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

6 Months Ended

Jun. 30, 2019

Text Block [Abstract]

Recent Transactions

NOTE 3. RECENT TRANSACTIONS

During the six month period ended June 30, 2019, we completed or entered into the following transactions:

Debt Transactions

Based on the then existing market conditions, we completed repurchases of the Notes at amounts less than face value as follows during the six months ended June 30, 2019:


Date	Principal Repurchased		Cash Paid		% of Face Value			Bond Issue Costs		Net Gain

	(Dollars in thousands)
March 28, 2019	$	2,000	$	1,830		91.50	%	$	37	$	134
March 28, 2019		2,300		2,125		92.38	%		42		133
February 20, 2019		125		114		91.25	%		2		9
February 19, 2019		350		319		91.25	%		7		24
February 12, 2019		1,325		1,209		91.25	%		25		91
January 10, 2019		570		526		92.25	%		9		35

	$	6,670	$	6,123				$	122	$	426

Equity Transactions

Based upon their current assessment of our business, our Board of Directors’ declared equity distributions as follows:


Announcement Date	Record Date		Payment Date		Amount Per Share		Cash Distributed (in thousands)
May 14, 2019		June 14, 2019		June 28, 2019	$	0.0650	$	1,728
March 7, 2019		March 19, 2019		March 29, 2019		0.0650		1,702

							$	3,430

Acquisitions

On June 6, 2019, we acquired the InvestmentHouse.com website and the related financial newsletter assets and deferred subscription liabilities for $0.6 million in cash. As part of the purchase agreement, we may pay an additional incentive payment equal to 10% of revenue earned in excess of a predetermined amount during the incentive period ending May 31, 2020. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of InvestmentHouse.com to achieve revenue in excess of the targets at the time of closing, we estimated the fair value of the contingent

earn-out

consideration to be $2,500, which approximated the present value based on the

earn-out

period of less than twelve months.

On March 18, 2019, we acquired the pjmedia.com website for $0.1 million in cash.

A summary of our business acquisitions and asset purchases during the six months ended June 30, 2019, 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 Consideration
		(Dollars in thousands)
June 6, 2019	InvestmentHouse.com (business acquisition)	$	553
March 18, 2019	pjmedia.com (asset acquisition)		100

		$	653

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.

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 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 $24,000 during the six month period ended June 30, 2019 compared to $0.1 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 six month period ended June 30, 2019:


Description	Total Consideration
	(Dollars in thousands)
Cash payments made upon closing	$	650
Present value of estimated fair value of contingent earn-out consideration		3

Total purchase price consideration	$	653

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


		Net Digital
		Assets Acquired
		(Dollars in thousands)
Assets
	Property and equipment	$	26
	Customer lists and contracts		185
	Domain and brand names		44
	Subscriber base and lists		416

		$	671

Liabilities
	Contract liabilities, short-term		(18	)

		$	653

Divestitures

On June 27, 2019, we sold a portion of land on our transmitter site in Miami, Florida, for $0.9 million in cash. We recognized a

pre-tax

gain of $0.4 million reflecting the sales price as compared to the carrying value of the land.

On May 14, 2019, we sold radio station

WSPZ-AM

(previously

WWRC-AM)

in Washington D.C. for $0.8 million in cash. The buyer began programming the station under a Time Brokerage Agreement (“TBA”) on April 12, 2019. We recorded an estimated

pre-tax

loss of $3.8 million on March 19, 2019, based on our plan to sell the station and the probability of the sale, which reflected the sales price as compared to the carrying value of the radio station assets and the estimated closing costs. We recorded an additional loss of $32,000 upon closing based on the actual closing costs incurred. The accompanying Condensed Consolidated Statements of Operations excludes the operating results of this station as of TBA date from the broadcast operating segment.

On March 21, 2019, we sold Newport Natural Health, an

e-commerce

website operated by Eagle Wellness for $0.9 million in cash. We recognized a

pre-tax

gain of $0.1 million associated with the sale reflecting the sales price as compared to the carrying value of the assets and the closing costs.

On February 28, 2019, we sold Mike Turner’s line of investment products, including TurnerTrends.com and other domain names and related assets. We received no cash from the buyer, who assumed all deferred subscription liabilities for Mike Turner’s investment products. We recognized a

pre-tax

loss of $0.2 million associated with the sale reflecting the sales price as compared to the carrying value of the assets and the closing costs.

On February 27, 2019, we sold HumanEvents.com, a conservative opinion website for $0.3 million in cash. We recognized a

pre-tax

loss of $0.2 million associated with the sale reflecting the sales price as compared to the carrying value of the assets and the closing costs.

Other Transactions

On April 30, 2018, we ceased programming radio station

KHTE-FM,

in Little Rock, Arkansas. We programmed the station under a TBA beginning on April 1, 2015. We had the option to acquire the station for $1.2 million in cash during the TBA period. We paid the licensee a $0.1 million fee for not exercising our purchase option for the station. The accompanying Condensed Consolidated Statements of Operations reflect the operating results of this station during the TBA period within the broadcast operating segment.

On January 2, 2018, we began programming radio stations

KPAM-AM

and

KKOV-AM

in Portland, Oregon under Local Marketing Agreements (“LMAs”) entered on December 29, 2017, with original terms of up to 12 months. The LMAs terminated on March 30, 2018 when the radio stations were sold to another party. We entered a second LMA with the new owner as of the closing date under which we continue to program radio station

KPAM-AM.

The accompanying Condensed Consolidated Statements of Operations reflects the operating results of these stations during the LMA terms.

Pending Transactions

On April 29, 2019, we entered an agreement to exchange FM Translator W276CR, in Bradenton, FL with FM Translator W262CP in Bayonet Point, FL. No cash will be exchanged for the assets.

On April 26, 2018, we entered an agreement to exchange radio station

KKOL-AM,

in Seattle, Washington for

KPAM-AM

in Portland, Oregon. No cash will be exchanged for the assets. We are currently operating radio station

KPAM-AM

under an LMA as described above. The exchange transaction is subject to the approval of the FCC and is expected to close in the second half of 2019.

On January 3, 2017, Word Broadcasting began operating our Louisville radio stations

(WFIA-AM;

WFIA-FM;

WGTK-AM)

under a twenty-four month TBA. We received $0.5 million in cash associated with an option for Word Broadcasting Network to acquire the radio stations during the term. In December 2018, Word Broadcasting notified us of their intent to purchase our Louisville radio stations. The TBA contained an extension clause that allowed Word Broadcasting to continue operating the station until the purchase agreement was executed and the transaction closed. On June 28, 2019, the TBA was amended to include an additional 24 months under which Word Broadcasting will program the radio stations with the option to acquire the stations extended to December 31, 2020.