Equibles

10-Q

SALEM MEDIA GROUP, INC. /DE/ (SALM)

10-Q 2021-08-05 For: 2021-06-30
View Original
Added on April 06, 2026
Table of Contents

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________________ TO __________________

COMMISSION FILE NUMBER 000-26497

SALEM MEDIA GROUP, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 77-0121400
(STATE OR OTHER JURISDICTION OF<br>INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER<br>IDENTIFICATION NUMBER)
6400 NORTH BELT LINE ROAD<br> <br>IRVING, TEXAS 75063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (469) 586-0080

Title of each Class Trading<br>Symbol(s) Name of each exchange<br>on which registered
Class A Common Stock, $0.01 par value per share SALM NASDAQ Global Market

Indicate by check mark whether the registrant (1) h a s filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller Reporting Company ☒
Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class A Outstanding at August 2, 2021
Common Stock, $0.01 par value per share 21,315,449 shares
Class B Outstanding at August 2, 2021
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Common Stock, $0.01 par value per share 5,553,696 shares

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SALEM MEDIA GROUP, INC.

INDEX

PAGE NO.
COVER PAGE
INDEX
FORWARD LOOKING STATEMENTS 2
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements. 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 32
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 64
Item 4. Controls and Procedures. 64
PART II—OTHER INFORMATION
Item 1. Legal Proceedings. 64
Item 1A. Risk Factors. 64
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 64
Item 3. Defaults Upon Senior Securities. 64
Item 4. Mine Safety Disclosures. 64
Item 5. Other Information. 64
Item 6. Exhibits. 64
EXHIBIT INDEX 65
SIGNATURES 66

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CERTAIN DEFINITIONS

Unless the context requires otherwise, all references in this report to “Salem” or the “company,” including references to Salem by “we” “us” “our” and “its” refer to Salem Media Group, Inc. and our subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Salem makes “forward-looking statements” from time to time in both written reports (including this annual report) and oral statements, within the meaning of federal and state securities laws. Disclosures that use words such as the company “believes,” “anticipates,” “estimates,” “expects,” “intends,” “will,” “may,” “intends,” “could,” “would,” “should,” “seeks,” “predicts,” or “plans” and similar expressions are intended to identify forward-looking statements, as defined under the Private Securities Litigation Reform Act of 1995.

You should not place undue reliance on these forward-looking statements, which reflect our expectations based upon data available to the company as of the date of this annual report. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Except as required by law, the company undertakes no obligation to update or revise any forward-looking statements made in this annual report. Any such forward-looking statements, whether made in this annual report or elsewhere, should be considered in context with the various disclosures made by Salem about its business. These projections and other forward-looking statements fall under the safe harbors of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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PART I – FINANCIAL INFORMATION

SALEM MEDIA GROUP, INC.

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

June 30, 2021<br><br> <br>(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents 6,325 $ 19,858
Trade accounts receivable (net of allowances of 14,069 in 2020 and 14,498 in 2021) 24,469 24,568
Unbilled revenue 3,192 2,639
Other receivables (net of allowances of 124 in 2020 and 455 in 2021) 1,122 1,468
Inventories (net of reserves of 1,499 in 2020 and 1,508 in 2021) 495 719
Prepaid expenses 6,847 7,166
Assets held for sale 3,346 —
Total current assets 45,796 56,418
Notes receivable (net of allowance of 461 in 2020 and 815 in 2021) 721 636
Property and equipment (net of accumulated depreciation of 180,336 in 2020 and 184,521 in 2021) 79,122 79,415
Operating lease right-of-use assets 48,203 44,926
Financing lease right-of-use assets 152 124
Broadcast licenses 319,773 320,008
Goodwill 23,757 23,785
Amortizable intangible assets (net of accumulated amortization of 58,897 in 2020 and 58,476 in 2021) 4,017 3,226
Deferred financing costs 213 174
Other assets 2,817 3,232
Total assets 524,571 $ 531,944
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable 2,006 $ 2,357
Accrued expenses 11,002 10,667
Accrued compensation and related expenses 10,242 11,139
Accrued interest 1,225 1,227
Contract liabilities 11,652 12,401
Deferred rent income 147 143
Income taxes payable 563 605
Current portion of operating lease liabilities 8,963 8,768
Current portion of financing lease liabilities 60 59
Current portion of long-term debt 5,000 —
Total current liabilities 50,860 47,366
Long-term debt, less current portion 213,764 225,327
Operating lease liabilities, less current portion 47,740 44,049
Financing (capital) lease liabilities, less current portion 107 82
Deferred income taxes 68,883 68,480
Contract liabilities, long-term 1,869 2,167
Deferred rent income, less current portion 3,864 3,818
Other long-term liabilities 2,205 2,242
Total liabilities 389,292 393,531
Commitments and contingencies (Note 14)
Stockholders’ Equity:
Class A common stock, 0.01 par value; authorized 80,000,000 shares; 23,447,317 and 23,633,099 issued and 21,129,667 and 21,315,449 outstanding at December 31, 2020 and June 30, 2021, respectively 227 229
Class B common stock, 0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding at December 31, 2020 and June 30, 2021, respectively 56 56
Additional paid-in capital 247,025 247,577
Accumulated deficit (78,023 ) (75,443 )
Treasury stock, at cost (2,317,650 shares at December 31, 2020 and June 30, 2021) (34,006 ) (34,006 )
Total stockholders’ equity 135,279 138,413
Total liabilities and stockholders’ equity 524,571 $ 531,944

All values are in US Dollars.

See accompanying notes

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SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share data)

(Unaudited)

Six Months Ended<br> June 30,
2021 2020 2021
Net broadcast revenue 39,470 $ 46,783 $ 84,650 $ 90,831
Net digital media revenue 9,443 10,339 18,547 19,958
Net publishing revenue 3,958 6,660 7,924 12,346
Total net revenue 52,871 63,782 111,121 123,135
Operating expenses:
Broadcast operating expenses, exclusive of depreciation and amortization shown below (including 435 and 446 for the three months ended June 30, 2020 and 2021, respectively, and 866 and 889 for the six months ended June 30, 2020 and 2021, respectively, paid to related parties) 33,094 36,162 70,421 69,505
Digital media operating expenses, exclusive of depreciation and amortization shown below 7,653 8,338 15,979 17,011
Publishing operating expenses, exclusive of depreciation and amortization shown below 5,567 6,426 10,629 11,631
Unallocated corporate expenses exclusive of depreciation and amortization shown below (including 0 and 2 for the three months ended June 30, 2020 and 2021, respectively, and 180 and 5 for the six months ended June 30, 2020 and 2021, respectively, paid to related parties) 3,850 4,192 8,060 8,480
Depreciation 2,718 2,741 5,431 5,330
Amortization 840 545 1,827 1,126
Change in the estimated fair value of contingent earn-out consideration 3 — (2 ) —
Impairment of indefinite-lived long-term assets other than goodwill — — 17,254 —
Impairment of goodwill — — 307 —
Net (gain) loss on the disposition of assets 34 (263 ) 113 55
Total operating expenses 53,759 58,141 130,019 113,138
Operating income (loss) (888 ) 5,641 (18,898 ) 9,997
Other income (expense):
Interest income — — — 1
Interest expense (4,013 ) (3,935 ) (8,045 ) (7,861 )
Gain on early retirement of long-term debt — — 49 —
Net miscellaneous income and (expenses) 6 63 (46 ) 85
Net income (loss) before income taxes (4,895 ) 1,769 (26,940 ) 2,222
Provision for (benefit from) income taxes (2,380 ) (488 ) 30,779 (358 )
Net income (loss) (2,515 ) $ 2,257 $ (57,719 ) $ 2,580
Basic income (loss) per share data:
Basic income (loss) per share (0.09 ) $ 0.08 $ (2.16 ) $ 0.10
Diluted income (loss) per share data:
Diluted income (loss) per share (0.09 ) $ 0.08 $ (2.16 ) $ 0.10
Basic weighted average shares outstanding 26,683,363 26,869,145 26,683,363 26,802,892
Diluted weighted average shares outstanding 26,683,363 27,232,423 26,683,363 27,185,598

All values are in US Dollars.

