|12 Months Ended|
Dec. 31, 2022
|Text Block [Abstract]|
NOTE 8. BROADCAST LICENSES
We account for broadcast licenses in accordance with FASB ASC Topic 350
. 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 6.5 years.
Intangibles—Goodwill and Other
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 and impairments as described below.
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.
During our annual testing in the fourth quarter of 2021, we determined that the estimated fair value of our broadcast licenses exceeded the carrying value and no impairment was recorded. We continued to monitor the critical accounting estimates used in our valuations and determined that interim impairment testing was appropriate during the second and third quarters of 2022. Our annual testing was completed in the fourth quarter of 2022 with updates to our interim assumptions based on the latest forecasts of economic and market conditions.
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 latest 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 latest estimated fair value exceeds the current period 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 valuation assumptions and key estimates, are not likely to be impaired. Markets with an excess fair value that is less than 25% are subject to further testing.
The table below presents the percentage within a range by which our latest
start-upincome estimated fair value exceeds the current period carrying value:
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, a
measure used by numerous trade organizations and analysts. 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 conservative indicator of fair value. Markets with an SOI multiple in excess of four are subject to further testing. Based on this qualitative review, we identified three markets subject to further testing. We included nine additional markets in our test based on the length of time elapsed from prior reviews.
The table below shows the percentage within a range by which our prior year estimated fair value exceeded the carrying value of our broadcasting licenses for these twelve market clusters:
We engaged Bond & Pecaro, an independent third-party appraisal and valuation firm, to assist us with determining the enterprise value of 25 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
start-upin 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
start-upcosts, 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:
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-upincome valuation for the broadcast licenses tested in each period were as
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 recorded impairment charges of $14.0 million during the year ended December 31, 2022. During our annual testing in the fourth quarter of 2022, we recorded an impairment chargeof $2.3 million to the value of broadcast licenses in Columbus, Portland and San Francisco at December 31, 2022. The impairment charge was driven by declines in market revenue projections in excess of those used in our prior valuations. We recorded an impairment charge of $7.7
million to the value of broadcast licenses in Boston, Chicago, Columbus, Dallas, Greenville, Honolulu, Little Rock, Orlando, Philadelphia, Portland, Sacramento, and San Francisco at September 30, 2022. The impairment charge was driven by a decline in market revenues projections and a reduction in the future industry growth rates based on the then current economic indicators. We recorded an impairment chargeof $3.9 million to the value of broadcast licenses in Columbus, Dallas, Greenville, Honolulu, Orlando, Portland, and Sacramento at June 30, 2022. The impairment charge was driven by an increase in the WACC partially offset with improvements in revenue growth rates over those used in prior
year-endvaluation forecasts. We believe that these factors are 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 annual impairment testing under the