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Table of Contents
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
                    
TO
                    
COMMISSION FILE NUMBER
000-26497
SALEM MEDIA GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
 
 
LOGO
 
DELAWARE
 
77-0121400
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
 
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
   
6400 NORTH BELT LINE ROAD
IRVING, TEXAS
 
75063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
(ZIP CODE)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (469)
586-0080
 
Title of each Class
 
Trading Symbol(s)
 
Name of each exchange
on which registered
Class A Common Stock, $0.01 par value per share
 
SALM
 
NASDAQ Global Market
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated
filer
     Smaller Reporting Company  
       
         Emerging Growth Company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class A
  
Outstanding at May 2, 2022
Common Stock, $0.01 par value per share    21,661,091 shares
   
Class B
  
Outstanding at May 2, 2022
Common Stock, $0.01 par value per share    5,553,696 shares
 
 
 

Table of Contents
SALEM MEDIA GROUP, INC.
INDEX
 
     PAGE NO.  
COVER PAGE
        
INDEX
        
     2  
PART I - FINANCIAL INFORMATION
        
     3  
     29  
     46  
     46  
PART II - OTHER INFORMATION
        
     47  
     47  
     47  
     47  
     47  
     47  
     47  
     47  
     49  
 
1

Table of Contents
CERTAIN DEFINITIONS
Unless the context requires otherwise, all references in this report to “Salem” or the “company,” including references to Salem by “we” “us” “our” and “its” refer to Salem Media Group, Inc. and our subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Salem makes “forward-looking statements” from time to time in both written reports (including this annual report) and oral statements, within the meaning of federal and state securities laws. Disclosures that use words such as the company “believes,” “anticipates,” “estimates,” “expects,” “intends,” “will,” “may,” “could,” “would,” “should,” “seeks,” “predicts,” or “plans” and similar expressions are intended to identify forward-looking statements, as defined under the Private Securities Litigation Reform Act of 1995.
You should not place undue reliance on these forward-looking statements, which reflect our expectations based upon data available to the company as of the date of this annual report. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Except as required by law, the company undertakes no obligation to update or revise any forward-looking statements made in this annual report. Any such forward-looking statements, whether made in this annual report or elsewhere, should be considered in context with the various disclosures made by Salem about its business. These projections and other forward-looking statements fall under the safe harbors of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”).
 
2

Table of Contents
PART I – FINANCIAL INFORMATION
SALEM MEDIA GROUP, INC.
 
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
3

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)

                 
     December 31, 2021
(Note 1)
   
March 31, 2022

(Unaudited)
 
ASSETS
                
Current assets:
                
Cash and cash equivalents
   $ 1,785    
$
  
 
Accounts receivable (net of allowances of $13,022 in 2021 and $7,856 in 2022)
     25,663    
 
28,000
 
Unbilled revenue
     3,406    
 
3,003
 
Other receivables (net of allowances of $455 in 2021 and 2022)
     1,377    
 
2,034
 
Inventories
     960    
 
1,371
 
Prepaid expenses
     6,772    
 
7,520
 
Assets held for sale
     1,551    
 
1,402
 
    
 
 
   
 
 
 
Total current assets
     41,514    
 
43,330
 
    
 
 
   
 
 
 
Notes receivable (net of allowance of $938 in 2021 and $882 in 2022)
     274    
 
205
 
Property and equipment (net of accumulated depreciation of $186,053 in 2021 and $188,960 in 2022)
     79,339    
 
80,262
 
Operating lease
right-of-use
assets
     43,560    
 
45,883
 
Financing lease
right-of-use
assets
     105    
 
102
 
Broadcast licenses
     320,008    
 
320,198
 
Goodwill
     23,986    
 
23,986
 
Amortizable intangible assets (net of accumulated amortization of $58,110 in 2021 and $58,444 in 2022)
     2,444    
 
2,110
 
Deferred financing costs
     843    
 
793
 
Other assets
     4,039    
 
6,789
 
    
 
 
   
 
 
 
Total assets
   $ 516,112    
$
523,658
 
    
 
 
   
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
   $ 2,661    
$
3,545
 
Accrued expenses
     12,006    
 
15,835
 
Accrued compensation and related expenses
     13,054    
 
10,699
 
Accrued interest
     1,030    
 
4,033
 
Contract liabilities
     12,294    
 
12,592
 
Deferred rent income
     157    
 
127
 
Income taxes payable
     1,544    
 
1,326
 
Current portion of operating lease liabilities
     8,651    
 
8,815
 
Current portion of financing lease liabilities
     58    
 
59
 
Current portion of long-term debt
           
 
  
 
    
 
 
   
 
 
 
Total current liabilities
     51,455    
 
57,031
 
    
 
 
   
 
 
 
Long-term debt, less current portion
     170,581    
 
168,300
 
Operating lease liabilities, less current portion
     42,208    
 
44,715
 
Financing (capital) lease liabilities, less current portion
     65    
 
62
 
Deferred income taxes
     67,012    
 
67,007
 
Contract liabilities, long-term
     2,222    
 
2,060
 
Deferred rent income, less current portion
     3,772    
 
3,749
 
Other long-term liabilities
     586    
 
584
 
    
 
 
   
 
 
 
Total liabilities
     337,901    
 
343,508
 
    
 
 
   
 
 
 
Commitments and contingencies (Note 14)
                
Stockholders’ Equity:
                
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 23,922,974 and 23,978,741 issued and 21,605,324 and 21,661,091 outstanding at December 31, 2021 and March 31, 2022, respectively
     232    
 
232
 
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2021 and March 31, 2022, respectively
     56    
 