See accompanying notes

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SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands, except share and per share data)

Class A<br> Common Stock Class B<br> Common Stock Additional
Shares Amount Shares Amount Paid-In<br><br> Capital Accumulated<br> Deficit Treasury<br> Stock Total
Stockholders’ equity, December 31, 2019 23,447,317 $ 227 5,553,696 $ 56 $ 246,680 $ (23,294 ) $ (34,006 ) $ 189,663
Stock-based compensation — — — — 103 — — 103
Cash distributions — — — — — (667 ) — (667 )
Net loss — — — — — (55,204 ) — (55,204 )
Stockholders’ equity, March 31, 2020 23,447,317 $ 227 5,553,696 $ 56 $ 246,783 $ (79,165 ) $ (34,006 ) $ 133,895
Distributions per share $ 0.025 $ 0.025
Stock-based compensation — — — — 96 — — 96
Net loss — — — — — (2,515 ) — (2,515 )
Stockholders’ equity, June 30, 2020 23,447,317 $ 227 5,553,696 $ 56 $ 246,879 $ (81,680 ) $ (34,006 ) $ 131,476
Class A<br> Common Stock Class B<br> Common Stock Additional
Shares Amount Shares Amount Paid-In<br><br> Capital Accumulated<br> Deficit Treasury<br> Stock Total
Stockholders’ equity, December 31, 2020 23,447,317 $ 227 5,553,696 $ 56 $ 247,025 $ (78,023 ) $ (34,006 ) $ 135,279
Stock-based compensation — — — — 78 — — 78
Options exercised 185,782 2 — — 390 — — 392
Net income — — — — — 323 — 323
Stockholders’ equity, March 31, 2021 23,633,099 $ 229 5,553,696 $ 56 $ 247,493 $ (77,700 ) $ (34,006 ) $ 136,072
Stock-based compensation — — — — 84 — — 84
Net income — — — — — 2,257 — 2,257
Stockholders’ equity, June 30, 2021 23,633,099 $ 229 5,553,696 $ 56 $ 247,577 $ (75,443 ) $ (34,006 ) $ 138,413

See accompanying not e s

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SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

Six Months Ended<br><br> <br>June 30,
2020 2021
OPERATING ACTIVITIES
Net income (loss) $ (57,719 ) $ 2,580
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Non-cash<br> stock-based compensation 199 162
Depreciation and amortization 7,258 6,456
Amortization of deferred financing costs 461 426
Non-cash<br> lease expense 4,464 4,348
Provision for bad debts 3,621 (325 )
Deferred income taxes 30,629 (403 )
Change in the estimated fair value of contingent <br>earn-out<br> consideration (2 ) —
Impairment of indefinite-lived long-term assets other than goodwill 17,254 —
Impairment of goodwill 307 —
Gain on early retirement of long-term debt (49 ) —
Net (gain) loss on the disposition of assets 113 55
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue 5,530 421
Inventories 10 (224 )
Prepaid expenses and other current assets 97 (319 )
Accounts payable and accrued expenses 1,720 453
Operating leas<br>e<br> liabilities (3,403 ) (4,931 )
Contract liabilities 7,267 1,310
Deferred rent income (151 ) 111
Other liabilities 1,204 35
Income taxes payable 155 42
Net cash provided by operating activities 18,965 10,197
INVESTING ACTIVITIES
Cash paid for capital expenditures net of tenant improvement allowances (2,525 ) (3,994 )
Capital expenditures reimbursable under tenant improvement allowances and trade agreements (94 ) (19 )
Deposit on broadcast assets and radio station acquisitions — (100 )
Purchases of broadcast assets and radio stations — (600 )
Purchases of digital media businesses and assets — (1,300 )
Proceeds from sale of assets 188 3,627
Proceeds from the cash surrender value of life insurance policies 2,363 —
Other (384 ) (814 )
Net cash used in investing activities (452 ) (3,200 )
FINANCING ACTIVITIES
Payments to repurchase 6.75% Senior Secured Notes (3,392 ) —
Proceeds from borrowings under ABL Facility 38,349 16
Payments on ABL Facility (31,775 ) (5,016 )
Proceeds from borrowings under PPP Loans — 11,195
Payments of debt issuance costs (66 ) (19 )
Proceeds from the exercise of stock options — 392
Payments on financing lease liabilities (35 ) (32 )
Payment of cash distribution on common stock (667 ) —
Book overdraft (1,885 ) —
Net cash provided by financing activities 529 6,536
Net increase in cash and cash equivalents 19,042 13,533
Cash and cash equivalents at beginning of year 6 6,325
Cash and cash equivalents at end of period $ 19,048 $ 19,858

See accompanying notes

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SALEM MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollars in thousands)

(Unaudited)

Six Months<br><br>Ended<br><br> <br>June 30,
2020 2021
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Cash paid for interest, net of capitalized interest $ 7,600 $ 7,391
Cash paid for interest on finance lease liabilities $ 4 $ 4
Net cash paid for (received from) income taxes $ (5 ) $ 3
Other supplemental disclosures of cash flow information:
Barter revenue $ 1,705 $ 1,065
Barter expense $ 1,558 $ 1,092
Non-cash<br> investing and financing activities:
Capital expenditures reimbursable under tenant improvement allowances $ 94 $ 19
Right-of-use<br> assets acquired through operating leases $ 2,655 $ 1,957
Right-of-use<br> assets acquired through financing leases $ — $ 4
Non-cash<br> capital expenditures for property & equipment acquired under trade agreements $ 4 $ 27
Net assets and liabilities assumed in a <br>non-cash<br> acquisition $ — $ 129
Estimated present value of contingent-earn out consideration $ — $ 11

See accompanying notes

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SALEM MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BUSINESS AND BASIS OF PRESENTATION

Business

Salem Media Group, Inc. (“Salem,” “we,” “us,” “our” or the “company”) 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 17 – Segment Data.

Impact of the COVID-19 Pandemic

The COVID-19 global pandemic that began in March 2020 continues to impact our business. Measures taken by federal, state and local governments to prevent the spread of COVID-19 have adversely affected workforces, business operations and overall economic conditions resulting in a significant economic downturn. We experienced a rapid decline in revenue from advertising, programming, events and book sales. Several advertisers reduced or ceased advertising spending due to the outbreak and stay-at-home orders that effectively shut many businesses down. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who have been particularly hard hit due to social distancing and government interventions, and our publishing segment, which derives revenue from book sales through retail stores and live events.

While the economic downturn is expected to be temporary, there remains to be considerable uncertainty around the duration. Advertising revenue continues to improve over the lowest levels that were experienced during April and May of 2020 but remains significantly below prior years. The exact timing and pace of the economic recovery has not been determinable due to varying degrees of restrictions and resurgences. Due to continuing uncertainties regarding the ultimate scope and trajectory of COVID-19’s spread 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. Our businesses could also continue to be impacted by the disruptions from COVID-19 and resulting adverse changes in advertising and consumer behavior.

Lower revenue and longer days to collect receivables negatively impacts future availability under our credit facility. Availability under our Asset Based Loan (“ABL Facility”) 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 ABL Facility increased to $25.0 million at June 30, 2021 compared to $24.8 million at December 31, 2020, of which none was outstanding at June 30, 2021 compared to $5.0 million outstanding at December 31, 2020.

We implemented several measures during 2020 to reduce costs and conserve cash to ensure that we have adequate cash to meet our debt servicing requirements, including:

• limiting capital expenditures;
• reducing discretionary spending, including travel and entertainment;
--- ---
• eliminating open positions and freezing new hires;
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• reducing staffing levels;
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• implementing temporary company-wide pay cuts of 5%, 7.5% or 10% depending on salary level;
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• furloughing certain employees;
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• temporarily suspending the company 401(k) match;
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• requesting rent concessions from landlords;
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• requesting discounts from vendors;
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• offering early payment discounts to certain customers in exchange for advance cash payments; and
--- ---
• suspending the payment of distributions on our common stock indefinitely.
--- ---

As the economy begins to show signs of recovery, many of these cost reduction initiatives have been reversed during 2021. We continue to operate with lower staffing levels, we have not reinstated the company 401(k) match and we have not paid equity distributions on our common stock.

