Business and Basis of Presentation
|9 Months Ended|
Sep. 30, 2020
|Organization, Consolidation and Presentation of Financial Statements [Abstract]|
|Business and Basis of Presentation||
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
Salem Media Group, Inc. 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 19 – Segment Data.
Impact of the
In March 2020, the World Health Organization declared the outbreak of
COVID-19a global pandemic. The responses by federal, state and local governments to restrict public gatherings and travel rapidly grew to include
orders, school closures and mandatory restrictions on
non-essentialbusinesses and services that has adversely affected workforces, economies, and financial markets resulting in a significant economic downturn. We experienced declining revenues from advertising, programming, events and book sales. Several advertisers reduced or ceased advertising spend due to the outbreak and
orders that effectively shut many businesses down. This was particularly true within our broadcast segment, which derives substantial revenue from local advertisers who have been particularly hard hit due to social distancing and government interventions and in our publishing segment that sells books in retail stores and through live events.
While this disruption is currently expected to be temporary, there is considerable uncertainty around the duration. We are actively monitoring the
COVID-19situation and its impact in the markets we serve. Although advertising revenue continues to improve from the lowest point during April and May of this year, it remains significantly below the prior year. The exact timing and pace of the recovery is not determinable as certain markets have reopened, some of which have since experienced a resurgence of
COVID-19cases, resulting in varying degrees of reinstated
orders. We are taking all precautionary safety measures as directed by health authorities and local and national governments. Due to continuing uncertainties regarding the ultimate scope and trajectory of
COVID-19’sspread and evolution, it is impossible to predict the total impact that the pandemic will have on our business. If public and private entities continue to enforce restrictive measures, the material adverse effect on our business, results of operations, financial condition and cash flows could persist.
Future availability under our credit facility is contingent upon our eligible receivable balance that is negatively impacted by lower revenues and longer days to collect. Availability under the ABL is subject to a borrowing base consisting of (a) 90% of the eligible accounts receivable plus (b) a calculated amount based on the value of certain real property. The maximum amount available under our Asset Based Loan (“ABL”) Facility declined from $26.4 million at December 31, 2019 to $22.2 million at September 30, 2020, of which $16.6 million was outstanding at September 30, 2020 compared to $12.4 million outstanding at December 31, 2019. In response to these developments, beginning in March and continuing to date, we have implemented several measures to reduce costs and conserve cash to ensure that we have adequate cash to meet our debt servicing requirements, including:
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the
COVID-19pandemic and their employees. We have utilized certain benefits of the CARES Act, including:
We reforecast our anticipated results extending through November 2021. Our reforecast includes the impact of certain of these cost-cutting measures. We may consider sales-leaseback of owned facilities if the adverse economic impact of the
COVID-19pandemic continues beyond 2020. Based on our current and expected economic outlook and our current and expected funding needs, we believe that the borrowing capacity under our current credit facilities, together with cash on hand, allows us to meet our ongoing operating requirements, fund necessary capital expenditures and satisfy our debt service requirements for at least the next twelve months, including the working capital deficit at September 30, 2020. Based on our current assessment, we believe that we have the ability to meet our obligations as they come due for one year from the issuance of these financial statements.
We continue to review and consider any available potential benefit under the CARES Act for which we qualify. We cannot predict the manner in which such benefits or any of the other benefits described herein will be allocated or administered and we cannot assure you that we will be able to access such benefits in a timely manner or at all. If the U.S. government or any other governmental authority agrees to provide such aid under the CARES Act or any other crisis relief assistance it may impose certain requirements on the recipients of the aid, including restrictions on executive officer compensation, dividends, prepayment of debt, limitations on debt and other similar restrictions that will apply for a period of time after the aid is repaid or redeemed in full.
The ultimate impact of these disruptions, including the extent of their adverse impact on our financial and operating results, will be affected by the length of time that such disruptions continue, which will, in turn, depend on the currently unknown duration of the
COVID-19pandemic and the impact of governmental regulations and other restrictions that have been or may be imposed in response to the pandemic. Our businesses could also continue to be impacted by the disruptions from
COVID-19and resulting adverse changes in advertising customers and consumer behavior.
On August 7, 2020, we detected a ransomware attack impacting certain of our operational and information technology systems. We launched an investigation, notified law enforcement and engaged the services of specialized incident response professionals. We have recovered many of our business systems and critical operational data. Based on our investigation, the incident has not had a material impact on our business, operations or financial condition. We believe that our cyber insurance coverage is commensurate with our size and the nature of its operations.
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 and nine months ended September 30, 2020 and 2019 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-Qand 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-Kfor the year ended December 31, 2019. Our results are subject to seasonal fluctuations. Therefore, the results of operations for the interim periods presented are not necessarily indicative of the results of operations for the full year.
The balance sheet at December 31, 2019 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.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results can be materially different from these estimates and assumptions.
Significant areas for which management uses estimates include:
These estimates require the use of judgment as future events and the effect of these events cannot be predicted with certainty. The estimates will change as new events occur, as more experience is acquired and as more information is obtained. We evaluate and update our assumptions and estimates on an ongoing basis and we may consult outside experts to assist as considered necessary.
COVID-19pandemic continues to create 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.
The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef