: 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 the Broadcast Calendar or at calendar month end, as applicable, with standard payments terms of thirty days.

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 until all collection efforts have been exhausted, including use of a collection 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.

We account for property and equipment in accordance with FASB ASC Topic “.” Property and equipment are recorded at cost less accumulated depreciation. Cost represents the historical cost of acquiring the asset, including the costs necessarily incurred to bring it to the condition and location necessary for its intended use. For assets constructed for our own use, such as towers and buildings that are discrete projects for which costs are separately accumulated and for which construction takes considerable time, we record capitalized interest. The amount capitalized is the cost that could have been avoided had the asset not been constructed and is based on the average accumulated expenditures incurred over the capitalization period at the weighted average rate applicable to our outstanding variable rate debt. We capitalized interest of $0.2 million and $0.1 million during the years ended December 31, 2019 and 2018. Repair and maintenance costs are charged to expense as incurred. Improvements are capitalized if they extend the life of the asset or enhance the quality or ability of the asset to benefit operations. Depreciation is computed using the straight-line method over estimated useful lives as follows:

We capitalize costs incurred during the application development stage related to the development of software as specified in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic “.” Capitalized costs are generally depreciated over the estimated useful life of three years. Costs incurred related to the conceptual design and maintenance of software are expensed as incurred. Website development activities include planning, design and development of graphics and content for new websites and operation of existing sites. Costs incurred that involve providing additional functions and features to the website are capitalized. Costs associated with website planning, maintenance, content development and training are expensed as incurred. We capitalized $2.7 million and $2.1 million during the years ended December 31, 2019, and 2018, related to internally developed software and website development costs. Depreciation expense of amounts capitalized was $2.6 million and $2.8 million for each of the years ending December 31, 2019, and 2018.

 

Debt issue costs are amortized to interest expense over the term of the agreement using the effective interest method.

We incurred debt issuance costs of $6.3 million that were recorded as a reduction of the Note proceeds that are being amortized to interest expense over the life of the Notes using the effective interest method. We incurred debt issue costs of $0.8 million that were recorded as an asset and are being amortized to interest expense over the term of the ABL Facility using the effective interest method. See Note 13, Long-Term Debt.

For financial reporting purposes, we recorded a valuation allowance of $13.0 million as of December 31, 2019 to offset the deferred tax assets related to the federal and state net operating loss carryforwards. As a result of our adjusted cumulative three-year book loss as of December 31, 2019, we performed a review of our valuation allowance. We recorded an increase to the valuation allowance of $7.6 million, for a total valuation allowance of $13.0 million.

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 year ended December 31, 2019, we recognized liabilities associated with uncertain tax positions around our subsidiary Salem Communications Holding Company’s Pennsylvania tax filing. The position taken on the tax returns follows Pennsylvania Notice which provides guidance for reversal of intercompany interest income and associated expense yielding a net loss for Pennsylvania. The current liability recognized for the tax position is $0.2m including interest and penalties. Our evaluation was performed for all tax years that remain subject to examination, which range from 2015 through 2018. On August 10, 2017, the City of New York began its audit of Salem’s 2013 and 2014 tax filings. On October 30, 2019, the City of New York finalized its audit of Salem’s 2013 and 2014 tax filings with no changes.

We account for business acquisitions in accordance with the acquisition method of accounting as specified in FASB ASC Topic 805 “.” 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. 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 consideration. Transactions that do not meet the definition of a business in ASU “ 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.

Our acquisitions may include contingent consideration as part of the purchase price under which we will make future payments to the seller upon the achievement of certain benchmarks. The fair value of the contingent 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 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, “ as Level 3 inputs discussed in detail in Note 14, Fair Value Measurements and Disclosures.

We review the probabilities of possible future payments to the estimated fair value of any contingent consideration on a quarterly basis over the 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 consideration liability will increase or decrease, up to the contracted limit, as applicable. Changes in the estimated fair value of the contingent consideration are reflected in our results of operations in the period in which they are identified. Changes in the estimated fair value of the contingent consideration may materially impact and cause volatility in our operating results.

We recorded a net decrease to our estimated contingent liabilities of $41,000 for the year ended December 31, 2019 and a net increase of $76,000 for the year ended December 31, 2018. The changes in our estimate reflect volatility from variables, revenue growth, page views session time in .

We account for stock-based compensation under the provisions of FASB ASC Topic 718, “.” 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 our options using the Black-Scholes option-pricing model that requires the input of highly subjective assumptions, including the expected stock price volatility and expected term of the options granted. The exercise price for options is equal to the closing market price of Salem Media Group common stock as of the date of grant. 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 stock options, or upon vesting or forfeiture of restricted stock awards, deferred tax assets for options and restricted stock awards with multiple vesting dates are eliminated for each vesting period on a basis as if each vesting period was a separate award. See Note 17, Stock Incentive Plan.