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-19 pandemic and their employees. On December 27, 2020, Congress passed the Consolidated Appropriations Act (“CAA”) that includes a second relief package, which, among other things, provides for an extension of the Payroll Support Program established by the CARES Act. We have utilized certain benefits of the CARES Act, and we may be entitled to benefits under the CAA based on our individual locations, including:

• we deferred $3.3 million of employer FICA taxes from April 2020 through December 2020, with 50% payable in December 2021 and 50% payable in December 2022;
• relaxation of interest expense deduction limitation for income tax purposes; and
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• we received Paycheck Protection Program (“PPP”) loans of $11.2 <br>million in total during the first quarter of 2021 based on the eligibility as determined on a per-location basis. During July 2021, the SBA forg<br>a<br>ve all but $20,000 of the PPP loans.

We believe that our customers have benefited from the enhanced benefits provided by the CARES Act, and that they will also benefit from the CAA. The CAA provides for another round of direct payments, enhanced unemployment benefits, education funding, and aid to sectors still reeling from the economic fallout of the pandemic. While these measures may benefit many of our customers, we cannot assure you that the implementation of these measures will offset the negative impact of COVID-19 on our customers. If the CAA or any additional stimulus measures are not sufficient to remediate the financial stress on our customers as a result of the pandemic, we may experience ongoing challenges in growing and maintaining revenue and we may experience an increase in delinquencies that could materially and adversely impact our results of operations and financial condition in future periods.

We continue to review and consider any available potential benefit under the CARES Act and the CAA 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, the CAA, 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 may apply for a period of time after the aid is repaid or redeemed in full.

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 six months ended June 30, 2021 and 2020 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-Q and 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-K for the year ended December 31, 2020. Our results are subject to seasonal fluctuations and therefore, the results of operations for the interim periods presented are not necessarily indicative of the results of operations for a full year.

The balance sheet at December 31, 2020 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. Certain reclassifications have been made to the prior year financial statements to conform to the presentation in the current year, which had no impact on the previously reported financial statements.

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:

• revenue recognition;
• asset impairments, including broadcasting licenses, goodwill and other indefinite-lived intangible assets;
--- ---
• probabilities associated with the potential for contingent <br>earn-out<br> consideration;
--- ---
• fair value measurements;
--- ---
• contingency reserves;
--- ---
• allowance for doubtful accounts;
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• sales returns and allowances;
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• barter transactions;
--- ---
• inventory reserves;
--- ---
• reserves for royalty advances;
--- ---
• fair value of equity awards;
--- ---
• self-insurance reserves;
--- ---
• estimated lives for tangible and intangible assets;
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• assessment of contract-based factors, asset-based factors, entity-based factors and market-based factors to determine the lease term impacting <br>Right-Of-Use<br> (“ROU”) assets and lease liabilities;
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• determining the Incremental Borrowing Rate (“IBR”) for calculating ROU assets and lease liabilities,
• income tax valuation allowances;
--- ---
• uncertain tax positions; and
--- ---
• estimates used in going concern analysis.
--- ---

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.

The COVID-19 pandemic 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.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no changes to our significant accounting policies described in Note 2 to our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 4, 2021, that have had a material impact on our Condensed Consolidated Financial Statements and related notes.

Recent Accounting Pronouncements

Changes to accounting principles are established by the FASB in the form of ASUs to the FASB’s Codification. We consider the applicability and impact of all ASUs on our financial position, results of operations, cash flows, or presentation thereof. Described below are ASUs that may be applicable to our financial position, results of operations, cash flows, or presentation thereof. ASUs not listed below were assessed and determined to not be applicable to our financial position, results of operations, cash flows, or presentation thereof.

In January 2021, the FASB issued ASU 2021-01,

Reference Rate Reform (Topic 848): Scope , which refines the scope of ASC 848, Reference Rate Reform , and clarifies guidance as part of the FASB’s ongoing monitoring of global reference rate reform activities. The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. The ASU is effective upon issuance and did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

In June 2016, the FASB issued ASU 2016-13,

Financial Instruments-Credit Losses, which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. Subsequent to issuing ASU 2016-13, the FASB issued ASU 2018-19,

Codification Improvements to Topic 326, Financial Instruments—Credit Losses , for the purpose of clarifying certain aspects of ASU 2016-13. ASU 2018-19 has the same effective date and transition requirements as ASU 2016-13. In April 2019, the FASB issued ASU 2019-04,

Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments , which is effective with the adoption of ASU 2016-13. In May 2019, the FASB issued ASU 2019-05,

Financial Instruments – Credit Losses (Topic 326) , which is also effective with the adoption of ASU 2016-13. In October 2019, the FASB voted to delay the implementation date for certain companies, including those, such as Salem, that qualify as a smaller reporting company under SEC rules, until January 1, 2023. We will adopt this ASU on its effective date of January 1, 2023. We do not expect the adoption of this ASU to have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

NOTE 3. RECENT TRANSACTIONS

During the six-month period ended June 30, 2021, we completed or entered into the following transactions:

Debt Transactions

We received $11.2 million in aggregate principal amount of PPP loans through the Small Business Administration (“SBA”) during the first quarter of 2021 available to our radio stations and networks by location under the CAA. The PPP loans and accrued interest are forgivable provided that the proceeds are used for eligible purposes, including payroll, benefits, rent and utilities within the covered period of up to 24 weeks from funding of the loans. The amount of PPP loan and accrued interest that is forgiven can be reduced if we reduce payroll or eliminate positions during the covered period. We are using, and intend to continue to use, the PPP loan proceeds according to the terms and will file timely applications for forgiveness. The PPP loans accrue interest at 1% annually and mature in five years for any amount that is not forgiven. The PPP loans are reflected in long-term debt in the accompanying condensed consolidated financial statements in accordance with FASB ASC Topic 470, Debt , until the loans are repaid or legally discharged. During July 2021, the SBA forg a ve all but $20,000 of the PPP loans.

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Shelf Registration Statement and At-the-Market Facility

In April 2021, we filed a prospectus supplement to our shelf registration statement on Form S-3 with the SEC covering the offering, issuance and sale of up to $15.0 million of the company’s Class A Common Stock pursuant to an at-the-market facility, with B. Riley Securities, Inc. acting as sales agent.

Acquisitions

The operating results of our business acquisitions and asset purchases are included in our consolidated results of operations from their respective closing date or the date that we began operating them under an LMA or TBA.

On June 1, 2021, we acquired radio stations KDIA-AM and KDYA-AM in San Francisco, California for $0.6 million in cash. The radio stations were acquired in formats that we operate and resulted in $4,000 of goodwill attributable to the additional audience reach obtained and the expected synergies to be realized from combining the operations of these stations into our existing market cluster.

On April 28, 2021, we acquired the Centerline New Media domain and digital assets for $1.3 million in cash. The digital content library is operated within Salem Web Network’s church products division. We recognized goodwill of $24,000 attributable to the expected synergies to be realized when combining the operations of this entity into our existing operations.

On March 8, 2021, we acquired the Triple Threat Trader newsletter. We paid no cash at the time of closing and assumed deferred subscription liabilities of $0.1 million. As part of the purchase agreement, we may pay up to an additional $11,000 in contingent earn-out consideration over the next two years based on the achievement of certain revenue benchmarks.

A summary of our business acquisitions and asset purchases during the six-month period ending June 30, 2021, none of which were individually or in the aggregate material to our consolidated financial position as of the respective date of acquisition, is as follows:

Acquisition Date Description Total Consideration
(Dollars in thousands)
June 1, 2021 KDIA-AM and KDYA-AM San Francisco, California (business acquisition) $ 600
April 28, 2021 Centerline New Media (business acquisition) 1,300
March 8, 2021 Triple Threat Trader (asset acquisition) 127
$ 2,027

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.

Fair value estimates include the discounted cash flows expected to be generated by the assets over their expected useful lives based on historical experience, market trends and the impact of 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 an independent third-party appraiser to estimate the fair value of the net assets acquired as of the acquisition date. As part of this 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 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 $11,000 during the six months ended June 30, 2021, which are included in unallocated corporate expenses or broadcast operating expense based on the nature of the acquisition in the accompanying Consolidated Statements of Operations.

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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 12, Fair Value Measurements and Disclosures.

