Annual report pursuant to Section 13 and 15(d)

Broadcast Licenses

Broadcast Licenses
12 Months Ended
Dec. 31, 2019
Text Block [Abstract]  
Broadcast Licenses
We account for broadcast licenses in accordance with FASB ASC Topic 350 “
Intangibles—Goodwill and Other
.” We do not amortize broadcast licenses, but rather test for impairment annually or more frequently if events or circumstances indicate that the value may be impaired. In the case of our broadcast radio stations, we would not be able to operate the properties without the related broadcast license for each property. Broadcast licenses are renewed with the FCC every eight years for a nominal fee that is expensed as incurred. We continually monitor our stations’ compliance with the various regulatory requirements that are necessary for the FCC renewal and all of our broadcast licenses have been renewed. We expect all of our broadcast licenses to be renewed in the future and therefore, we consider our broadcast licenses to be indefinite-lived intangible assets. We are not aware of any legal, competitive, economic or other factors that materially limit the useful life of our broadcast licenses. The weighted-average period before the next renewal of our broadcasting licenses is 1.9 years.
The following table presents the changes in broadcasting licenses that include acquisitions and divestitures of radio stations and FM translators as described in Note 3 – Recent Transactions.
Year Ended December 31,
Balance, beginning of period before cumulative loss on impairment
   $ 486,455     
Accumulated loss on impairment
Balance, beginning of period after cumulative loss on impairment
Acquisitions of radio stations
Acquisitions of FM translators and construction permits
Capital Projects
Abandoned capital projects
Disposition of radio stations
Impairments based on the estimated fair value of broadcast licenses
Balance, end of period after cumulative loss on impairment
   $ 376,316     
Balance, end of period before cumulative loss on impairment
   $ 484,691     
Accumulated loss on impairment
Balance, end of period after cumulative loss on impairment
   $ 376,316     
Broadcast Licenses Impairment Test
We perform our annual impairment testing during the fourth quarter of each year, which coincides with our budget and planning process for the upcoming year. The unit of accounting we use to test broadcast licenses is the cluster level, which we define as a group of radio stations operating in the same geographic market, sharing the same building and equipment and managed by a single general manager. The cluster level is the lowest level for which discrete financial information and cash flows are available and the level reviewed by management to analyze operating results.
The first step of our impairment testing is to perform a qualitative assessment as to whether it is more likely than not that a broadcast license is impaired. This qualitative assessment requires significant judgment when considering the events and circumstances that may affect the estimated fair value of our broadcast licenses. We review the significant assumptions and key estimates applicable to our prior year estimated fair value calculations to assess if events and circumstances have occurred that could affect these assumptions and key estimates. We also review internal benchmarks and the economic performance for each market cluster to assess if it is more likely than not that impairment exists.
As part of our qualitative assessment, we calculate the excess fair value, or the amount by which our prior year estimated fair value exceeds the current year carrying value. Based on our analysis and review, including the financial performance of each market, we believe that a 25% excess fair value margin is a reasonable benchmark for our qualitative analysis. Markets with an excess fair value of 25% or more, which have had no significant changes in the prior year assumptions and key estimates, are not likely to be impaired.
Of the 26 markets for which an independent third party fair value appraisal was obtained in the prior year, one market was sold, leaving 25 markets applicable to the current year. The table below presents the percentage within a range by which our prior year start-up income estimated fair value exceeds the current year carrying value of our broadcasting licenses:
Geographic Market Clusters as of December 31, 2019
Percentage Range By Which 2018 Estimated Fair Value
Exceeds 2019 Carrying Value
     >51% to 75%      > +than 76%  
Number of accounting units
Broadcast license carrying value (in thousands)
During the third quarter of 2019 we performed an interim review of broadcast licenses in seven markets that reported revenues that were trending below the amounts forecasted in the 2018
valuations. At that time, we also noted station sales indicating potential declines in market-dependent multiples and we believed that downward revenue trends noted during the first half of 2019 were more likely to prevail throughout the remainder of 2019 as compared to earlier quarters when the trends were not as prevalent. Based on our interim review and analysis, we recorded an impairment charge of $1.9 million to the value of broadcast licenses in Louisville, Philadelphia, Portland and San Francisco. The table below presents the percentage within a range by which our September 30, 2019 start-up income estimated fair value exceeds the current year carrying value of our broadcasting licenses:
    Geographic Market Clusters as of December 31, 2019  
Percentage Range By Which September 2019 Estimated Fair Value
Exceeds 2019 Carrying Value
    >51% to 75%     > +than 76%  
Number of accounting units
Broadcast license carrying value (in thousands)
The second part of our qualitative assessment consists of a review of the financial operating results for each market cluster. Radio stations are often sold on the basis of a multiple of projected cash flow, or Station Operating Income (“SOI”) defined as net broadcast revenue less broadcast operating expenses. See Item 6 – Selected Financial Data within this annual report for information on SOI, a
measure. Numerous trade organizations and analysts review these radio station sales to track SOI multiples applicable to each transaction. Based on published reports and analysis of market transactions, we believe industry benchmarks to be in the six to seven times cash flow range. We elected an SOI benchmark of four as a
indicator of fair value. Based on this qualitative review, we identified 6 markets subject to further testing that were not tested in the prior year and one market for which a valuation was obtained as part of the broadcast goodwill testing.
