 11, 2018	KTRB-AM, San Francisco, California (asset purchase)	$	5,349
August 9, 2018	Hilary Kramer Financial Newsletter (business acquisition)		439
August 7, 2018	Just1Word (business acquisition)		312
July 25, 2018	KZTS-AM (formerlyKDXE-AM), Little Rock, Arkansas (asset purchase)		210
July 24, 2018	Childrens-Ministry-Deals.com (business acquisition)		3,700
June 25, 2018	KDXE-FM (formerlyKZTS-FM), Little Rock, Arkansas (business acquisition)		1,100
April 19, 2018	HearItFirst.com (asset purchase)		70

		$	11,180


	Net Broadcast Assets Acquired		Net Digital Assets Acquired			Net Total Assets
	(Dollars in thousands)
Assets
Property and equipment	$	371	$	715		$	1,086
Broadcast licenses		6,281		—			6,281
Goodwill		7		986			993
Customer lists and contracts		—		1,882			1,882
Domain and brand names		—		1,252			1,252
Subscriber base and lists		—		875			875
Non-compete agreements		—		19			19
Other amortizable intangible assets		—		334			334

	$	6,659	$	6,063		$	12,722

Liabilities
Contract liabilities, long-term	$	—	$	(1,542	)	$	(1,542	)

	$	6,659		4,521			11,180


Broadcast Licenses	Twelve Months Ended December 31, 2017			Nine Months Ended September 30, 2018
	(Dollars in thousands)
Balance, beginning of period before cumulative loss on impairment	$	494,058		$	486,455
Accumulated loss on impairment		(105,541	)		(105,541	)

Balance, beginning of period after cumulative loss on impairment		388,517			380,914

Acquisitions of radio stations		191			6,270
Acquisitions of FM translators and construction permits		198			11
Capital projects to improve broadcast signal and strength		5			—
Dispositions of radio stations		(7,997	)		(8,013	)

Balance, end of period before cumulative loss on impairment		486,455			484,723

Accumulated loss on impairment		(105,541	)		(105,541	)

Balance, end of period after cumulative loss on impairment	$	380,914		$	379,182


Goodwill	Twelve Months Ended December 31, 2017			Nine Months Ended September 30, 2018
	(Dollars in thousands)
Balance, beginning of period before cumulative loss on impairment	$	27,642		$	28,453
Accumulated loss on impairment		(2,029	)		(2,029	)

Balance, beginning of period after cumulative loss on impairment		25,613			26,424

Acquisitions of radio stations		14			7
Acquisitions of digital media entities		810			986
Dispositions of radio stations		—			(628	)
Sale of income generating broadcast business		(13	)		—

Balance, end of period before cumulative loss on impairment		28,453			28,818

Accumulated loss on impairment		(2,029	)		(2,029	)

Ending period balance	$	26,424		$	26,789


	December 31, 2017
	Cost		Accumulated Amortization			Net
	(Dollars in thousands)
Customer lists and contracts	$	22,865	$	(20,888	)	$	1,977
Domain and brand names		20,109		(14,650	)		5,459
Favorable and assigned leases		2,379		(2,028	)		351
Subscriber base and lists		8,797		(4,701	)		4,096
Author relationships		2,771		(2,237	)		534
Non-compete agreements		2,029		(1,342	)		687
Other amortizable intangible assets		1,333		(1,333	)		—

	$	60,283	$	(47,179	)	$	13,104


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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2018			2017			2018
	(Dollars in thousands)						(Dollars in thousands)
Stock option compensation expense included in unallocated corporate expenses	$	27		$	120		$	126		$	220
Restricted stock shares compensation expense included in unallocated corporate expenses		225			—			1,100			—
Stock option compensation expense included in broadcast operating expenses		7			40			41			82
Restricted stock shares compensation expense included in broadcast operating expenses		—			—			224			—
Stock option compensation expense included in digital media operating expenses		6			27			25			50
Restricted stock shares compensation expense included in digital media operating expenses		—			—			124			—
Stock option compensation expense included in publishing operating expenses		3			4			17			11
Restricted stock shares compensation expense included in publishing operating expenses		—			—			36			—

Total stock-based compensation expense,pre-tax	$	268		$	191		$	1,693		$	363

Tax expense for stock-based compensation expense		(107	)		(49	)		(677	)		(94	)

Total stock-based compensation expense, net of tax	$	161		$	142		$	1,016		$	269


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


	December 31, 2017			September 30, 2018
	(Dollars in thousands)
6.75% Senior Secured Notes	$	255,000		$	245,000
Less unamortized debt issuance costs based on imputed interest rate of 7.08%		(5,774	)		(4,867	)

6.75% Senior Secured Notes net carrying value		249,226			240,133

Asset-Based Revolving Credit Facility principal outstanding		9,000			10,200
Capital leases and other loans		462			77

Long-term debt and capital lease obligations less unamortized debt issuance costs		258,688			250,410
Less current portion		(9,109	)		(10,228	)

Long-term debt and capital lease obligations less unamortized debt issuance costs, net of current portion	$	249,579		$	240,182

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

Emerging Growth Company