The total purchase price consideration for our business acquisitions and asset purchases the six-month period ending June 30, 2021, is as follows:

Description Total Consideration
(Dollars in thousands)
Cash payments made upon closing $ 1,900
Deferred payments 116
Present value of estimated fair value of contingent <br>earn-out<br> consideration 11
Total purchase price consideration $ 2,027

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

Net Broadcast<br> Assets Acquired Net Digital<br> Assets Acquired Total<br> Net Assets
(Dollars in thousands)
Assets
Property and equipment $ 361 $ 1,080 $ 1,441
Broadcast licenses 235 — 235
Goodwill 4 24 28
Customer lists and contracts — 314 314
Domain and brand names — 22 22
$ 600 $ 1,440 $ 2,040
Liabilities
Contract liabilities, short-term — (13 ) (13 )
$ 600 $ 1,427 $ 2,027

Divestitures

The operating results of business and asset divestitures are excluded from our consolidated results of operations from their respective closing date or the date that a third-party began operating them under an LMA or TBA.

On May 25, 2021, we sold Singing News Magazine and Singing News Radio for $0.1 million in cash. In addition to the assets sold, the buyer assumed deferred subscription liabilities of $0.4 million resulting in a pre-tax gain on the sale of $0.5 million.

On March 18, 2021, we sold radio station WKAT-AM and an FM translator in Miami, Florida for $3.5 million. We collected $3.2 million in cash upon closing and received a promissory note for $0.3 million due one year from the closing date. The buyer began operating the station under a Local Marketing Agreement (“LMA”) in November 2020. We recognized an estimated pre-tax loss of $1.4 million during the three-month period ended September 30, 2020, the date we entered the Asset Purchase Agreement (“APA”) with the buyer, which reflected the sale price as compared to the carrying value of the assets to be sold, estimated closing costs, and the write-off of the remaining Miami assets as a result of exiting this market. We adjusted the pre-tax loss by $0.4 million to $1.8 million upon closing based on the actual closing costs incurred and a reconciliation of total station assets to the assets included in the sale.

Pending Transactions

On June 2, 2021, we entered into an APA to acquire radio station KKOL-AM in Seattle, Washington for $0.5 million. We paid $0.1 million in cash into an escrow account and we began operating the station under an LMA on June 7, 2021.

On April 10, 2021, we entered into an agreement to sell approximately 34 acres of land in Lewisville, Texas, currently being used as the transmitter site for company owned radio station KSKY-AM, for $12.1 million in cash. We will retain enough of the property in the southwest corner of the site to operate the transmitter. The transaction closed on July 23, 2021.

On February 5, 2020, we entered into an APA with Word Broadcasting to sell radio stations WFIA-AM,

WFIA-FM and WGTK-AM in Louisville, Kentucky for $4.0 million with credits applied from amounts previously paid, including a portion of the monthly fees paid under a Time Brokerage Agreement (“TBA”). Due to changes in debt markets, the transaction was not funded, and it is uncertain when, or if, the transaction will close. Word Broadcasting continues to program the stations under a TBA that began in January 2017.

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NOTE 4. REVENUE RECOGNITION​​​​​​​

We recognize revenue in accordance with ASC 606, “ Revenue from Contracts with Customers” (“ASC 606,”) a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to customers at an amount that reflects the consideration expected to be received. The application of ASC 606 requires us to use significant judgment and estimates when applying a five-step model applicable to all revenue streams.

Principal versus Agent Considerations

When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent.

Contract Assets

Contract Assets—Costs to Obtain a Contract: We capitalize commissions paid to sales personnel in our self-publishing business when customer contracts are signed and advance payment is received. These capitalized costs are recorded as prepaid commission expense in the Consolidated Balance Sheets. The amount capitalized is incremental to the contract and would not have been incurred absent the execution of the customer contract. Commissions paid upon the initial acquisition of a contract are expensed at the point in time that related revenue is recognized. Prepaid commission expenses are periodically reviewed for impairment. At June 30, 2021, our prepaid commission expense was $0.7 million.

Contract Liabilities

Contract liabilities consist of customer advance payments and billings in excess of revenue recognized. We may receive payments from our customers in advance of completing our performance obligations. Additionally, new customers, existing customers without approved credit terms and authors purchasing specific self-publishing services, are required to make payments in advance of the delivery of the products or performance of the services. We record contract liabilities equal to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms. Contract liabilities were historically recorded under the caption “deferred revenue” and are reported as current liabilities on our consolidated financial statements when the time to fulfill the performance obligations under terms of our contracts is less than one year. Long-term contract liabilities represent the amount of payments received in excess of revenue earned, including those that are refundable, when the time to fulfill the performance obligation is greater than one year. Our long-term liabilities consist of subscriptions with a term of two-years for which some customers have purchased and paid for multiple years.

Significant changes in our contract liabilities balances during the period are as follows:

Short-Term Long-Term
(Dollars in thousands)
Balance, beginning of period January 1, 2021 $ 11,652 $ 1,869
Revenue recognized during the period that was included in the beginning balance of contract liabilities (6,292 ) —
Additional amounts recognized during the period 13,531 756
Revenue recognized during the period that was recorded during the period (6,948 ) —
Transfers 458 (458 )
Balance, end of period June 30, 2021 $ 12,401 $ 2,167
Amount refundable at beginning of period $ 11,607 $ 1,869
Amount refundable at end of period $ 12,389 $ 2,167

We expect to satisfy these performance obligations as follows:

Amount
For the Twelve Months Ended June 30, (Dollars in thousands)
2022 $ 12,401
2023 1,225
2024 608
2025 209
2026 68
Thereafter 57
$ 14,568

Significant Financing Component

Our sales agreements are typically less than 12 months; however, we may sell subscriptions with a two-year term. The balance of our long-term contract liabilities represents the unsatisfied performance obligations for subscriptions with a remaining term in excess of one year. We review long-term contract liabilities that are expected to be completed in excess of one year to assess whether the contract contains a significant financing component. The balance includes subscriptions that will be satisfied at various dates between July 1, 2021, and June 30, 2026. The difference between the promised consideration and the cash selling price of the publications is not significant and therefore, we concluded that subscriptions do not contain a significant financing component under ASC 606.

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Our self-publishing contracts may exceed a one-year term due to the length of time for an author to submit and approve a manuscript for publication. The author may pay for publishing services in installments over the production timeline with payments due in advance of performance. The timing of the transfer of goods and services under self-publishing arrangements are at the discretion of the author and based on future events that are not substantially within our control. We require advance payments to provide us with protection from incurring costs for products that are unique and only sellable to the author. Based on these considerations, we have concluded that our self-publishing contracts do not contain a significant financing component under ASC 606.

Variable Consideration

We make significant estimates related to variable consideration at the point of sale, including estimates for refunds and product returns. Revenue estimates for variable consideration may be recognized before contingencies are resolved in certain circumstances, including when it is probable that a significant reversal in the amount of any estimated cumulative revenue will not occur.

We enter into certain agreements under which the amount of revenue we earn is contingent upon the amount of money raised by our customer over the contract term. Our customer is typically a charity or programmer that purchases blocks of programming time or spots to generate revenue by way of donations from our audience members. Contract terms range from a few weeks to a few months, depending on the charity or programmer. If a campaign does not generate a pre-determined level of donations or revenue to our customer, the consideration that we expect to be entitled will vary significantly.

Based on the constraints for using estimates of variable consideration within ASC 606 including: (1) the amount of consideration received is highly susceptible to factors outside of our influence, specifically the extent to which our audience donates or contributes to our customer or programmer, (2) the length of time in which the uncertainty about the amount of consideration expected is to be resolved, (3) our experience and (4) the contract has a large number and broad range of possible consideration amounts, we recognize revenue at the base amount of the campaign with variable consideration recognized when the uncertainty of each campaign is resolved.

Practical Expedients and Exemptions

We elected certain practical expedients and policy elections as follows:

• We do not adjust the promised amount of consideration for the effects of a significant financing component if the period between transfer of product and customer payment is expected to be less than one year at the time of contract inception;
• We do not assess promised goods or services as performance obligations if they are immaterial in the context of the contract with the customer;
--- ---
• We exclude sales and similar taxes from the transaction price;
--- ---
• We treat shipping and handling costs that occur after control transfers as fulfillment activities instead of assessing such activities as separate performance obligations; and
--- ---
• We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
--- ---

A summary of our principal sources of revenue is as follows:

Block Programming

. We recognize revenue from the sale of blocks of airtime to program producers that typically range from 12 1 / 2 , 25 or 50-minutes of time. We separate block program revenue into three categories, National, Local and Infomercial revenue. Our stations are classified by format, including Christian Teaching and Talk, News Talk, Contemporary Christian Music, Spanish Language Christian Teaching and Talk and Business. National and local programming content is complementary to our station format while infomercials are closely associated with long-form advertisements. Block Programming revenue may include variable consideration for charities and programmers that purchase blocks of airtime to generate donations and contributions from our audience. Block programming revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Programming revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.

