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

Quarterly report pursuant to Section 13 or 15(d)

Business and Basis of Presentation (Policies)

Business and Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2021

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 17 – Segment Data.

Impact Of The COVID19 Pandemic

Impact of the

COVID-19

Pandemic

The

COVID-19

global pandemic that began in March 2020 materially impacted our business. We experienced a rapid decline in revenue from advertising, programming, events and book sales. Several advertisers reduced or ceased advertising spending due to the outbreak and

stay-at-home

orders that effectively shut many businesses down. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who were particularly hard hit due to social distancing and government interventions, and our publishing segment, which derives revenue from book sales through retail stores and live events.

While we see progress being made in revenue returning to

pre-pandemic

levels, the

COVID-19

pandemic continues to create significant uncertainty and disruption in the economy. These uncertainties could materially impact significant accounting estimates related to, but not limited to, allowances for doubtful accounts, impairments and

right-of-use assets.

As a result, many estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.

During 2020 we implemented several measures to reduce costs and conserve cash to ensure that we had adequate cash to meet our debt servicing requirements, including:

•

limiting capital expenditures;

•

reducing discretionary spending, including travel and entertainment;

•

eliminating open positions and freezing new hires;

•

reducing staffing levels;

•

implementing temporary company-wide pay cuts of 5%, 7.5% or 10% depending on salary level;

•

furloughing certain employees;

•

temporarily suspending the company 401(k) match;

•

requesting rent concessions from landlords;

•

requesting discounts from vendors;

•

offering early payment discounts to certain customers in exchange for advance cash payments; and

•

suspending the payment of distributions on our common stock indefinitely.

As the economy continues to show signs of recovery, many of these cost reduction initiatives were reversed during 2021. We continue to operate with lower staffing levels, we have not reinstated the company 401(k) match and we have not paid equity distributions on our common stock.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act provided emergency economic assistance for individuals and businesses impacted by the

COVID-19

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

•

we deferred $3.3 million of employer FICA taxes from April 2020 through December 2020, with 50% payable in December 2021 recorded in accrued compensation and related expenses and 50% payable in December 2022 recorded in other long-term liabilities;

•

relaxation of interest expense deduction limitation for income tax purposes;

•

we received Paycheck Protection Program (“PPP”) loans of $11.2 million in total during the first quarter of 2021 through the Small Business Association (“SBA”) based on the eligibility as determined on a

per-location

basis; and

•

In July 2021, the SBA forgave all but $20,000 of the PPP loans, with the remaining PPP loan repaid in July 2021.

Basis Of Presentation

Basis of Presentation

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

Information with respect to the three and nine months ended September 30, 2021 and 2020 is unaudited. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form

10-Q

and Article 10 of Regulation

S-X.

Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations and cash flows of the company. The unaudited interim financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report for Salem filed on Form

10-K

for the year ended December 31, 2020. Our results are subject to seasonal fluctuations and therefore, the results of operations for the interim periods presented are not necessarily indicative of the results of operations for a full year.

The balance sheet at December 31, 2020 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. Certain reclassifications have been made to the prior year financial statements to conform to the presentation in the current year, which had no impact on the previously reported financial statements.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results can be materially different from these estimates and assumptions.

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 contingent

earn-out

consideration;

•

fair value measurements;

•

contingency reserves;

•

allowance for doubtful accounts;

•

sales returns and allowances;

•

barter transactions;

•

inventory obsolescence;

•

reserves for royalty advances;

•

fair value of equity awards;

•

self-insurance reserves;

•

estimated lives for tangible and intangible assets;

•

assessment of contract-based factors, asset-based factors, entity-based factors and market-based factors to determine the lease term impacting

Right-Of-Use

(“ROU”) assets and lease liabilities;

•

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

Recent Accounting Pronouncements

All new accounting pronouncements that are in effect that may impact our financial statements have been implemented. We do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position, results of operations or cash flows