NOTE 3. ACQUISITIONS AND RECENT TRANSACTIONS

During the year ended December 31, 2018, we completed or entered into the following transactions:

2018 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 year ended December 31, 2018:

 

Date		Principal Repurchased				Cash Paid				% of Face Value				Bond Issue Costs				Net Gain
		(Dollars in thousands)
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
		$	16,430			$	15,443

2018 Equity Transactions

Based upon their current assessment of our business, our Board of Directors’ declared equity distributions as follows:

 

Announcement Date

Record Date

Payment Date

Amount Per Share

Cash Distributed (in thousands)

November 26, 2018

December 7, 2018

December 21, 2018

$

0.0650

$

1,702

September 5, 2018

September 17, 2018

September 28, 2018

0.0650

1,702

May 31, 2018

June 15, 2018

June 29, 2018

0.0650

1,701

February 28, 2018

March 14, 2018

March 28, 2018

0.0650

1,701

$ 6,806

 

2018 Acquisitions—Broadcast

On September 11, 2018, we acquired radio station KTRB-AM in San Francisco for $5.1 million in cash from a related party. The acquisition was accounted for as an asset purchase to include $0.2 million of transaction costs. We operated the radio station under an LMA that began on June 24, 2016. The accompanying 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 July 25, 2018, we acquired radio station KZTS-AM (formerly KDXE-AM) and an FM Translator in Little Rock, Arkansas for $0.2 million in cash. The acquisition was accounted for as an asset purchase to include $30,000 of transaction cost. The radio station is currently operated under an LMA agreement with another party and is not reflected in the accompanying Consolidated Statements of Operations.

On June 25, 2018, we acquired KDXE-FM (formerly KZTS-FM) in Little Rock, Arkansas for $1.1 million in cash. We operated the radio station under an LMA beginning 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 Consolidated Statements of Operations reflect the operating results of this station as of the LMA date within the broadcast operating segment.

2018 Acquisitions—Digital Media

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 may pay up to an additional $0.1 million of contingent earn-outconsideration over the next two years based on the achievement of certain revenue 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 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 year earn-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. 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 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 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 year earn-out period.

On July 24, 2018, we acquired the Childrens-Ministry-Deals.com website and related assets for $3.7 million in cash. 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 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 year ended December 31, 2018, none of which were individually or in the aggregate material to our consolidated financial position as of the respective date of acquisition, is as follows:

 

Acquisition Date		Description		Total Consideration
				(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 (formerly KDXE-AM), Little Rock, Arkansas (asset purchase)			210
July 24, 2018		Childrens-Ministry-Deals.com (business acquisition)			3,700
June 25, 2018		KDXE-FM (formerly KZTS-FM), Little Rock, Arkansas (business acquisition)			1,100
April 19, 2018		HearItFirst.com (asset purchase)			70
				$	11,180

Costs associated with business acquisitions, such as consulting and legal fees, are expensed as incurred. During the year ended December 31, 2018, we recognized costs associated with acquisitions of $0.2 million, which are included in unallocated corporate expenses in the accompanying Consolidated Statements of Operations compared to $0.1 million in the same period of the prior year.

The total acquisition consideration is equal to the sum of all cash payments, the fair value of any deferred payments and promissory notes, and the present value of any estimated contingent earn-out consideration. We estimate the fair value of contingent earn-out consideration using a probability-weighted discounted cash flow model. The fair value measurement is based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in Note 12—Fair Value Measurements.

The following table summarizes the total acquisition consideration for the year ended December 31, 2018:

 

Description		Total Consideration
		(Dollars in thousands)
Cash payments made upon closing		$	10,854
Deferred payments			150
Present value of estimated fair value of contingent earn-out consideration			51
Closing costs accrued for asset acquisitions			125
Total purchase price consideration		$	11,180

 

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

 

		Net Broadcast Assets				Net Digital Assets				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

Divestitures

On October 31, 2018, we closed on the sale of radio stations KCRO-AM and KOTK-AM in Omaha, Nebraska for $1.4 million in cash. The buyer began programming the stations under an LMA on August 8, 2018. Based on our plan to sell the stations, we recorded an estimated pre-tax loss on the sale of assets of $1.6 million at June 30, 2018, reflecting the sales price as compared to the carrying value of the assets and the estimated cost to sell. We recorded an additional loss of $0.1 million at closing based on the final agreement and actual costs. The buyer began programming the stations under an LMA on August 8, 2018. The accompanying Consolidated Statements of Operations excludes the operating results of this station as of the LMA date from the broadcast operating segment.