Spot Advertising . We recognize revenue from the sale of airtime to local and national advertisers who purchase spot commercials of varying lengths. Spot Advertising may include variable consideration for charities and programmers that purchase spots to generate donations and contributions from our audience. Advertising revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.

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Network Revenue

. Network revenue includes the sale of advertising time on our national network and fees earned from the syndication of programming on our national network. Network revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Network revenue is recorded on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.

Digital Advertising. We recognize revenue from the sale of banner advertising on our owned and operated websites, the sale of advertisements on our own and operated mobile applications, the sale of advertisements in digital newsletters that we produce, the sale of advertising in streaming and podcasts, and the sale of custom digital advertising solutions, such as web pages and social media campaigns, that we offer to our customers. Digital advertising revenue is recognized at the time that the advertisement is delivered, or when the number of impressions delivered meets the previously agreed-upon performance criteria, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Digital advertising revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.

Salem Surround, our multimedia advertising agency, offers a comprehensive suite of digital marketing services to develop and execute audience-based marketing strategies for clients on both the national and local level. Salem Surround specializes in digital marketing services for each of our radio stations and websites as well as provides a full-service digital marketing strategy for each of our clients. In our role as a digital agency, our sales team provides our customers with integrated digital advertising solutions that optimize the performance of their campaign, which we view as one performance obligation. Our advertising campaigns are designed to be “white label” agreements between Salem and our advertiser, meaning we provide special care and attention to the details of the campaign. We provide custom digital product offerings, including tools for metasearch, retargeting, website design, reputation management, online listing services, and social media marketing. Digital advertising solutions may include third-party websites, such as Google or Facebook, which can be included in a digital advertising social media campaign. We manage all aspects of the digital campaign, including social media placements, review and approval of target audiences, and the monitoring of actual results to make modifications as needed. We may contract directly with a third-party, however, we are responsible for delivering the campaign results to our customer with or without the third-party. We are responsible for any payments due to the third-party regardless of the campaign results and without regard to the status of payment from our customer. We have discretion in setting the price to our customer without input or approval from the third-party. Accordingly, revenue is reported gross, as principal, as the performance obligation is delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation.

Digital Streaming . We recognize revenue from the sale of advertisements and from the placement of ministry content that is streamed on our owned and operated websites and on our owned and operated mobile applications. Each of our radio stations, our digital media entities and certain publishing entities have custom websites and mobile applications that generate streaming revenue. Digital streaming revenue is recognized at the time that the content is delivered, or when the number of impressions delivered meets the previously agreed-upon performance criteria. Delivery of the content represents the point in time that control is transferred to the customer thereby completing our performance obligation. Streaming revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.

Digital Downloads and e-books . We recognize revenue from sale of downloaded materials, including videos, song tracks, sermons, content archives and e-books. Payments for downloaded materials are due in advance of the download, however, the download is often instant upon confirmation of payment. Digital download revenue is recognized at the time of download, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is recorded at the gross amount due from the customer. All sales are final with no allowances made for returns.

Subscriptions . We recognize revenue from the sale of subscriptions for financial publication digital newsletters, digital magazines, podcast subscriptions for on-air content, and subscriptions to our print magazine. Subscription terms typically range from three months to two years, with a money-back guarantee for the first 30 days. Refunds after the first 30-day period are considered on a pro-rata basis based on the number of publications issued and delivered. Payments are due in advance of delivery and can be made in full upon subscribing or in quarterly installments. Cash received in advance of the subscription term, including amounts that are refundable, is recorded in contract labilities. Revenue is recognized ratably over the subscription term at the point in time that each publication is transmitted or shipped, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is reported net of estimated cancellations, which are based on our experience and historical cancellation rates during the cancellable period.

Book Sales . We recognize revenue from the sale of books upon shipment, which represents the point in time that control is transferred to the customer thereby completing the performance obligation. Revenue is recorded at the gross amount due from the customer, net of estimated sales returns and allowances based on our historical experience. Major new title releases represent a significant portion of the revenue in the current period. Print-based consumer books are sold on a fully returnable basis. We do not record assets or inventory for the value of returned books as they are considered used regardless of the condition returned. Our experience with unsold or returned books is that their resale value is insignificant and they are often destroyed or disposed of.

e-Commerce . We recognize revenue from the sale of products sold through our digital platform. Payments for products are due in advance shipping. We record a contract liability when we receive customer payments in advance of shipment. The time frame from receipt of payment to shipment is typically one business day based on the time that an order is placed as compared to fulfillment. E-Commerce revenue is recognized at the time of shipment, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is reported net of estimated returns, which are based on our experience and historical return rates. Returned products are recorded in inventory if they are unopened and re-saleable with a corresponding reduction in the cost of goods sold.

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Self-Publishing Fees . We recognize revenue from self-publishing services through Salem Author Services (“SAS”), including book publishing and support services to independent authors. Services include book cover design, interior layout, printing, distribution, marketing services and editing for print books and e-Books. As each book and related support services are unique to each author, authors must make payments in advance of the performance. Payments are typically made in installments over the expected production timeline for each publication. We record contract liabilities equal to the amount of payments received, including those amounts that are fully or partially refundable. Contract liabilities were historically recorded under the caption “deferred revenue” and are reported as current liabilities or long-term liabilities on our consolidated financial statements based on the time to fulfill the performance obligations under terms of the contract. Refunds are limited based on the percentage completion of each publishing project.

Revenue is recognized upon completion of each performance obligation, which represents the point in time that control of the product is transferred to the author, thereby completing our performance obligation. Revenue is recorded at the net amount due from the author, including discounts based on the service package.

Advertising—Print . We recognized revenue from the sale of print magazine advertisements. Revenue was recognized upon delivery of the print magazine which represents the point in time that control is transferred to the customer thereby completing the performance obligation. Revenue was reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.

Other Revenues

. Other revenues include various sources, such as event revenue, listener purchase programs, talent fees for on-air hosts, rental income for studios and towers, production services, and shipping and handling fees. We recognize event revenue, including fees earned for ticket sales and sponsorships, when the event occurs, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue for all other products and services is recorded as the products or services are delivered or performed, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Other revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.

Trade and Barter Transactions

In broadcasting, trade or barter agreements are commonly used to reduce cash expenses by exchanging advertising time for goods or services. We may enter barter agreements to exchange airtime or digital advertising for goods or services that can be used in our business or that can be sold to our audience under Listener Purchase Programs. The terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime or digital campaign for cash. The value of these non-cash exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive. Each transaction must be reviewed to determine that the products, supplies and/or services we receive have economic substance, or value to us. We record barter operating expenses upon receipt and usage of the products, supplies and services, as applicable. We record barter revenue as advertising spots or digital campaigns are delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Barter revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.

Trade and barter revenues and expenses were as follows:

Three Months Ended<br> June 30, Six Months Ended<br> June 30,
2020 2021 2020 2021
(Dollars in thousands)
Net broadcast barter revenue $ 508 $ 674 $ 1,674 $ 1,065
Net digital media barter revenue — — — —
Net publishing barter revenue 5 — 31 —
Net broadcast barter expense $ 524 $ 712 $ 1,558 $ 1,085
Net digital media barter expense — — — —
Net publishing barter expense — 7 — 7

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The following table presents our revenues disaggregated by revenue source for each of our operating segments:

Six Months Ended June 30, 2021
Broadcast Digital Media Publishing Consolidated
(Dollars in thousands)
By Source of Revenue:
Block Programming—National $ 23,322 $ — $ — $ 23,322
Block Programming—Local 11,773 — — 11,773
Spot Advertising—National 7,118 — — 7,118
Spot Advertising—Local 19,441 — — 19,441
Infomercials 462 — — 462
Network 9,821 — — 9,821
Digital Advertising 11,745 8,806 132 20,683
Digital Streaming 2,093 1,706 — 3,799
Digital Downloads and eBooks 200 3,173 792 4,165
Subscriptions 562 6,072 262 6,896
Book Sales and e-commerce, net of estimated sales returns and allowances 197 98 7,502 7,797
Self-Publishing Fees — — 3,174 3,174
Print Advertising — — 122 122
Other Revenues 4,097 103 362 4,562
$ 90,831 $ 19,958 $ 12,346 $ 123,135
Timing of Revenue Recognition
Point in Time $ 89,583 $ 19,958 $ 12,346 $ 121,887
Rental Income (1) 1,248 — — 1,248
$ 90,831 $ 19,958 $ 12,346 $ 123,135
Six Months Ended June 30, 2020
Broadcast Digital Media Publishing Consolidated
(Dollars in thousands)
By Source of Revenue:
Block Programming—National $ 23,804 $ — $ — $ 23,804
Block Programming—Local 12,440 — — 12,440
Spot Advertising—National 6,544 — — 6,544
Spot Advertising—Local 19,145 — — 19,145
Infomercials 536 — — 536
Network 8,614 — — 8,614
Digital Advertising 6,483 9,260 151 15,894
Digital Streaming 1,229 1,768 — 2,997
Digital Downloads and eBooks — 3,047 504 3,551
Subscriptions 573 4,292 351 5,216
Book Sales and <br>e-commerce,<br> net of estimated sales returns and allowances 1,663 55 3,861 5,579
Self-Publishing Fees — — 2,453 2,453
Print Advertising 1 — 193 194
Other Revenues 3,618 125 411 4,154
$ 84,650 $ 18,547 $ 7,924 $ 111,121
Timing of Revenue Recognition
Point in Time $ 83,379 $ 18,547 $ 7,924 $ 109,850
Rental Income (1) 1,271 — — 1,271
$ 84,650 $ 18,547 $ 7,924 $ 111,121
(1) Rental income is not applicable to ASC Topic 606, but shown for the purpose of identifying each revenue source presented in total revenue on our Condensed Consolidated Financial Statements within this report on Form <br>10-Q.
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NOTE 5. INVENTORIES

Inventories consist of finished books from Regnery ® Publishing. All inventories are valued at the lower of cost or net realizable value as determined on a First-In

First-Out cost method net of estimated reserves for obsolescence.

The following table provides details of inventory on hand:

December 31, 2020 June 30, 2021
(Dollars in thousands)
Book inventories $ 1,994 $ 2,227
Reserve for obsolescence (1,499 ) (1,508 )
Inventory, net— $ 495 $ 719

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NOTE 6. PROPERTY AND EQUIPMENT

We account for property and equipment in accordance with FASB ASC Topic 360-10,

Property, Plant and Equipment .

The following is a summary of the categories of our property and equipment:

December 31,<br> 2020 June 30,<br> 2021
(Dollars in thousands)
Land $ 30,254 $ 30,254
Buildings 28,922 28,971
Office furnishings and equipment 36,875 37,229
Antennae, towers and transmitting equipment 78,057 78,549
Studio, production, and mobile equipment 29,023 29,303
Computer software and website development costs 33,928 35,258
Record and tape libraries 17 —
Automobiles 1,514 1,514
Leasehold improvements 18,187 18,546
Construction-in-progress 2,681 4,312
$ 259,458 $ 263,936
Less accumulated depreciation (180,336 ) (184,521 )
$ 79,122 $ 79,415

Depreciation expense was approximately $2.7 million for the three-month periods ended June 30, 2021 and 2020, and $5.3 million and $5.4 million for the six-month periods ended June 30, 2021 and 2020, respectively. We periodically review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. This review requires us to estimate the fair value of the assets using significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value, including assumptions about risk. If actual future results are less favorable than t he assumptions and estimates we used, we are subject to future impairment charges, the amount of which may be material. There were no indications of impairment during the three- and six-month period ended June 30, 2021.

NOTE 7. OPERATING AND FINANCE LEASE RIGHT-OF-USE ASSETS

Leases

We account for leases in accordance with ASC 842, “ Leases ” that requires lessees to recognize Right of Use (“ROU”) assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months. ASC 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the statement of operations and statement of cash flows.

Leasing Transactions

Our leased assets include offices and studios, transmitter locations, antenna sites, tower and tower sites, and land. Our lease portfolio has terms remaining from less than one-year to up to twenty years. Many of these leases contain options under which we can extend the term from five to twenty years. Renewal options are excluded from our calculation of lease liabilities unless we are reasonably assured to exercise the renewal option. Our lease agreements do not contain residual value guarantees or material restrictive covenants. We lease certain properties from our principal stockholders or from trusts and partnerships created for the benefit of the principal stockholders and their families. These leases are designated as Related Party leases in the details provided.

Operating leases are reflected on our balance sheet within operating lease ROU assets and the related current and non-current operating lease liabilities. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from lease agreement. Operating lease ROU assets and liabilities are recognized at the commencement date, or the date on which the lessor makes the underlying asset available for use, based upon the present value of the lease payments over the respective lease term. Lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectation regarding the lease terms. Variable lease costs, such as common area maintenance, property taxes and insurance, are expensed as incurred.

Balance Sheet

Supplemental balance sheet information related to leases is as follows:

June 30, 2021
(Dollars in thousands)
Operating Leases Related Party Other Total
Operating leases ROU assets $ 6,363 $ 38,563 $ 44,926
Operating lease liabilities (current) $ 954 $ 7,814 $ 8,768
Operating lease liabilities <br>(non-current) 5,577 38,472 44,049
Total operating lease liabilities $ 6,531 $ 46,286 $ 52,817

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Weighted Average Remaining Lease Term
Operating leases 7.9 years
Finance leases 2.8 years
Weighted Average Discount Rate
Operating leases 7.95 %
Finance leases 5.44 %

Lease Expense

The components of lease expense were as follows:

Six Months Ended<br> June 30, 2021
(Dollars in thousands)
Amortization of finance lease ROU Assets $ 32
Interest on finance lease liabilities 4
Finance lease expense 36
Operating lease expense 6,438
Variable lease expense 310
Short-term lease expense 352
Total lease expense $ 7,136

Supplemental Cash Flow

Supplemental cash flow information related to leases was as follows:

Six Months Ended<br> June 30, 2021
(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 7,097
Operating cash flows from finance leases 2
Financing cash flows from finance leases 32
Leased assets obtained in exchange for new operating lease liabilities $ 1,957
Leased assets obtained in exchange for new finance lease liabilities 4

Maturities

Future minimum lease payments under leases that had initial or remaining non-cancelable lease terms in excess of one year as of June 30, 2021, are as follows:

Operating Leases
Related Party Other Total Finance Leases Total
(Dollars in thousands)
2021 <br>(July-Dec) $ 1,461 $ 11,009 $ 12,470 $ 65 $ 12,535
2022 1,470 10,874 12,344 51 12,395
2023 1,017 8,817 9,834 25 9,859
2024 1,021 6,890 7,911 10 7,921
2025 1,037 5,937 6,974 1 6,975
Thereafter 3,545 22,222 25,767 — 25,767
Undiscounted Cash Flows $ 9,551 $ 65,749 $ 75,300 $ 152 $ 75,452
Less: imputed interest (3,020 ) (19,463 ) (22,483 ) (11 ) (22,494 )
Total $ 6,531 $ 46,286 $ 52,817 $ 141 $ 52,958
Reconciliation to lease liabilities:
Lease liabilities—current $ 954 $ 7,814 $ 8,768 $ 59 $ 8,827
Lease liabilities—long-term 5,577 38,472 44,049 82 44,131
Total Lease Liabilities $ 6,531 $ 46,286 $ 52,817 $ 141 $ 52,958

NOTE 8. 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 at the end of their respective periods. We expect all of our broadcast

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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. There were no indications of impairment during the three- and six-month period ended June 30, 2021.

The following table presents the changes in broadcasting licenses that include acquisitions and divestitures of radio stations and FM translators.