56
 
Additional
paid-in
capital
     248,438    
 
248,638
 
Accumulated deficit
     (36,509  
 
(34,770
Treasury stock, at cost (2,317,650 shares at December 31, 2021 and March 31, 2022)
     (34,006  
 
(34,006
    
 
 
   
 
 
 
Total stockholders’ equity
     178,211    
 
180,150
 
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 516,112    
$
523,658
 
    
 
 
   
 
 
 
See accompanying notes
 
4

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
(Unaudited
)

                 
    
Three Months Ended
March 31,
 
    
2021
   
2022
 
Net broadcast revenue
   $ 44,048    
$
48,432
 
Net digital media revenue
     9,619    
 
10,300
 
Net publishing revenue
     5,686    
 
3,877
 
    
 
 
   
 
 
 
Total net revenue
     59,353    
 
62,609
 
    
 
 
   
 
 
 
Operating expenses:
                
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $443 and $447 for the three months ended March 31, 2021 and 2022, respectively, paid to related parties)
     33,343    
 
38,121
 
Digital media operating expenses, exclusive of depreciation and amortization shown below
     8,673    
 
8,473
 
Publishing operating expenses, exclusive of depreciation and amortization shown below
     5,205    
 
4,467
 
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $3 and $9 for the three months ended March 31, 2021 and 2022, respectively, paid to related parties)
     4,288    
 
4,810
 
Debt modification costs
           
 
228
 
Depreciation
     2,589    
 
2,942
 
Amortization
     581    
 
334
 
Change in the estimated fair value of contingent
earn-out
consideration
           
 
(5
Net (gain) loss on the disposition of assets
     318    
 
(1,735
    
 
 
   
 
 
 
Total operating expenses
     54,997    
 
57,635
 
    
 
 
   
 
 
 
Operating income
     4,356    
 
4,974
 
Other income (expense):
                
Interest income
     1    
 
  
 
Interest expense
     (3,926  
 
(3,394
Loss on early retirement of long-term debt
           
 
(53
Net miscellaneous income and expenses
     22    
 
1
 
    
 
 
   
 
 
 
Net income before income taxes
     453    
 
1,528
 
Provision for (benefit from) income taxes
     130    
 
(211
    
 
 
   
 
 
 
Net income
   $ 323    
$
1,739
 
    
 
 
   
 
 
 
Basic earnings per share data:
                
Basic earnings per share Class A and Class B common stock
   $ 0.01    
$
0.06
 
Diluted earnings per share data:
                
Diluted earnings per share Class A and Class B common stock
   $ 0.01    
$
0.06
 
Basic weighted average Class A and Class B shares outstanding
     26,736,639    
 
27,177,375
 
    
 
 
   
 
 
 
Diluted weighted average Class A and Class B shares outstanding
     27,138,773    
 
27,610,407
 
    
 
 
   
 
 
 
See accompanying notes
 
5

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share and per share data)

                                                                 
    
Class A
Common Stock
    
Class B Common
Stock
    
Additional

Paid-In

Capital
    
Accumulated
Deficit
   
Treasury
Stock
   
Total
 
    
Shares
    
Amount
    
Shares
    
Amount
 
Stockholders’ equity, December 31, 2020
     23,447,317      $ 227        5,553,696      $ 56      $ 247,025      $ (78,023   $ (34,006   $ 135,279  
Stock-based compensation
     —          —          —          —          78        —         —         78  
Options exercised
     185,782        2        —          —          390        —         —         392  
Net income
     —          —          —          —          —          323       —         323  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, March 31, 2021
     23,633,099      $ 229        5,553,696      $ 56      $ 247,493      $ (77,700   $ (34,006   $ 136,072  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
                                                                 
    
Class A
Common Stock
    
Class B
Common Stock
    
Additional

Paid-In

Capital
    
Accumulated
Deficit
   
Treasury
Stock
   
Total
 
    
Shares
    
Amount
    
Shares
    
Amount
 
Stockholders’ equity, December 31, 2021
  
 
23,922,974
 
  
$
232
 
  
 
5,553,696
 
  
$
56
 
  
$
248,438
 
  
$
(36,509
 
$
(34,006
 
$
178,211
 
Stock-based compensation
     —          —          —          —          106        —         —         106  
Options exercised
     40,913        —          —          —          94        —         —         94  
Lapse of restricted shares
     14,854        —          —          —          —          —         —         —    
Net income
     —          —          —          —          —          1,739       —         1,739  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stockholders’ equity, March 31, 2022
  
 
23,978,741
 
  
$
232
 
  
 
5,553,696
 
  
$
56
 
  
$
248,638
 
  
$
(34,770
 
$
(34,006
 
$
180,150
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
See accompanying notes
 
6

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
                 
    
Three Months Ended

March 31,
 
    
2021
   
2022
 
OPERATING ACTIVITIES
                
Net income
   $ 323    
$
1,739
 
Adjustments to reconcile net income to net cash provided by operating activities:
                
Non-cash
stock-based compensation
     78    
 
106
 
Depreciation and amortization
     3,170    
 
3,276
 
Amortization of deferred financing costs
     213    
 
247
 
Non-cash
lease expense
     2,161    
 
2,202
 
Provision for bad debts
     (295  
 
(209
Deferred income taxes
     188    
 
(5
Change in the estimated fair value of contingent
earn-out
consideration
           
 
(5
Loss on early retirement of long-term debt
           
 
53
 
Net (gain) loss on the disposition of assets
     318    
 
(1,735
Changes in operating assets and liabilities:
                