On August 28, 2018, we closed on the sale of radio station WQVN-AM (formerly WKAT-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 estimated pre-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 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 station KGBI-FM in Omaha, Nebraska for $3.2 million in cash. We recorded an estimated pre-tax loss on the sale of $3.2 million since June 30, 2018, based on the sales price as compared to the carrying value of the assets and the estimated cost to sell. At 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 Consolidated Statements of Operations excludes the operating results of this station as of the closing date from the broadcast operating segment.

On June 28, 2018, we closed on the sale of land in Lakeside, California for $0.3 million in cash.

On June 20, 2018, we closed on the sale of radio station WBIX-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 a pre-tax gain on the sale of $0.2 million. The accompanying 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 in cash. 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.

2018—Other Transactions

On April 30, 2018, we ceased programming radio station KHTE-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 Consolidated Statements of Operations reflect the operating results of this station as of the LMA date within the broadcast operating segment.

On January 2, 2018, we began programming radio stations KPAM-AM and KKOV-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 station KPAM-AM. The accompanying Consolidated Statements of Operations reflects the operating results of these stations during the LMA terms.

Pending Transactions

On April 26, 2018, we entered an agreement to exchange radio station KKOL-AM, in Seattle, Washington for KPAM-AM in Portland, Oregon. We are currently operating radio station KPAM-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.

During the year ended December 31, 2017, we completed or entered into the following transactions:

2017 Debt Transactions

On May 19, 2017, we closed on a private offering of $255.0 million aggregate principal amount of 6.75% senior secured notes due 2024 (the “Notes”) and concurrently entered into a five-year $30.0 million senior secured asset-based revolving credit facility, which includes a $5.0 million subfacility for standby letters of credit and a $7.5 million subfacility for swingline loans (“ABL Facility”) due May 19, 2022. The net proceeds from the offering of the Notes, together with borrowings under the ABL Facility, were used to repay outstanding borrowings, including accrued and unpaid interest, on our previously existing senior credit facilities consisting of a term loan (“Term Loan B”) and a revolving credit facility of $25.0 million (“Revolver”), and to pay fees and expenses incurred in connection with the Notes offering and the ABL Facility (collectively, the “Refinancing”).

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

 

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

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

2017 Equity Transactions

Based upon their then current assessment of our business, our Board of Directors’ declared equity distributions as follows:

 

Announcement Date		Record Date				Payment Date				Amount Per Share				Cash Distributed (in thousands)
December 7, 2017			December 18, 2017				December 29, 2017			$	0.0650			$	1,701
September 12, 2017			September 22, 2017				September 29, 2017			$	0.0650			$	1,701
June 1, 2017			June 16, 2017				June 30, 2017			$	0.0650			$	1,697
March 9, 2017			March 20, 2017				March 31, 2017			$	0.0650			$	1,691
														$	6,790

On August 9, 2017, a restricted stock award of 33,066 shares was granted to an executive that vested immediately. The fair value of the restricted stock award was measured based on the grant date market price of our common shares and expensed as of the vesting date. The restricted stock award contained transfer restrictions under which they could not be sold, pledged, transferred or assigned until 90 days from the vesting date. The recipient of this restricted stock award is entitled to all of the rights of absolute ownership of the restricted stock from the date of grant, including the right to vote the shares and to receive dividends. Restricted stock awards are independent of option grants and are granted at no cost to the recipient other than applicable taxes owed by the recipient. The award was considered issued and outstanding from the vest date of grant.

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

2017 Acquisitions—Broadcast

On November 22, 2017, we closed on the acquisition of radio station WSPZ-AM (now WWRC-AM) in Bethesda, Maryland for $0.6 million in cash from a related party. We began programming the station under an LMA within our Washington DC broadcast market on September 15, 2017. The accompanying Consolidated Statement of Operations reflects the operating results of this station as of the LMA date within our broadcast segment.

