Salem Media Group, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Dec. 31, 2015

NOTE 10. INCOME TAXES

We account for income taxes in accordance with FASB ASC Topic 740 “Income Taxes.” Deferred income taxes are determined based on the difference between the consolidated financial statement and income tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Our evaluation was performed for tax years that remain subject to examination by major tax jurisdictions, which range from 2011 through 2014.

During 2015, we recognized a net decrease of $0.4 million in liabilities and at December 31, 2015, had $0.1 million in liabilities for unrecognized tax benefits. Included in this liability amount is approximately $20,000 of accrued interest, net of federal income tax benefits, and $6,000 for the related penalties recorded in income tax expense on our consolidated financial statements included in this annual report on Form 10-K.

A summary of the changes in the gross amount of unrecognized tax benefits is as follows:

	December 31, 2015
	(Dollars in thousands)
Balance at January 1, 2015	$	508
Additions based on tax positions related to the current year
Additions based on tax positions related to prior years
Reductions related to tax positions of prior years
Decrease due to statute expirations		(417)
Related interest and penalties, net of federal tax benefits		9
Balance as of December 31, 2015	$	100

The consolidated provision (benefit) for income taxes from continuing operations for Salem consisted of the following:

	December 31,
	2013		2014		2015
	(Dollars in thousands)
Current:
Federal	$		$		$
State		193		269		249
		193		269		249
Deferred:
Federal		(1,075)		3,932		6,234
State		(3,310)		564		212
		(4,385)		4,496		6,446
Provision for (benefit from) income taxes	$	(4,192)	$	4,765	$	6,695

Discontinued operations are reported net of the tax benefit of $(0.02) million in 2013.

The consolidated deferred tax asset and liability consisted of the following:

	December 31,
	2014		2015

	(Dollars in thousands)
Deferred tax assets:
Financial statement accruals not currently deductible	$	8,045	$	9,699
Net operating loss, AMT credit and other carryforwards		72,618		71,593
State taxes		108		114
Other		3,821		3,785
Total deferred tax assets		84,592		85,191
Valuation allowance for deferred tax assets		(2,952)		(2,771)
Net deferred tax assets	$	81,640	$	82,420
Deferred tax liabilities:
Excess of net book value of property and equipment and software for financial reporting purposes over tax basis	$	3,000	$	2,826
Excess of net book value of intangible assets for financial reporting purposes over tax basis		118,773		127,078
Interest rate swap		187		(315)
Unrecognized tax benefits		508		100
Other		128
Total deferred tax liabilities		122,596		129,689
Net deferred tax liabilities	$	(40,956)	$	(47,269)

The consolidated provision (benefit) for income taxes from continuing operations for Salem consisted of the following:

	December 31,
	2013		2014		2015

	(Dollars in thousands)
Current:
Federal	$		$		$
State		193		269		249
		193		269		249
Deferred:
Federal		(1,075)		3,932		6,234
State		(3,310)		564		212
		(4,385)		4,496		6,446
Provision for (benefit from) income taxes	$	(4,192)	$	4,765	$	6,695

Discontinued operations are reported net of the tax benefit of $(0.02) million in 2013.

The consolidated deferred tax asset and liability consisted of the following:

	December 31,
	2014		2015

	(Dollars in thousands)
Deferred tax assets:
Financial statement accruals not currently deductible	$	8,045	$	9,699
Net operating loss, AMT credit and other carryforwards		72,618		71,593
State taxes		108		114
Other		3,821		3,785
Total deferred tax assets		84,592		85,191
Valuation allowance for deferred tax assets		(2,952)		(2,771)
Net deferred tax assets	$	81,640	$	82,420
Deferred tax liabilities:
Excess of net book value of property and equipment and software for financial reporting purposes over tax basis	$	3,000	$	2,826
Excess of net book value of intangible assets for financial reporting purposes over tax basis		118,773		127,078
Interest rate swap		187		(315)
Unrecognized tax benefits		508		100
Other		128
Total deferred tax liabilities		122,596		129,689
Net deferred tax liabilities	$	(40,956)	$	(47,269)

The following table reconciles the above net deferred tax liabilities to the financial statements:

	December 31,
	2014		2015
	(Dollars in thousands)
Deferred income tax asset per balance sheet	$	8,153	$	9,813
Deferred income tax liability per balance sheet		(49,109)		(57,082)
	$	(40,956)	$	(47,269)

A reconciliation of the statutory federal income tax rate to the provision for income tax is as follows:

	Year Ended December 31,
	2013		2014		2015
	(Dollars in thousands)
Statutory federal income tax rate (at 35%)	$	(2,411)	$	3,584	$	6,246
Effect of state taxes, net of federal		(2,025)		542		300
Permanent items		270		613		445
Other, net		(26)		26		(296)
Provision for income taxes	$	(4,192)	$	4,765	$	6,695

At December 31, 2015, we had net operating loss carryforwards for federal income tax purposes of approximately $156.2 million that expire in 2020 through 2034 and for state income tax purposes of approximately $981.0 million that expire in years 2016 through 2034. For financial reporting purposes at December 31, 2015, we had a valuation allowance of $2.8 million, net of federal benefit, to offset a portion of the deferred tax assets related to state net operating loss carryforwards that may not be realized.