Accounts receivable and unbilled revenue
     2,549    
 
(2,229
Inventories
     (93  
 
(411
Prepaid expenses and other current assets
     (750  
 
(748
Accounts payable and accrued expenses
     2,490    
 
4,024
 
Operating lease liabilities
     (2,497  
 
(1,852
Contract liabilities
     1,122    
 
136
 
Deferred rent income
     170    
 
(58
Other liabilities
     29    
 
  
 
Income taxes payable
     21    
 
(218
    
 
 
   
 
 
 
Net cash provided by operating activities
     9,197    
 
4,313
 
    
 
 
   
 
 
 
INVESTING ACTIVITIES
                
Cash paid for capital expenditures net of tenant improvement allowances
     (1,859  
 
(3,439
Capital expenditures reimbursable under tenant improvement allowances and trade agreements
           
 
(40
Deposit on broadcast assets and radio station acquisitions
     (100  
 
  
 
Purchases of broadcast assets and radio stations
           
 
(540
Investment in LLC
           
 
(2,000
Proceeds from sale of long-lived assets
     3,501    
 
2,001
 
Other
     (238  
 
(858
    
 
 
   
 
 
 
Net cash provided by (used in) investing activities
     1,304    
 
(4,876
    
 
 
   
 
 
 
FINANCING ACTIVITIES
                
Payments to repurchase 2024 Notes
           
 
(2,531
Proceeds from borrowings under ABL Facility
     16    
 
6,257
 
Payments on ABL Facility
     (5,016  
 
(6,257
Proceeds from borrowings under PPP Loans
     11,195    
 
  
 
Payments of debt issuance costs
     (3  
 
  
 
Proceeds from the exercise of stock options
     392    
 
94
 
Payments on financing lease liabilities
     (16  
 
(16
Book overdraft
           
 
1,231
 
    
 
 
   
 
 
 
Net cash provided by (used in) financing activities
     6,568    
 
(1,222
    
 
 
   
 
 
 
Net increase (decrease) in cash and cash equivalents
     17,069    
 
(1,785
Cash and cash equivalents at beginning of year
     6,325    
 
1,785
 
    
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 23,394    
$
  
 
    
 
 
   
 
 
 
See accompanying notes
 
7

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SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
(Unaudited)
                 
    
Three Months Ended

March 31,
 
    
    2021    
   
    2022    
 
Supplemental disclosures of cash flow information:
                
Cash paid during the period for:
                
Cash paid for interest, net of capitalized interest
   $ 51    
$
63
 
Cash paid for interest on finance lease liabilities
   $ 2    
$
2
 
Net cash paid for (received from) income taxes
   $ (79  
$
12
 
Other supplemental disclosures of cash flow information:
                
Barter revenue
   $ 391    
$
846
 
Barter expense
   $ 373    
$
759
 
Non-cash
investing and financing activities:
                
Capital expenditures reimbursable under tenant improvement allowances
   $       
$
40
 
Right-of-use
assets acquired through operating leases
   $ 553    
$
5,011
 
Right-of-use
assets acquired through financing leases
   $ 2    
$
14
 
Non-cash
capital expenditures for property & equipment acquired under trade agreements
   $ 6    
$
  
 
Net assets and liabilities assumed in a
non-cash
acquisition
   $ 127    
$
  
 
Estimated present value of contingent-earn out consideration
   $ 11    
$
6
 
See accompanying notes
 
8

Table of Contents
SALEM MEDIA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
Business
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.
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 months ended March 31, 2022 and 2021 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, 2021. 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, 2021 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.
Impact of the
COVID-19
Pandemic
The
COVID-19
global pandemic materially impacted our business. We experienced a rapid decline in revenue from advertising, programming, events, and book sales that began in March 2020. Several advertisers reduced or ceased advertising spending due to the outbreak and
stay-at-home
orders that effectively shut down many businesses. 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 liquidity to meet our debt servicing requirements. As the economy began to show signs of recovery, we reversed several of these cost reduction initiatives during 2021. We continue to operate with lower staffing levels where appropriate, we have not declared or paid equity distributions on our common stock, and the company 401(k) match was not reinstated until January 2022.
The Coronavirus Aid, Relief, and Economic Security Act (“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, of which 50% was paid in December 2021 and the remaining 50% is payable in December 2022;
 
   
A 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.
 
9

Table of Contents
Use of Estimates
Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates require the use of judgment as future events, and the effect of these events cannot be predicted with certainty. The
COVID-19
pandemic created significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties could materially impact our estimates related to, but not limited to, revenue recognition, broadcast licenses, goodwill, and income taxes. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility.
Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our consolidated financial statements. We evaluate and update our assumptions and estimates on an ongoing basis and we may consult outside experts to assist as considered necessary.
Significant areas for which management uses estimates include:
 
   
revenue recognition;
 
   
asset impairments, including broadcasting licenses, goodwill and other indefinite-lived intangible assets;
 
   
contingency reserves;
 
   
allowance for doubtful accounts;
 
   
barter transactions;
 
