NOTE 4. ACQUSITIONS AND RECENT TRANSACTIONS

During the nine months ending September 30, 2013, we completed or entered into the following transactions:

Debt

On September 30, 2013, we repaid $4.0 million in principal on our current senior secured credit facility, consisting of a term loan of $300.0 million (“Term Loan B”). We recorded a $16,000 pre-tax loss on the early retirement of long-term debt related to the unamortized discount.

On June 28, 2013, we repaid $4.0 million in principal on the Term Loan B. We recorded a $14,000 pre-tax loss on the early retirement of long-term debt related to the unamortized discount.

On May 3, 2013, we terminated the Subordinated Debt due to Related Parties (as defined below) with Mr. Atsinger, Mr. Epperson and Mr. Hinz. There were no early termination penalties and no further amounts owed by Salem as a result of the termination of the Subordinated Debt due to Related Parties.

On March 14, 2013, we entered into the Term Loan B and a senior secured revolving credit facility of $25.0 million (“Revolver”). We used the proceeds from the Term Loan B and the Revolver to fund the repurchase of our 9 ⁵⁄₈% Senior Secured Second Lien Notes due 2016 (“Terminated 9 ⁵⁄₈% Notes”) pursuant to a cash tender offer launched on February 25, 2013 (“Tender Offer”), and to retire all other outstanding debt and pay related fees. Upon entry into the credit facility, our then existing revolving credit facilities, indebtedness due to First California Bank, and Subordinated Debt due to Related Parties were terminated. As a result of these terminations, we recorded a pre-tax loss on the early retirement of long-term debt of $0.9 million associated with unamortized bank fees and closing costs.

On March 14, 2013, we tendered for $212.6 million in aggregate principal amount of the Terminated 9 ⁵⁄₈% Notes for an aggregate purchase price of $240.3 million, or at a price equal to 110.65% of the face value of the Terminated 9 ⁵⁄₈% Notes in the Tender Offer. We paid $22.7 million for this repurchase resulting in a $26.9 million pre-tax loss on the early retirement of long-term debt, which included approximately $0.8 million of unamortized discount and $2.9 million of bond issue costs associated with the Terminated 9 ⁵⁄₈% Notes. We issued a notice of redemption to redeem any Terminated 9 ⁵⁄₈% Notes that remained outstanding after the expiration date of the Tender Offer. On June 3, 2013, we redeemed the remaining $0.9 million of the outstanding Terminated 9 ⁵⁄₈% Notes to satisfy and discharge Salem’s obligations under the indenture for the Terminated 9 ⁵⁄₈% Notes as of such date.

Equity

On September 12, 2013, we announced a quarterly distribution in the amount of $0.0525 per share on Class A and Class B common stock. The quarterly distribution of $1.3 million, or $0.0525 per share of Class A and Class B common stock, was paid on October 4, 2013 to all common stockholders of record as of September 26, 2013.

On May 30, 2013, we announced a quarterly distribution in the amount of $0.05 per share on Class A and Class B common stock. The quarterly distribution of $1.2 million, or $0.05 per share of Class A and Class B common stock, was paid on June 28, 2013 to all common stockholders of record as of June 14, 2013.

On March 18, 2013, we announced a quarterly distribution in the amount of $0.05 per share on Class A and Class B common stock. The quarterly distribution of $1.2 million, or $0.05 per share of Class A and Class B common stock, was paid on April 1, 2013 to all common stockholders of record as of March 25, 2013.

Acquisitions

On September 23, 2013, we entered into an APA to acquire radio stations KDIS-FM, Little Rock, Arkansas and KRDY-AM, San Antonio, Texas for $2.5 million in cash. We expect the transaction to close in the first quarter of 2014.

On September 11, 2013, we acquired the GodUpdates Facebook page for $0.3 million in cash, which we paid to the buyer on October 22, 2013.

On August 10, 2013, we acquired Christnotes.org for $0.5 million in cash. Christnotes.org is an online bible resource that allows users to search for bible verses and access commentary from biblical scholars. The acquisition resulted in goodwill of $20,755 representing the excess value of the business as a result of the integrated business model and services already established that provide future economic benefit to us.