The table below shows the percentage within a range by which our estimated fair value exceeded the carrying value of our broadcasting licenses for these 6 remaining market clusters:
    Geographic Market Clusters as of December 31, 2019  
Tested due to SOI Multiple and length of time from prior valuation—Percentage
Range by Which Prior Valuation Exceeded 2019 Carrying Value
    >51% to 75%     > +than 76%  
Number of accounting units
Broadcast license carrying value (in thousands)
Based on our assessment we engaged Bond & Pecaro, an independent third-party appraisal and valuation firm, to assist us with determining the enterprise value of 16 of our market clusters. The estimated fair value of each market cluster was determined using the Greenfield Method, a form of the income approach. The premise of the Greenfield Method is that the value of a broadcast license is equivalent to a hypothetical
in which the only asset owned by the station as of the valuation date is the broadcast license. This approach eliminates factors that are unique to our operation of the station, including its format and historical financial performance. The method then assumes the entity has to purchase, build, or rent all of the other assets needed to operate a comparable station to the one in which the broadcast license is being utilized as of the valuation date. Cash flows are estimated and netted against all
costs, expenses and investments necessary to achieve a normalized and mature state of operations, thus reflecting only the cash flows directly attributable to the broadcast license. A multi-year discounted cash flow approach is then used to determine the net present value of these cash flows to derive an indication of fair value. For cash flows beyond the projection period, a terminal value is calculated using the Gordon constant growth model and long-term industry growth rate assumptions based on long-term industry growth and Gross Domestic Product (“GDP”) inflation rates.
The primary assumptions used in the Greenfield Method are:
gross operating revenue in the station’s designated market area,
normalized market share,
normalized profit margin,
duration of the
period to reach normalized operations, (which was assumed to be three years),
costs (based on market size),
ongoing replacement costs of fixed assets and working capital,
the calculations of yearly net free cash flows to invested capital; and
amortization of the intangible asset, or the broadcast license.
The assumptions used reflect those of a hypothetical market participant and not necessarily the actual or projected results of Salem. The key estimates and assumptions used in the start-up income valuation for the broadcast licenses tested in each period were as follows:
Broadcast Licenses
   December 31,
   September 30,
December 31, 2019
Risk-adjusted discount rate
   9.0%    9.0%   
Operating profit margin ranges
4.4% - 34.5%
4.3% - 30.7%
4.0% - 33.8%
Long-term revenue growth rates
   0.5% - 1.2%    0.7% - 1.1%   
0.7% - 1.1%
The risk-adjusted discount rate reflects the Weighted Average Cost of Capital (“WACC”) developed based on data from same or similar industry participants and publicly available market data as of the measurement date.
Based on our review and analysis, we determined that the carrying value of broadcast licenses in one of our market clusters was impaired as of the annual testing period ending December 31, 2019. We recorded an impairment charge of $1.0 million to the value of the broadcast license
in Tampa.
The impairment charge was driven by a decrease in the projected long-term revenue growth rates for the broadcast industry and a decline in market revenue share for this market. We believe that this decrease is indicative of trends in the industry as a whole and not unique to our company or operations.
The table below presents the results of our impairment testing under the
income approach at December 31, 2019:
Market Cluster
Excess Fair Value
December 31, 2019 Estimate
Atlanta, GA
Boston, MA
Chicago, IL
Cleveland, OH
Col Springs, CO
Columbus, OH
Little Rock
Louisville, KY
Miami FL
Minneapolis, MN
Orlando FL
Philadelphia, PA
Portland, OR
Sacramento, CA
San Francisco, CA
Tampa, FL
     (12.5 %)