Broadcast Licenses Twelve Months Ended<br> December 31, 2020 Six Months Ended<br><br> <br>June 30, 2021
(Dollars in thousands)
Balance before cumulative loss on impairment, beginning of period $ 435,300 $ 434,209
Accumulated loss on impairment, beginning of period (97,442 ) (114,436 )
Balance after cumulative loss on impairment, beginning of period 337,858 319,773
Acquisitions of radio stations — 235
Dispositions of radio stations (1,091 ) —
Impairments based on the estimated fair value of broadcast licenses (16,994 ) —
Balance, end of period after cumulative loss on impairment $ 319,773 $ 320,008
Balance, end of period before cumulative loss on impairment $ 434,209 $ 434,444
Accumulated loss on impairment, end of period (114,436 ) (114,436 )
Balance, end of period after cumulative loss on impairment $ 319,773 $ 320,008

NOTE 9. GOODWILL

We account for goodwill in accordance with FASB ASC Topic 350 “ Intangibles—Goodwill and Other .” We do not amortize goodwill, but rather test for impairment annually or more frequently if events or circumstances indicate that an asset may be impaired. 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. There were no indications of impairment during the three- and six-month period ended June 30, 2021.

The following table presents the changes in goodwill including business acquisitions and dispositions as discussed in Note 3 of our Condensed Consolidated Financial Statements.

Goodwill Twelve Months Ended<br> December 31, 2020 Six Months Ended<br> June 30, 2021
(Dollars in thousands)
Balance, beginning of period before cumulative loss on impairment, $ 28,454 $ 28,520
Accumulated loss on impairment (4,456 ) (4,763 )
Balance, beginning of period after cumulative loss on impairment 23,998 23,757
Acquisitions of radio stations 66 4
Acquisitions of digital media entities — 24
Impairments based on the estimated fair value goodwill (307 ) —
Ending period balance $ 23,757 $ 23,785
Balance, end of period before cumulative loss on impairment 28,520 28,548
Accumulated loss on impairment (4,763 ) (4,763 )
Ending period balance $ 23,757 $ 23,785

NOTE 10. AMORTIZABLE INTANGIBLE ASSETS

The following tables provide a summary of our significant classes of amortizable intangible assets:

June 30, 2021
Cost Accumulated<br> Amortization Net
(Dollars in thousands)
Customer lists and contracts $ 23,225 $ (21,770 ) $ 1,455
Domain and brand names 20,289 (19,492 ) 797
Favorable and assigned leases 2,188 (1,951 ) 237
Subscriber base and lists 9,522 (8,809 ) 713
Author relationships 2,771 (2,770 ) 1
Non-compete<br> agreements 2,041 (2,028 ) 13
Other amortizable intangible assets 1,666 (1,656 ) 10
$ 61,702 $ (58,476 ) $ 3,226

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December 31, 2020
Accumulated
Cost Amortization Net
(Dollars in thousands)
Customer lists and contracts )
Domain and brand names )
Favorable and assigned leases )
Subscriber base and lists )
Author relationships )
Non-compete<br> agreements )
Other amortizable intangible assets )
62,914 (58,897) 4,017

All values are in US Dollars.

Amortization expense was approximately $0.5 million and $0.8 million for the three-month periods ended June 30, 2021 and 2020, respectively and $1.1 million and $1.8 million for the six-month periods ended June 30, 2021 and 2020, respectively. Based on the amortizable intangible assets as of June 30, 2021, we estimate amortization expense for the next five years to be as follows:

Year Ended December 31, Amortization Expense
(Dollars in thousands)
2021 (July – Dec) $ 796
2022 1,318
2023 784
2024 117
2025 13
Thereafter 198
Total $ 3,226

NOTE 11. LONG-TERM DEBT

Salem Media Group, Inc. has no independent assets or operations, the subsidiary guarantees relating to certain debt are full and unconditional and joint and several, and any subsidiaries of Salem Media Group, Inc. other than the subsidiary guarantors are minor.

SBA PPP Loans

We received $11.2 million in aggregate principal amount of PPP loans through the SBA during the first quarter of 2021 available to our radio stations and networks by location under the CAA. The PPP loans and accrued interest are forgivable provided that the proceeds are used for eligible purposes, including payroll, benefits, rent and utilities within the covered period of up to 24 weeks from funding of the loans. The amount of PPP loan and accrued interest that is forgiven can be reduced if we reduce payroll or eliminate positions during the covered period. We are using, and intend to continue to use, the PPP loan proceeds according to the terms and will file timely applications for forgiveness. The PPP loans accrue interest at 1% annually and mature in five years for any amount that is not forgiven. The PPP loans are reflected in long-term debt in the accompanying condensed consolidated financial statements in accordance with FASB ASC Topic 470, Debt , until the loans are repaid or legally discharged. During July 2021, the SBA forg a ve all but $20,000 of the PPP loans.

6.75% Senior Secured Notes

On May 19, 2017, we issued 6.75% Senior Secured Notes (“Notes”) in a private placement. The Notes are guaranteed on a senior secured basis by our existing subsidiaries (the “Subsidiary Guarantors”). The Notes bear interest at a rate of 6.75% per year and mature on June 1, 2024, unless they are earlier redeemed or repurchased. Interest initially accrued on the Notes from May 19, 2017 and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2017.

The Notes are secured by a first-priority lien on substantially all assets of ours and the Subsidiary Guarantors other than the ABL Facility Priority Collateral (as described below) (the “Notes Priority Collateral”). There is no direct lien on our FCC licenses to the extent prohibited by law or regulation (other than the economic value and proceeds thereof).

The Notes were redeemable, in whole or in part, at any time on or before June 1, 2020 at a price equal to 100% of the principal amount of the Notes plus a “make-whole” premium as of, and accrued and unpaid interest, if any, to, but not including, the redemption date. At any time on or after June 1, 2020, the Notes are redeemable at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth in the Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date.

The indenture relating to the Notes (the “Indenture”) contains covenants that, among other things and subject in each case to certain specified exceptions, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets.

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The Indenture provides for the following events of default (each, an “Event of Default”): (i) default in payment of principal or premium on the Notes at maturity, upon repurchase, acceleration, optional redemption or otherwise; (ii) default for 30 days in payment of interest on the Notes; (iii) the failure by us or certain restricted subsidiaries to comply with other agreements in the Indenture or the Notes, in certain cases subject to notice and lapse of time; (iv) the failure of any guarantee by certain significant Subsidiary Guarantors to be in full force and effect and enforceable in accordance with its terms, subject to notice and lapse of time; (v) certain accelerations (including failure to pay within any grace period) of other indebtedness of ours or any restricted subsidiary if the amount accelerated (or so unpaid) is at least $15 million; (vi) certain judgments for the payment of money in excess of $15 million; (vii) certain events of bankruptcy or insolvency with respect to us or any significant subsidiary; and (viii) certain defaults with respect to any collateral having a fair market value in excess of $15 million. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare the principal of the Notes and any accrued interest on the Notes to be due and payable immediately, subject to remedy or cure in certain cases. Certain events of bankruptcy or insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default. At June 30, 2021, we were, and we remain, in compliance with all of the covenants under the Indenture.

Based on the balance of the Notes currently outstanding, we are required to pay $14.6 million per year in interest on the Notes. As of June 30, 2021, accrued interest on the Notes was $1.2 million.

We incurred debt issuance costs of $6.3 million that were recorded as a reduction of the debt proceeds that are being amortized to non-cash interest expense over the life of the Notes using the effective interest method. During the three and six-month periods ended June 30, 2021, $0.2 million and $0.4 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense. During the three and six-month periods ended June 30, 2020, $0.2 million and $0.4 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense.

We may from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to repurchase the Notes in open market transactions, privately negotiated transactions, by tender offer or otherwise, as market conditions warrant.

