NOTE 4. ACQUISITIONS AND RECENT TRANSACTIONS

 

During the three month period ending March 31, 2016, we completed or entered into the following transactions:

 

Debt

 

On March 31, 2016, we repaid $0.8 million in principal on our term loan of $300.0 million (“Term Loan B”) and paid interest due as of that date.

 

On March 17, 2016, we repaid $0.8 million in principal on our Term Loan B and paid interest due as of that date. We recorded a $9,000 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and $2,500 in bank loan fees associated with the principal repayment.

 

Related Party Transactions

 

On March 2, 2016, we entered into a related party lease with trusts created for the benefit of Edward G. Atsinger III, Chief Executive Officer, and Stuart W. Epperson, Chairman of the Board. The lease is for real property used to operate radio station KNUS-AM in Denver, Colorado. Our Nominating and Corporate Governance Committee reviewed the lease and lease terms 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.  

 

Acquisitions

 

On March 8, 2016, we acquired King James Bible mobile applications for $4.0 million of which $2.7 million of cash was paid upon close, $0.3 million is due upon finalization of banking arrangements for revenue receipts, $0.4 million is due 90 days from the closing date, and three deferred payments of $0.2 million each are due 180, 270 and 360 days from the closing date, respectively. We recorded goodwill of $0.2 million associated with the expected synergies to be realized from combining the operations of these applications into our existing digital platform. The accompanying consolidated statement of operations reflects the operating results of King James Bible mobile applications as of the closing date within our digital media operating segment.

 

Throughout the three month period ending March 31, 2016, we acquired domain names and other assets associated within our publishing operating segment for approximately $3,300 in cash.

 

A summary of our business acquisitions and asset purchases during the three month period ended March 31, 2016, 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)
March 8, 2016		King James Bible mobile applications (business acquisition)		$	4,000
Various		Purchase of domain names and assets for use in publishing business (asset purchases)			3
				$	4,003

 

The operating results of our business acquisitions and asset purchases are included in our condensed consolidated results of operations from their respective closing date or the date that we began operating them under an LMA or TBA. Under the acquisition method of accounting as specified in FASB ASC Topic 805, “Business Combinations,” the total acquisition consideration is allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the date of the transaction.

 

Estimates of the fair value include discounted estimated cash flows to be generated by the assets and their expected useful lives based on historical experience, market trends and 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 acquired net assets as of the acquisition date. As part of the valuation and appraisal process, the third-party appraiser prepares a report assigning estimated fair values to the various asset categories in our financial statements. 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 net assets acquired.

 

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 acquisitions, such as consulting and legal fees are expensed as incurred in corporate operating expenses. We recognized costs associated with acquisitions of $0.1 million during the three month period ending March 31, 2016 compared to $0.2 million during the same period of the prior year, which are included in unallocated corporate expenses 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. 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 15 -Fair Value Measurements. The following table summarizes the total acquisition consideration for the three month period ending March 31, 2016:

 

Description		Total Consideration
		(Dollars in thousands)
Cash payments		$	2,703
Deferred payments			1,300
Total purchase price consideration		$	4,003

 

The total acquisition consideration was allocated to the net assets acquired as follows:

 

		Net Digital Media			Net Publishing			Net Total
		Assets Acquired			Assets Acquired			Assets Acquired
		(Dollars in thousands)
Assets
Property and equipment		$	360		$	—		$	360
Goodwill			221			—			221
Domain and brand names			736			3			739
Customer lists and contracts			2,394			—			2,394
Non-compete agreements			289			—			289
		$	4,000		$	3		$	4,003

 

Pending Transactions

 

On February 22, 2016, we entered an APA to acquire an FM Translator in Amherst, New York for $60,000 in cash. The transaction is expected to close in the second quarter half of 2016.

 

On January 27, 2016, we entered an APA to acquire a construction permit for an FM Translator in Charlotte, Michigan for $50,000 in cash. The transaction is expected to close in the second quarter of 2016.

 

On January 27, 2016, we entered an APA to acquire a construction permit for an FM Translator in Kerrville, Texas for $50,000 in cash. The transaction is expected to close in the second quarter of 2016.

 

On January 25, 2016, we entered an APA to acquire an FM Translator in Lincoln, Maine for $100,000 in cash. The transaction closed on May 2, 2016.

 

On January 25, 2016, we entered an APA to acquire a construction permit for an FM Translator in Atwood, Kentucky for $88,000 in cash. The transaction is expected to close in the second quarter of 2016.

 

On January 25, 2016, we entered an APA to acquire a construction permit for an FM Translator in Emporia, Kansas for $25,000 in cash. The transaction closed on April 29, 2016.

 

On December 15, 2015, we entered an APA to acquire an FM Translator in Columbus, Ohio for $0.4 million in cash. The transaction is expected to close in the second quarter of 2016.

 

We also have the option to acquire radio station KHTE-FM, Little Rock, Arkansas, for $1.2 million in cash during our 36-month TBA that is extendable to 48 months. The TBA began on April 1, 2015, at which time we began programming the station. The accompanying condensed consolidated statements of operations included in this quarterly report on Form 10-Q reflect the operating results of this entity as of the TBA date.