   
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,
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except for our accounting policies for investments, there have been no changes to our significant accounting policies described in Note 2 to our Annual Report on Form
10-K
for the year ended December 31, 2021 filed with the SEC on March 4, 2022, that have had a material impact on our Condensed Consolidated Financial Statements and related notes.
We may make strategic investments in entities that share similar interests in Christian and conservative content. The accounting for these investments depends on the degree to which we influence the investee. The determination of the degree to which we can influence the investee requires extensive analysis depending on the terms and nature of each investment. For material investments that we directly or indirectly hold a controlling financial interest, we apply the guidance within Accounting Standards Codification (“ASC”) 810, Consolidation. For material investments that we do not hold a controlling interest, but for which we have significant influence, we apply the equity method of accounting under ASC
323-30,
Investments – Equity Method and Joint Ventures. For investments in which we do not have significant influence, we apply the accounting guidance in ASC 321 – Investments Equity Securities.
Recent Accounting Pronouncements
Changes to accounting principles are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Update (“ASUs”) to the FASB’s Codification. We consider the applicability and impact of all ASUs on our financial position, results of operations, cash flows, or presentation thereof. Described below are ASUs that may be applicable to our financial position, results of operations, cash flows, or presentation thereof. ASUs not listed below were assessed and determined to not be applicable to our financial position, results of operations, cash flows, or presentation thereof.
Accounting Standards Adopted in 2022
In November 2021, the FASB issued ASU
No. 2021-10,
Disclosures by Business Entities about Government Assistance
. The ASU codifies new requirements to disclose information about the nature of certain government assistance received, the accounting policy used to account for the transactions, the location in the financial statements where such transactions were recorded, and significant terms and conditions associated with such transactions. The guidance was effective for annual periods beginning on January 1, 2022. The adoption of ASU
No. 2021-10
did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.
Recent Accounting Standards or Updates Not Yet Effective
In March 2022, the FASB issued ASU
2022-02,
 Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures
 (Topic 326):
 Financial Instruments – Credit Losses
. This amended guidance will eliminate the accounting designation of a loan modification as a TDR, including eliminating the measurement guidance for TDRs. The amendments also enhance existing disclosure requirements and introduce new requirements related to modifications of receivables made to borrowers experiencing financial difficulty. Additionally, this guidance requires entities to disclose gross write-offs by year of origination for financing receivables, such as loans and interest receivable. The ASU is effective January 1, 2023, and is required to be applied prospectively, except for the recognition and measurement of TDRs which can be applied on a modified retrospective basis. 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.
 
10

Table of Contents
In
 October 2021,
 the FASB issued ASU
 2021
-
08,
 
Bu
siness Combinations (Topic
 805): Accounting for Contract
Asset
s and Contract Liabilities from Contracts with Customers
, which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic
 606
) rather than adjust them to fair value at the acquisition date. The ASU is effective January 1, 2023, with early adoption permitted. The impact that this pronouncement will have will depend on the nature of business acquisitions that may take place in the future.

NOTE 3. RECENT TRANSACTIONS
During the three-month period ended March 31, 2022, we completed or entered into the following transactions:
Debt Transactions
On January 12, 2022, we repurchased $2.5 million of the 6.75% Senior Secured Notes due 2024 (“2024 Notes”) at 101.25% of face value recognizing a loss of $53,000.
Acquisitions
We invested in a Limited Liability Company “LLC” that will own, distribute, and market a motion picture. The investment of $3.0 million at March 31, 2022 is reflected at cost in other assets. We invested an additional $1.5 million in April 2022 for a total investment to date of $4.5 million.
On February 15, 2022, we closed on the acquisition of radio station
WLCC-AM
and an FM translator in the Tampa, Florida market for $0.6 million of cash. The WLCC transmitter site will be used to broadcast radio station
WTBN-AM
due to the sale of land housing the
WTBN-AM
transmitter.
The total purchase price consideration for our business acquisitions and asset purchases during the three-month period ending March 31, 2022, is as follows:
 
Description
  
Total Consideration
 
 
  
(Dollars in thousands)
 
Cash payments made upon closing
  
$
548
 
Escrow deposits paid in prior years
  
 
60
 
    
 
 
 
Total purchase price consideration
  
$
608
 
    
 
 
 
The allocations presented in the table below are based upon estimates of the fair values using valuation techniques including income, cost and market approaches. The following preliminary purchase price allocations are based upon the valuation of assets and these estimates and assumptions are subject to change as we obtain additional information during the measurement period, which may be up to one year from the acquisition date.
Differences between the preliminary and final valuation could be substantially different from the initial estimate.
         
    
Net Broadcast
Assets Acquired
 
Assets
        
Property and equipment
   $ 418  
Broadcast licenses
     190  
    
 
 
 
    
$
608
 
    
 
 
 
Divestitures
On January 10, 2022, we closed on the sale of 4.5 acres of land in Phoenix, Arizona for $2.0 million in cash. We recorded a
pre-tax
gain of $1.8 million on the sale and have access to the land for
90-days
to relocate our transmitter equipment for
KXXT-AM.
Pending Transactions
On August 31, 2021, we entered into an agreement to sell 9.3 acres of land in the Denver area for $8.2 million. We expect to close this sale in the second quarter of 2022 and plan to continue broadcasting both
KRKS-AM
and
KBJD-AM
from this site.
On June 2, 2021, we entered into an Asset Purchase Agreement (“APA”) to acquire radio station
KKOL-AM
in Seattle, Washington for $0.5 million. We paid $0.1 million in cash into an escrow account and we began operating the station under an Local Marketing Agreement (“LMA”) on June 7, 2021. We expect this transaction to close in the latter half of 2022.
On February 5, 2020, we entered into an APA with Word Broadcasting to sell radio stations
WFIA-AM,
WFIA-FM
and
WGTK-AM
in Louisville, Kentucky for $4.0 million with credits applied from amounts previously paid, including a portion of the monthly fees paid under a Time Brokerage Agreement (“TBA”). 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 a TBA that began in January 2017.
 