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

 

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

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

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

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

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

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

2017 Acquisitions—Digital Media

On August 31, 2017, we acquired the TeacherTube.com website and related assets for $1.1 million in cash. TeacherTube.com is an online instructional video sharing community for teachers, students and parents.

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

On July 6, 2017, we acquired the TradersCrux.com website and related assets for $0.3 million in cash. As part of the purchase agreement, we may pay up to an additional $0.1 million in contingent earn-out consideration within one year upon the achievement of income benchmarks.

On June 8, 2017, we acquired a Portuguese Bible mobile application and related assets for $65,000 in cash. As part of the purchase agreement, we may pay up to an additional $20,000 in contingent earn-out consideration over the next twelve months based on the achievement of certain revenue benchmarks.

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

 

A summary of our business acquisitions and asset purchases during the year ended December 31, 2017, none of which were individually or in the aggregate material to our consolidated financial position as of the respective date of acquisition, is as follows:

 

Acquisition Date		Description		Total Cost
				(Dollars in thousands)
November 22, 2017		WWRC-AM (formerly WSPZ-AM) in Bethesda, Maryland (business acquisition)		$	620
September 15, 2017		Real property of radio station WSPZ-AM in Bethesda, Maryland (business acquisition)			1,500
August 31, 2017		TeacherTube.com (business acquisition)			1,100
August 31, 2017		Intelligence Reporter newsletter (business acquisition)			—
July 24, 2017		FM Translator construction permit, Eaglemount, Washington (asset acquisition)			40
July 6, 2017		TradersCrux.com (business acquisition)			298
June 28, 2017		FM Translator construction permit, Festus, Missouri (asset acquisition)			40
June 8, 2017		Portuguese Bible Mobile Applications (business acquisition)			82
March 15, 2017		Prayers for Special Help (business acquisition)			245
March 14, 2017		FM Translator construction permit, Quartz Site, Arizona (asset purchase)			20
March 1, 2017		FM Translator construction permit, Roseburg, Oregon (asset purchase)			45
January 16, 2017		FM Translator, Astoria, Oregon (asset purchase)			33
January 1, 2017		FM Translator construction permit, Mohave Valley, Arizona (asset purchase)			20
				$	4,043

The following table summarizes the total acquisition consideration for the year ended December 31, 2017:

 

Description		Total Consideration
		(Dollars in thousands)
Cash payments made upon closing		$	3,972
Escrow deposits paid in prior years			35
Present value of estimated fair value of contingent earn-out consideration			36
Total purchase price consideration		$	4,043

 

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

 

		Net Broadcast Assets Acquired				Net Digital Media Assets Acquired				Total Net Assets
		(Dollars in thousands)
Assets
Property and equipment		$	1,915			$	479			$	2,394
Broadcast licenses			389				—				389
Goodwill			14				810				824
Customer lists and contracts			—				314				314
Domain and brand names			—				647				647
Subscriber base and lists			—				2,316				2,316
Non-compete agreements			—				11				11
		$	2,318			$	4,577			$	6,895
Liabilities
Deferred revenue		$	—				(2,852	)			(2,852	)
		$	2,318			$	1,725			$	4,043

2017 Divestitures

On December 28, 2017, we sold real property, including the land, tower and broadcasting facilities, of radio station WSPZ-AM (now WWRC-AM) in Bethesda, Maryland for $1.9 million in cash. We recorded a pre-tax gain on the sale of approximately $0.4 million.

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

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 delivery of the May 2017 print publications. On May 30, 2017, we received $10,000 in cash for Preaching Magazine^™ and YouthWorker Journal^™. The purchaser assumed all deferred subscription liabilities for these publications resulting in a pre-tax gain on the disposition of assets of approximately $56,000.

On January 3, 2017, Word Broadcasting began operating our Louisville radio stations (WFIA-AM; WFIA-FM; WGTK-AM) under a twenty-four month TBA. We received $0.5 million in cash associated with an option for Word Broadcasting Network to acquire the radio stations during the term.