We adopted ASC 842 “,” on January 1, 2019 using the modified retrospective basis and did not restate comparative periods as permitted under Accounting Standards Update (“ASU”) ASC 842 supersedes nearly all existing lease accounting guidance under GAAP issued by the 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.

The adoption of ASC 842 resulted in recording a 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, Operating and Finance Lease Assets, for more information.

  

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 Form

 

We considered the applicability of the short-term exception on leases with perpetual or rolling renewals as we are “reasonably certain” to continue the lease. For example, we lease various storage facilities under agreements with 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 a rent or a security deposit if the termination terms are not adhered to.

We believe that these 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 exclude leases that have perpetually renewed.

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 Form

We elected to include the lease and 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 and components may not justify the benefit of more precisely reflecting the ROU asset and the lease liability.

Contracts that include lease and 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 associated components are not the same, are accounted for separately.

Accounting for a lease component of a contract and its associated 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.

 

We record gains or losses on the disposition of assets equal to the proceeds, if any, as compared to the net book value. Exchange transactions are accounted for in accordance with FASB ASC Topic 845 “.”

During the year ended December 31, 2019 we recorded a $9.4 million loss for the sale of radio stations in Atlanta, Georgia, in Boston, Massachusetts, in Cleveland, Ohio, (formerly in Dallas, Texas, in Denver, Colorado, in Houston, Texas, in San Antonio, Texas and and in St. Louis, Missouri, a $4.7 million loss from the sale of radio stations and in Tampa, Florida and and (formerly in Miami, Florida, a $3.8 million loss on the sale of radio station in Washington, D.C., a $1.6 million loss from the sale of radio station (formerly in Orlando, Florida, a $1.3 million loss on the exchange of radio station in Seattle, Washington for in Portland, Oregon, a $0.2 million loss on the sale Mike Turner’s line of investment products a $0.2 million loss on the sale of HumanEvents.com that was partially offset by a $0.4 million gain on the sale of a portion of land on our transmitter site in Miami, Florida and a $0.1 million gain on the sale of Newport Natural Health.

During the year ended December 31, 2018, we recorded a $4.7 million loss that includes a $2.4 million loss on the sale of radio station in Omaha, Nebraska, a $1.8 million loss on the sale of radio stations and in Omaha, Nebraska, a $0.3 million loss on the sale of land in Lakeside, California, and a $0.2 million loss on the sale of land in Covina, California offset by a $0.2 million gain on the sale of radio station in Boston, Massachusetts.

We regularly review underperforming assets to determine if a sale or disposal might be a better way to monetize the assets. When a station, group of stations, or other asset group is considered for sale or disposal, we review the transaction to determine if or when the entity qualifies as a discontinued operation in accordance with the criteria of FASB ASC Topic “.”

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, which are reported as unallocated corporate expenses in our consolidated statements of operations included in this annual report on Form We also exclude costs such as amortization, depreciation, taxes and interest expense.

We may enter into agreements or investments with other entities that could qualify as variable interest entities (“VIEs”) in accordance with FASB ASC Topic 810 “ (“ASC 810.”) 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 the VIE when or if events occur that could change the status of the VIE.

In January 2020, the FASB issued ASU “ (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).” ASU clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives. We will adopt this standard on its effective date of January 1, 2022. 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 December 2019, the FASB issued ASU ,” to simplify various aspects of accounting for income taxes. ASU removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. We will adopt this standard on its effective date of January 1, 2022. 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 November 2018, the FASB issued ASU “,” 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 fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. We this standard on its effective date of January 1, 2020.  adoption of this ASU  have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

In October 2018, the FASB issued ASU “,” 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  this standard on its effective date of January 1, 2020.  adoption of this ASU  have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

In August 2018, the FASB issued ASU “ ASU 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 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 this standard on its effective date of January 1, 2020. adoption of this ASU have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

In August 2018, the FASB issued ASU “ ASU 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 this standard on its effective date of January 1, 2020.  adoption of this ASU have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

In July 2018, the FASB issued ASU “.” ASU 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 consolidated financial position, results of operations, cash flows, or presentation thereof.

In June 2016, the FASB issued ASU “ which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, 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 debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. Subsequent to issuing ASU the FASB issued ASU “,” for the purpose of clarifying certain aspects of ASU ASU has the same effective date and transition requirements as ASU In April 2019, the FASB issued ASU “,” which is effective with the adoption of ASU In May 2019, the FASB issued ASU “,” which is also effective with the adoption of ASU In October 2019, the FASB voted to delay the implementation date for certain companies, including those that qualify as a smaller reporting company under SEC rules, until January 1, 2023, with revised ASU’s expected to be issued in November 2019. will adopt this ASU on its effective date of January 1, 2023. We do not expect the adoption of this ASU to have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.