11

Table of Contents
NOTE 4. REVENUE RECOGNITION
The following table presents our revenues disaggregated by revenue source for each of our operating segments:
                                 
    
Three Months Ended March 31, 2022
 
    
Broadcast
    
Digital Media
    
Publishing
   
Consolidated
 
    
(Dollars in thousands)
 
By Source of Revenue:
                                  
Block Programming – National
   $ 13,059      $ —        $ —       $ 13,059  
Block Programming – Local
     6,173        —          —         6,173  
    
 
 
    
 
 
    
 
 
   
 
 
 
Broadcast Programming Revenue
  
 
19,232
 
  
 
—  
 
  
 
—  
 
 
 
19,232
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Spot Advertising – National
     3,641        —          —         3,641  
Spot Advertising – Local
     10,283        —          —         10,283  
Network Advertising
     4,831        —          —         4,831  
    
 
 
    
 
 
    
 
 
   
 
 
 
Broadcast Advertising Revenue
  
 
18,755
 
  
 
—  
 
  
 
—  
 
 
 
18,755
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Infomercials
     191        —          —         191  
Other Revenue
     2,048        —          —         2,048  
    
 
 
    
 
 
    
 
 
   
 
 
 
Other Broadcast Revenue
     2,239        —          —      
 
2,239
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Digital Advertising
     6,636        4,539                 11,175  
Digital Streaming
     1,190        901                 2,091  
Digital Downloads
     43        1,664                 1,707  
Digital Subscriptions
     257        3,152                 3,409  
Other Digital Revenue
     80        44                 124  
    
 
 
    
 
 
    
 
 
   
 
 
 
Digital Revenue
  
 
8,206
 
  
 
10,300
 
           
 
18,506
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Book Sales
     —          —          2,561       2,561  
Estimated Sales Returns & Allowances
     —                    (835     (835
    
 
 
    
 
 
    
 
 
   
 
 
 
Net Book Sales
     —                    1,726       1,726  
    
 
 
    
 
 
    
 
 
   
 
 
 
E-Book
Sales
     —                    287       287  
Self-Publishing Fees
                         1,727       1,727  
Other Publishing Revenue
                         137       137  
    
 
 
    
 
 
    
 
 
   
 
 
 
Publishing Revenue
  
 
  
 
  
 
  
 
  
 
3,877
 
 
 
3,877
 
    
 
 
    
 
 
    
 
 
   
 
 
 
    
$
48,432
 
  
$
10,300
 
  
$
3,877
 
 
$
62,609
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Timing of Revenue Recognition
                                  
Point in Time
   $ 47,827      $ 10,300      $ 3,877     $ 62,003  
Rental Income(1)
     605                           605  
    
 
 
    
 
 
    
 
 
   
 
 
 
    
$
48,432
 
  
$
10,300
 
  
$
3,877
 
 
$
62,609
 
    
 
 
    
 
 
    
 
 
   
 
 
 
The following table presents our revenues disaggregated by revenue source for each of our operating segments:
                                 
    
Three Months Ended March 31, 2021
 
    
Broadcast
    
Digital Media
    
Publishing
    
Consolidated
 
    
(Dollars in thousands)
 
By Source of Revenue:
                                   
Block Programming – National
   $ 11,461      $ —        $ —        $ 11,461  
Block Programming – Local
     5,956        —          —          5,956  
    
 
 
    
 
 
    
 
 
    
 
 
 
Broadcast Programming Revenue
    
17,417
    
 
—  
 
  
 
—  
 
    
17,417
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Spot Advertising – National
     3,660        —          —          3,660  
Spot Advertising – Local
     8,895        —          —          8,895  
Network Advertising
     4,871        —          —          4,871  
    
 
 
    
 
 
    
 
 
    
 
 
 
Broadcast Advertising Revenue
    
17,426
    
 
—  
 
  
 
—  
 
    
17,426
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Infomercials
     237        —          —          237  
Other Revenue
     1,899        —          —          1,899  
    
 
 
    
 
 
    
 
 
    
 
 
 
Other Broadcast Revenue
  
 
2,136
 
  
 
—  
 
  
 
—  
 
  
 
2,136
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Digital Advertising
     5,781        4,413        62        10,256  
Digital Streaming
     853        844        —          1,697  
Digital Downloads
     60        1,510        —          1,570  
Digital Subscriptions
     286        2,773        —          3,059  
Other Digital Revenue
    
89
       79        —          168  
    
 
 
    
 
 
    
 
 
    
 
 
 
Digital Revenue
  
 
7,069
 
  
 
9,619
 
  
 
62
 
  
 
16,750
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Book Sales
     —          —          4,301        4,301  
 
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Estimated Sales Returns & Allowances
     —          —          (1,093     (1,093
    
 
 
    
 
 
    
 
 
   
 
 
 
Net Book Sales
     —          —          3,208       3,208  
    
 
 
    
 
 
    
 
 
   
 
 
 
E-Book
Sales
     —          —          339       339  
Self-Publishing Fees
     —          —          1,624       1,624  
Publishing Magazine Subscriptions
     —          —          158       158  
Other Publishing Revenue
     —          —          295       295  
    
 
 
    
 
 
    
 
 
   
 
 
 
Publishing Revenue
  
 
—  
 
  
 
—  
 
  
 
5,624
 
 
 
5,624
 
    
 
 
    
 
 
    
 
 
   
 
 
 
    
$
44,048
 
  
$
9,619
 
  
$
5,686
 
 
$
59,353
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Timing of Revenue Recognition
                                  
Point in Time
   $ 43,425      $ 9,619      $ 5,686     $ 58,730  
Rental Income(1)
     623                           623  
    
 
 
    
 
 
    
 
 
   
 
 
 
    
$
44,048
 
  
$
9,619
 
  
$
5,686
 
 
$
59,353
 
    
 
 
    
 
 
    
 
 
   
 
 
