Salem Media Group, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Recent Transactions

Recent Transactions

9 Months Ended

Sep. 30, 2020

Text Block [Abstract]

Recent Transactions

NOTE 3. RECENT TRANSACTIONS

During the nine months ended September 30, 2020, we completed or entered into the following transactions:

Debt Transactions

On April 7, 2020, we amended the Asset Based Loan (“ABL”) Facility to increase the advance rate on eligible accounts receivable from 85% to 90% and

to extend the maturity date from May 19, 2022 to March 1, 2024. The April 7, 2020 amendment allows for an alternative benchmark rate that may include SOFR due to LIBOR being scheduled to be discontinued at the end of calendar year 2021.

We completed repurchases of $3.5 million of the 6.75% Senior Secured Notes (“Notes”) for $3.4 million in cash, recognizing a net gain of $49,000 after adjusting for bond issuance costs as detailed in Note 13 – Long-Term Debt.

Equity Transactions

Distributions of $0.7 million ($0.025 per share) were declared and paid in March 2020 based upon our Board of Directors’ (“Board”) then current assessment of our business as detailed in Note 18 – Equity Transactions.

Acquisitions

On September 15, 2020, we acquired the Hyper Pixels Media website and related assets for $1.1 million in cash. We paid $0.4 million in cash upon closing with deferred payments of $0.4 million due January 31, 2021 and $0.3 million due September 15, 2021. We recorded goodwill of approximately $0.1 million associated with the expected synergies to be realized upon combining the operations of Journeyboxmedia.com into our digital media platform within Salem Web Network (“SWN”) and from brand loyalty from its existing subscriber base that is not a separately identifiable intangible asset. The accompanying Condensed Consolidated Statement of Operations reflects the operating results of this entity as of the closing date within our digital media segment.

A summary of our business acquisitions and asset purchases during the nine month

ended September 30, 2020, none of which were individually or in the aggregate material to our Condensed Consolidated financial position as of the respective date of acquisition, is as follows:


Acquisition Date	Description	Total Cost
		(Dollars in thousands)
September 15, 2020	Hyper Pixels (business acquisition)	$	1,108

		$	1,108

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 ASU

2017-01

Business 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.

Fair value estimates include the discounted cash flows expected to be generated by the assets over their expected useful lives based on historical experience, market trends and the impact of 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 net assets acquired as of the acquisition date. As part of this 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 $0.1 million during the nine

month period ended September 30, 2020 compared to $48,000 during the same period of the prior year, which are included in unallocated corporate expenses or broadcast operating expense based on the nature of the acquisition 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 contingent

earn-out

consideration. We estimate the fair value of contingent

earn-out

consideration using a probability-weighted discounted cash flow model as discussed in Note 4 – Contingent Earn Out Consideration. 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 14 - Fair Value Measurements.

The following table summarizes the total acquisition consideration for the nine

month

ended September 30, 2020:


Description	Total Consideration
	(Dollars in thousands)
Cash payments made upon closing	$	400
Deferred payments		700
Closing costs accrued for business acquisitions		8

Total purchase price consideration	$	1,108

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


	Net Digital Media Assets Acquired			Net Total Assets Acquired
Assets
Property and equipment	$	866		$	866
Goodwill		66			66
Customer lists and contracts		179			179
Domain and brand names		18			18

	$	1,129		$	1,129

Liabilities
Contract liabilities	$	(21	)	$	(21	)

	$	1,108		$	1,108

Divestitures

On April 6, 2020, we sold radio station

WBZW-AM

and an FM translator construction permit in Orlando, Florida, for $0.2 million in cash. We recognized an estimated

pre-tax

loss of approximately $1.5 million during the three months ended December 31, 2019, which reflects the sale price as compared to the carrying value of the assets less the estimated closing costs.

Pending Transactions

On September 10, 2020, we entered an Asset Purchase Agreement (“APA”) to sell radio station

WKAT-AM

and an FM translator in Miami, Florida, for $3.5 million in cash. We will exit the Miami market upon the close of this transaction. We entered a Local Marketing Agreement (“LMA”) under which the buyer will begin programming the station in November 2020. We recognized an estimated

pre-tax

loss of $1.4 million during the three

month period end

September 30, 2020, which reflects the sale price as compared to the carrying value of the assets sold, the estimated closing costs, and the

write-off

of the remaining Miami assets as a result of exiting this market. This transaction is subject to the approval of the FCC and is expected to close

later

in 2021.

On February 5, 2020, we entered an APA with Word Broadcasting to sell radio stations

WFIA-AM,

WFIA-FM

and

WGTK-AM

in Louisville, Kentucky for $4.0 million with a $250,000 credit applied to the sale price if closing occurred before March 31, 2020. Additionally, Word Broadcasting would receive a credit toward the purchase price of a sum equal to the monthly fees paid under a Time Brokerage Agreement (“TBA”) that began in January 2017 for months

4-29

of the TBA and a sum equal to $2,000 per month for each monthly fee payment for months 30 and thereafter of the TBA; and a credit of the $450,000 option payment. Due to changes in debt markets, the transaction was not funded, and it is uncertain when, or if, the transaction will close. Word Broadcasting continues to program the stations under the TBA.