 

On February 15, 2013, we completed the acquisition of WJKR-FM, Columbus, Ohio, for $4.0 million in cash. We began operating the radio station under a LMA with the prior owner on November 1, 2012. The accompanying Condensed Consolidated Statements of Operations reflect the operating results of this entity as of the LMA date. Effective February 15, 2013, we changed the call letters of this station to WTOH-FM.

On February 5, 2013, we completed the acquisition of WMUU-FM, Greenville, South Carolina, for $5.4 million. The $5.4 million purchase price consists of $1.0 million in cash due upon close of the transaction, $2.0 million payable in April 2014, and $3.0 million payable in advertising credits to Bob Jones University, a related party of the station’s owner. The advertising credits are payable over ten years resulting in a fair value of $2.4 million. The $0.6 million discount on the advertising credits was recorded as a reduction of the fair value and will be amortized to interest expense over the ten year term. We began operating the radio station under a LMA with the prior owner on December 3, 2012. The accompanying Condensed Consolidated Statements of Operations reflect the operating results of this entity as of the LMA date. Effective February 11, 2013, we changed the call letters of this station to WGTK-FM. We paid the entire balance due on the seller financed note, including accrued interest on September 30, 2013.

Throughout the nine months ending September 30, 2013, we have acquired various domain names, including ChristianHeadlines.com, as well as other intangible assets including applications associated with our Internet segment for an aggregate amount of approximately $0.2 million.

A summary of our business acquisitions and asset purchases for the nine months ended September 30, 2013, none of which were 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)
September 11, 2013		GodUpdates (asset purchase)		$	250
August 10, 2013		Christnotes.org (business acquisition)			500
February 15, 2013		WTOH-FM, Columbus, Ohio (business acquisition)			4,000
February 5, 2013		WGTK-FM, Greenville, South Carolina (business acquisition)			5,427
Various		Purchase of various intangible Internet assets (asset purchases)			207
				$	10,384

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. Such estimates include discounted estimated cash flows to be generated by those assets and the expected useful lives based on historical experience, market trends and synergies to be achieved from the acquisition. We may obtain an independent third-party appraisal of the estimated fair value of the acquired net assets as of the acquisition date. Property, plant 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 represents the organizational systems and procedures in place to ensure the effective operation of the stations. The total acquisition consideration was allocated to the net assets acquired as follows:

 

		Broadcast Assets Acquired				Internet Assets Acquired				Net Assets Acquired
		(Dollars in thousands)
Assets
Property and equipment		$	1,252			$	106			$	1,358
Broadcast licenses			7,429				—				7,429
Goodwill			37				21				58
Customer lists and contracts			—				341				341
Domain and brand names			—				409				409
Software			—				80				80
Favorable and assigned lease			709				—				709
		$	9,427			$	957			$	10,384

Discontinued Operations:

Based on operating results that did not meet our expectations, we ceased operating Samaritan Fundraising in December 2011. As of December 31, 2011, all employees of this entity were terminated. As a result of our decision to close operations, there have been no material cash flows associated with this entity and we have no ongoing or further involvement in the operations of this entity. The Condensed Consolidated Balance Sheets and Statements of Operations for all prior periods presented were reclassified to reflect the operating results and net assets of this entity as a discontinued operation. As of September 30, 2013, assets of discontinued operations consist of net receivables due to us from sales occurring prior to ceasing operations.

The following table sets forth the components of the loss from discontinued operations:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2013				2012				2013
		(Dollars in thousands)
Net revenues		$	11			$	—			$	22			$	11
Operating expenses			(76	)			(19	)			(178	)			(54	)
Operating loss		$	(65	)		$	(19	)		$	(156	)		$	(43	)
Benefit from income taxes			(26	)			(8	)			(62	)			(17	)
Loss from discontinued operations, net of tax		$	(39	)		$	(11	)		$	(94	)		$	(26	)