 
A summary of each of our revenue streams under ASC 606 is as follows:
Block Programming
.
We recognize revenue from the sale of blocks of airtime to program producers that typically range from 12
1
/
2
, 25 or
50-minutes
of time. We separate block program revenue into three
categories, National, Local, and Infomercial revenue. Our stations are classified by format, including Christian Teaching and Talk, News Talk, and Contemporary Christian Music. National and local programming content is complementary to our station format while infomercials are closely associated with long-form advertisements. Block Programming revenue may include variable consideration for charities and programmers that purchase blocks of airtime to generate donations and contributions from our audience. Block programming revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Programming revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.
Spot Advertising
. We recognize revenue from the sale of airtime to local and national advertisers who purchase spot commercials of varying lengths. Spot Advertising may include variable consideration for charities and programmers that purchase spots to generate donations and contributions from our audience. Advertising revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.
Network Revenue
.
Network revenue includes the sale of advertising time on our national network and fees earned from the syndication of programming on our national network. Network revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Network revenue is recorded on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Digital Advertising.
We recognize revenue from the sale of banner advertising on our owned and operated websites and on our owned and operated mobile applications. Each of our radio stations, our digital media entities and certain of our publishing entities have custom websites and mobile applications that generate digital advertising revenue. Digital advertising revenue is recognized at the time that the banner display is delivered, or the number of impressions delivered meets the previously agreed-upon performance criteria, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Digital advertising revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Broadcast digital advertising revenue consists of local digital advertising, such as the sale of banner advertisements on our owned and operated websites, the sale of advertisements on our own and operated mobile applications, and advertisements in digital newsletters that we produce, as well as national digital advertising, or the sale of custom digital advertising solutions, such as web pages and social media campaigns that we offer to our customers. Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.
Salem Surround, our national multimedia advertising agency, offers a comprehensive suite of digital marketing services to develop and execute audience-based marketing strategies for clients on both the national and local level. Salem Surround specializes in digital marketing services for each of our radio stations and websites as well as provides a full-service digital marketing strategy for each of our clients. In our role as a digital agency, our sales team provides our customers with integrated digital advertising solutions that optimize the performance of their campaign, which we view as one performance obligation. Our advertising campaigns are designed to be “white label” agreements between Salem and our advertiser, meaning we provide special care and attention to the details of the campaign. We provide custom digital product offerings, including tools for metasearch, retargeting, website design, reputation management, online listing services, and social media marketing. Digital advertising solutions may include third-party websites, such as Google or Facebook, which can be included in a digital advertising social media campaign. We manage all aspects of the digital campaign, including social media placements, review and approval of target audiences, and the monitoring of actual results to make modifications as needed. We may contract directly with a third-party, however, we are responsible for delivering the campaign results to our customer with or without the third-party. We are responsible for any payments
 
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due to the third-party regardless of the campaign results and without regard to the status of payment from our customer. We have discretion in setting the price to our customer without input or approval from the third-party. Accordingly, revenue is reported gross, as principal, as the performance obligation is delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation.
Digital Streaming
. We recognize revenue from the sale of advertisements and from the placement of ministry content that is streamed on our owned and operated websites and on our owned and operated mobile applications. Each of our radio stations, our digital media entities and certain publishing entities have custom websites and mobile applications that generate streaming revenue. Digital streaming revenue is recognized at the time that the content is delivered, or when the number of impressions delivered meets the previously agreed-upon performance criteria. Delivery of the content represents the point in time that control is transferred to the customer thereby completing our performance obligation. Streaming revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Digital Downloads and
e-books
. We recognize revenue from sale of downloaded materials, including videos, song tracks, sermons, content archives, and
e-books.
Payments for downloaded materials are due in advance of the download, however, the download is often instant upon confirmation of payment. Digital download revenue is recognized at the time of download, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is recorded at the gross amount due from the customer. All sales are final with no allowances made for returns.
Subscriptions
. We recognize revenue from the sale of subscriptions for financial publication digital newsletters, digital magazines, and podcast subscriptions for
on-air
content. Subscription terms typically range from three months to two years, with a money-back guarantee for the first 30 days. Refunds after the first
30-day
period are considered on a
pro-rata
basis based on the number of publications issued and delivered. Payments are due in advance of delivery and can be made in full upon subscribing or in quarterly installments. Cash received in advance of the subscription term, including amounts that are refundable, is recorded in contract labilities. Revenue is recognized ratably over the subscription term at the point in time that each publication is transmitted or shipped, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is reported net of estimated cancellations, which are based on our experience and historical cancellation rates during the cancellable period.
Book Sales
. We recognize revenue from the sale of books upon shipment, which represents the point in time that control is transferred to the customer thereby completing the performance obligation. Revenue is recorded at the gross amount due from the customer, net of estimated sales returns and allowances based on our historical experience. Major new title releases represent a significant portion of the revenue in the current period. Print-based consumer books are sold on a fully returnable basis. We do not record assets or inventory for the value of returned books as they are considered used regardless of the condition returned. Our experience with unsold or returned books is that their resale value is insignificant and they are often destroyed or disposed of.
Self-Publishing Fees
. We recognize revenue from self-publishing services through Salem Author Services (“SAS”), including book publishing and support services to independent authors. Services include book cover design, interior layout, printing, distribution, marketing services and editing for print books and eBooks. As each book and related support services are unique to each author, authors must make payments in advance of the performance. Payments are typically made in installments over the expected production timeline for each publication. We record contract liabilities equal to the amount of payments received, including those amounts that are fully or partially refundable. Contract liabilities were historically recorded under the caption “deferred revenue” and are reported as current liabilities or long-term liabilities on our consolidated financial statements based on the time to fulfill the performance obligations under terms of the contract. Refunds are limited based on the percentage completion of each publishing project.
Revenue is recognized upon completion of each performance obligation, which represents the point in time that control of the product is transferred to the author, thereby completing our performance obligation. Revenue is recorded at the net amount due from the author, including discounts based on the service package.
Other Revenue
.
Other revenue includes various sources, such as event revenue, listener purchase programs, talent fees for
on-air
hosts, rental income for studios and towers, production services, and shipping and handling fees. We recognize event revenue, including fees earned for ticket sales and sponsorships, when the event occurs, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue for all other products and services is recorded as the products or services are delivered or performed, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Other revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
 
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Principal versus Agent Considerations
When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent.
Contract Assets
Contract Assets—Costs to Obtain a Contract:
We capitalize commissions paid to sales personnel in our self-publishing business when customer contracts are signed and advance payment is received. These capitalized costs are recorded as prepaid commission expense in the Condensed Consolidated Balance Sheets. The amount capitalized is incremental to the contract and would not have been incurred absent the execution of the customer contract. Commissions paid upon the initial acquisition of a contract are expensed at the point in time that related revenue is recognized. Prepaid commission expenses are periodically reviewed for impairment. At March 31, 2022, our prepaid commission expense was $0.7 million.
Contract Liabilities
Contract liabilities consist of customer advance payments and billings in excess of revenue recognized. We may receive payments from our customers in advance of completing our performance obligations. Additionally, new customers, existing customers without approved credit terms and authors purchasing specific self-publishing services, are required to make payments in advance of the delivery of the products or performance of the services. We record contract liabilities equal to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms. Contract liabilities were historically recorded under the caption “deferred revenue” and are reported as current liabilities on our consolidated financial statements when the time to fulfill the performance obligations under terms of our contracts is less than one year. Long-term contract liabilities represent the amount of payments received in excess of revenue earned, including those that are refundable, when the time to fulfill the performance obligation is greater than one year. Our long-term liabilities consist of subscriptions with a term of
two-years
for which some customers have purchased and paid for multiple years.
Significant changes in our contract liabilities balances during the period are as follows:
                 
     Short Term     
Long-Term
 
    
(Dollars in thousands)
 
Balance, beginning of period January 1, 2022
   $ 12,294      $ 2,222  
Revenue recognized during the period that was included in the beginning balance of contract liabilities
     (4,085          
Additional amounts recognized during the period
     6,315        315  
Revenue recognized during the period that was recorded during the period
     (2,409          
Transfers
     477        (477
    
 
 
    
 
 
 
Balance, end of period March 31, 2022
   $ 12,592      $ 2,060  
    
 
 
    
 
 
 
Amount refundable at beginning of period
   $ 12,282      $ 2,222  
Amount refundable at end of period
   $ 12,580      $ 2,060  
We expect to satisfy these performance obligations as follows:
         
    
Amount
 
For the Year Ended March 31,
  
(Dollars in thousands)
 
2023
   $ 12,592  
2024
     1,507  
2025
     351  
2026
     115  
2027
     87  
Thereafter
     —    
    
 
 
 
     $ 14,652  
    
 
 
 
Significant Financing Component
The length of our typical sales agreement is less than 12 months; however, we may sell subscriptions with a
two-year
term. The balance of our long-term contract liabilities represents the unsatisfied performance obligations for subscriptions with a remaining term in excess of one year. We review long-term contract liabilities that are expected to be completed in excess of one year to assess whether the contract contains a significant financing component. The balance includes subscriptions that will be satisfied at various dates between April 1, 2022, and March 31, 2027. The difference between the promised consideration and the cash selling price of the publications is not significant. Therefore, we have concluded that subscriptions do not contain a significant financing component under ASC 606.
 
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Our self-publishing contracts may exceed a
one-year
term due to the length of time for an author to submit and approve a manuscript for publication. The author may pay for publishing services in installments over the production timeline with payments due in advance of performance. The timing of the transfer of goods and services under self-publishing arrangements are at the discretion of the author and based on future events that are not substantially within our control. We require advance payments to provide us with protection from incurring costs for products that are unique and only sellable to the author. Based on these considerations, we have concluded that our self-publishing contracts do not contain a significant financing component under ASC 606.
Variable Consideration
We make significant estimates related to variable consideration at the point of sale, including estimates for refunds and product returns. Under ASC 606, estimates of variable consideration are to be recognized before contingencies are resolved in certain circumstances, including when it is probable that a significant reversal in the amount of any estimated cumulative revenue will not occur.
We enter into agreements under which the amount of revenue we earn is contingent upon the amount of money raised by our customer over the contract term. Our customer is typically a charity or programmer that purchases blocks of programming time or spots to generate revenue from our audience members. Contract terms can range from a few weeks to a few months, depending on the charity or programmer. If the campaign does not generate a
pre-determined
level of donations or revenue to our customer, the consideration that we expect to be entitled to may vary above a minimum base level per the contract. Historically, under ASC Topic 605, we reported variable consideration as revenue when the amount was fixed and determinable. Under ASC 606, variable consideration is to be estimated using the expected value or the most likely amount to the extent it is probable that a significant reversal will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Based on the constraints for using estimates of variable consideration within ASC 606, and our historical experience with these campaigns, we will continue to recognize revenue at the base amount of the campaign with variable consideration recognized when the uncertainty of each campaign is resolved. These constraints include: (1) the amount of consideration received is highly susceptible to factors outside of our influence, specifically the extent to which our audience donates or contributes to our customer or programmer, (2) the length of time in which the uncertainty about the amount of consideration expected is to be resolved, and (3) our experience has shown these contracts have a large number and broad range of possible outcomes.
Trade and Barter Transactions
In broadcasting, trade or barter agreements are commonly used to reduce cash expenses by exchanging advertising time for goods or services. We may enter barter agreements to exchange airtime or digital advertising for goods or services that can be used in our business or that can be sold to our audience under Listener Purchase Programs. The terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime or digital campaign for cash. The value of these
non-cash
exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive. Each transaction must be reviewed to determine that the products, supplies, and/or services we receive have economic substance, or value to us. We record barter operating expenses upon receipt and usage of the products, supplies and services, as applicable. We record barter revenue as advertising spots or digital campaigns are delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Barter revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.
Trade and barter revenues and expenses were as follows:
                 
    
Three Months Ended
March 31,
 
         2021         
    2022    
 
Net broadcast barter revenue
   $ 391     
$
846
 
Net digital media barter revenue
            
 
  
 
Net publishing barter revenue
            
 
  
 
Net broadcast barter expense
   $ 373     
$
759
 
Net digital media barter expense
     —       
 
—  
 
Net publishing barter expense
            
 
  
 
NOTE 5. INVENTORIES
Inventories consist of finished books from Salem Publishing. All inventories are valued at the lower of cost or net realizable value as determined on a weighted average cost method.
NOTE 6. PROPERTY AND EQUIPMENT
We account for property and equipment in accordance with FASB ASC Topic
360-10,
Property, Plant and Equipment
.
 
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The following is a summary of the categories of our property and equipment:
                 
    
As of
 
     December 31, 2021     
March 31, 2022
 
    
(Dollars in thousands)
 
Buildings
   $ 28,593     
$
28,600
 
Office furnishings and equipment
     36,598     
 
36,955
 
Antennae, towers and transmitting equipment
     77,813     
 
78,219
 
Studio, production, and mobile equipment
     29,498     
 
29,693
 
Computer software and website development costs
     38,271     
 
38,471
 
Automobiles
     1,515     
 
1,515
 
Leasehold improvements
     18,104     
 
18,213
 
    
 
 
    
 
 
 
     $ 230,392     
$
231,666
 
Less accumulated depreciation
     (186,053   
 
(188,960
    
 
 
    
 
 
 
       44,339     
$
42,706
 
    
 
 
    
 
 
 
Land
   $ 26,896     
 
27,037
 
Construction-in-progress
     8,104     
 
10,519
 
    
 
 
    
 
 
 
Property and Equipment, net
   $ 79,339     
$
80,262
 
    
 
 
    
 
 
 
Depreciation expense was approximately $2.9 million and $2.6 million for the three-month periods ended March 31, 2022 and 2021, respectively. We review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. This review requires us to estimate the fair value of the assets using significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value, including assumptions about risk. If actual future results are less favorable than the assumptions and estimates we used, we are subject to future impairment charges, the amount of which may be material. There were no indications of impairment during the three months ended March 31, 2022.
NOTE 7. OPERATING AND FINANCE LEASE
RIGHT-OF-USE
ASSETS
Leases
We account for leases in accordance with ASC 842, “
Leases
” that requires lessees to recognize Right of Use (“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.
Leasing Transactions
Our leased assets include offices and studios, transmitter locations, antenna sites, tower and tower sites, and land. Our lease portfolio has terms remaining from less than
one-year
to up to twenty years. Many of these leases contain options under which we can extend the term from five to twenty years. Renewal options are excluded from our calculation of lease liabilities unless we are reasonably assured to exercise the renewal option. Our lease agreements do not contain residual value guarantees or material restrictive covenants. We lease certain properties from our principal stockholders or from trusts and partnerships created for the benefit of the principal stockholders and their families. These leases are designated as Related Party leases in the details provided.
Operating leases are reflected on our balance sheet within operating lease ROU assets and the related current and
non-current
operating lease liabilities. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from lease agreement. Operating lease ROU assets and liabilities are recognized at the commencement date, or the date on which the lessor makes the underlying asset available for use, based upon the present value of the lease payments over the respective lease term. As the implicit rate for operating leases is not readily determinable, the future minimum lease payments were discounted using an incremental borrowing rate. Lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectation regarding the lease terms. Variable lease costs, such as common area maintenance, property taxes, and insurance, are expensed as incurred.
Balance Sheet
Supplemental balance sheet information related to leases is as follows:
                         
    
March 31, 2022
 
    
(Dollars in thousands)
 
Operating Leases
   Related Party      Other      Total  
Operating leases ROU assets
   $ 7,142      $ 38,741      $ 45,883  
Operating lease liabilities (current)
   $ 976      $ 7,839      $ 8,815  
Operating lease liabilities
(non-current)
     6,266        38,449        44,715  
    
 
 
    
 
 
    
 
 
 
Total operating lease liabilities
   $ 7,242      $ 46,288      $ 53,530  
    
 
 
    
 
 
    
 
 
 
 
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Weighted Average Remaining Lease Term
        
Operating leases
     7.7 years  
Finance leases
     2.8 years  
Weighted Average Discount Rate
        
Operating leases
     8.09
Finance leases
     6.11
Lease Expense
The components of lease expense were as follows:
         
    
Three Months Ended
March 31, 2022
 
    
(Dollars in thousands)
 
Amortization of finance lease ROU Assets
   $ 15  
Interest on finance lease liabilities
     2  
    
 
 
 
Finance lease expense
     17  
Operating lease expense
     3,224  
Variable lease expense
     268  
Short-term lease expense
     158  
    
 
 
 
Total lease expense
   $ 3,667