Based on the then existing market conditions, we completed repurchases of our 6.75% Senior Secured Notes at amounts less than face value as follows:

Date Principal Repurchased Cash Paid % of Face Value Bond Issue Costs Net Gain
(Dollars in thousands)
January 30, 2020 $ 2,250 $ 2,194 97.50 % $ 34 $ 22
January 27, 2020 1,245 1,198 96.25 % 20 27
December 27, 2019 3,090 2,874 93.00 % 48 167
November 27, 2019 5,183 4,548 87.75 % 82 553
November 15, 2019 3,791 3,206 84.58 % 61 524
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
December 21, 2018 2,000 1,835 91.75 % 38 127
December 21, 2018 1,850 1,702 92.00 % 35 113
December 21, 2018 1,080 999 92.50 % 21 60
November 17, 2018 1,500 1,357 90.50 % 29 114
May 4, 2018 4,000 3,770 94.25 % 86 144
April 10, 2018 4,000 3,850 96.25 % 87 63
April 9, 2018 2,000 1,930 96.50 % 43 27
$ 38,659 $ 35,586 $ 706 $ 2,367

Asset-Based Revolving Credit Facility

On May 19, 2017, we entered into the ABL Facility pursuant to a Credit Agreement (the “Credit Agreement”) by and among us and our subsidiaries party thereto as borrowers, Wells Fargo Bank, National Association, as administrative agent and lead arranger, and the lenders that are parties thereto. We used the proceeds of the ABL Facility, together with the net proceeds from the Notes offering, to repay outstanding borrowings under our previously existing senior credit facilities, and related fees and expenses. Current proceeds from the ABL Facility are used to provide ongoing working capital and for other general corporate purposes, including permitted acquisitions.

The ABL Facility is a five-year $30.0 million revolving credit facility due March 1, 2024, which includes a $5.0 million subfacility for standby letters of credit and a $7.5 million subfacility for swingline loans. All borrowings under the ABL Facility accrue interest at a rate equal to a base rate or LIBOR plus a spread. The spread, which is based on an availability-based measure, ranges from 0.50% to 1.00% for base rate borrowings and 1.50% to 2.00% for LIBOR borrowings. If an event of default occurs, the interest rate may increase by 2.00% per annum. Amounts outstanding under the ABL Facility may be paid and then reborrowed at our discretion without penalty or premium. Additionally, we pay a commitment fee on the unused balance from 0.25% to 0.375% per year based on the level of borrowings.

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On October 20, 2020, we entered into a fourth amendment to our ABL Facility that provides a one-time waiver with respect to the current covenant testing period allowing the covenant trigger event date be the first day after the availability on the ABL Facility had equaled or exceeded (1) 15% of the maximum revolver amount and (2) $4.5 million and a waiver permitting our July 2020 financial statements to be issued on or before September 30, 2020 due to delays that were caused by a ransomware attack.

On April 7, 2020, we entered into a third amendment to ABL Facility that increased the advance rate on eligible accounts receivable from 85% to 90% and extended the maturity date from May 19, 2022 to March 1, 2024. The April 7, 2020 amendment also allows for an alternative benchmark rate that may include SOFR due to LIBOR being scheduled to be discontinued at the end of calendar year 2021.

Availability under the ABL Facility 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. As of June 30, 2021, the amount available under the ABL Facility was $25.0 million of which none was outstanding. The ABL Facility has a first-priority lien on our and the Subsidiary Guarantors’ accounts receivable, inventory, deposit and securities accounts, certain real estate and related assets (the “ABL Facility Priority Collateral”) and by a second-priority lien on the Notes Priority Collateral. There is no direct lien on our FCC licenses to the extent prohibited by law or regulation (other than the economic value and proceeds thereof).

The Credit Agreement includes a springing fixed charge coverage ratio of 1.0 to 1.0, which is tested during the period commencing on the last day of the fiscal month most recently ended prior to the date on which Availability (as defined in the Credit Agreement) is less than the greater of 15% of the Maximum Revolver Amount (as defined in the Credit Agreement) and $4.5 million and continuing for a period of 60 consecutive days after the first day on which Availability exceeds such threshold amount. The Credit Agreement also includes other negative covenants that are customary for credit facilities of this type, including covenants that, subject to exceptions described in the Credit Agreement, restrict our ability and the ability of our subsidiaries (i) to incur additional indebtedness; (ii) to make investments; (iii) to make distributions, loans or transfers of assets; (iv) to enter into, create, incur, assume or suffer to exist any liens, (v) to sell assets; (vi) to enter into transactions with affiliates; (vii) to merge or consolidate with, or dispose of all assets to a third party, except as permitted thereby; (viii) to prepay indebtedness; and (ix) to pay dividends.

The Credit Agreement provides for the following events of default: (i) default for non-payment of any principal or letter of credit reimbursement when due or any interest, fees or other amounts within five days of the due date; (ii) the failure by any borrower or any subsidiary to comply with any covenant or agreement contained in the Credit Agreement or any other loan document, in certain cases subject to applicable notice and lapse of time; (iii) any representation or warranty made pursuant to the Credit Agreement or any other loan document is incorrect in any material respect when made; (iv) certain defaults of other indebtedness of any borrower or any subsidiary of indebtedness of at least $10 million; (v) certain events of bankruptcy or insolvency with respect to any borrower or any subsidiary; (vi) certain judgments for the payment of money of $10 million or more; (vii) a change of control; and (viii) certain defaults relating to the loss of FCC licenses, cessation of broadcasting and termination of material station contracts.​​​​​​​ If an event of default occurs and is continuing, the Administrative Agent and the Lenders may accelerate the amounts outstanding under the ABL Facility and may exercise remedies in respect of the collateral. At June 30, 2021, we were, and we remain, in compliance with all of the covenants under Credit Agreement.

We incurred debt issue costs of $0.9 million that w ere recorded as an asset and are being amortized to non-cash interest expense over the term of the ABL Facility using the effective interest method. During the three and six-month periods ended June 30, 2021, $29,000 and $0.1 million, respectively, of debt issuance costs associated with the ABL was amortized to interest expense. During the three and six-month periods ended June 30, 2020, $50,000  and $0.1 million, respectively, of debt issue costs associated with the ABL was amortized to interest expense.

We report outstanding balances on the ABL Facility as short-term regardless of the maturity date based on use of the ABL Facility to fund ordinary and customary operating cash needs with frequent repayments. We believe that our borrowing capacity under the ABL Facility allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve months.

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Summary of long-term debt obligations

Long-term debt consisted of the following:

December 31, 2020 June 30, 2021
(Dollars in thousands)
6.75% Senior Secured Notes $ 216,341 $ 216,341
Less unamortized debt issuance costs based on imputed interest rate of 7.08% (2,577 ) (2,209 )
6.75% Senior Secured Notes net carrying value 213,764 214,132
Asset-Based Revolving Credit Facility principal outstanding 5,000 —
SBA Paycheck Protection Program loans — 11,195
Long-term debt less unamortized debt issuance costs $ 218,764 $ 225,327
Less current portion (5,000 ) —
Long-term debt less unamortized debt issuance costs, net of current portion $ 213,764 $ 225,327

In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of June 30, 2021:

• $216.3 million aggregate principal amount of Notes with semi-annual interest payments at an annual rate of 6.75%; and
• Commitment fee of 0.25% to 0.375% per annum on the unused portion of the ABL Facility.
--- ---

Maturities of Long-Term Debt

Principal repayment requirements under all long-term debt agreements outstanding at June 30, 2021 for each of the next five years and thereafter are as follows:

Amount
For the Year Ended June 30, (Dollars in thousands)
2022 $ —
2023 —
2024 216,341
2025 —
2026 11,195
Thereafter —
$ 227,536

NOTE 12. FAIR VALUE MEASUREMENTS

Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” FASB ASC Topic 820 “ Fair Value Measurements and Disclosures,” (“ASC 820”) established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring fair value. This framework defines three levels of inputs to the fair value measurement process and requires that each fair value measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three broad levels of inputs defined by the ASC 820 hierarchy are as follows:

• Level<br><br>1 Inputs<br>—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;
• Level<br><br>2 Inputs<br>—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability; and
--- ---
• Level<br><br>3 Inputs<br>—unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).
--- ---

Under ASC 820, a fair value measurement of a nonfinancial asset considers a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Therefore, fair value is a market-based measurement and not an entity-specific measurement. It is determined based on assumptions that market participants would use in pricing the asset or liability. The exit price objective of a fair value measurement applies regardless of the reporting entity’s intent and/or ability to sell the asset or transfer the liability at the measurement date.

As of June 30, 2021, the carrying value of cash and cash equivalents, trade accounts receivables, accounts payable, accrued expenses and accrued interest approximates fair value due to the short-term nature of such instruments. The carrying amount of the Notes at June 30, 2021 was $216.3 million compared to the estimated fair value of $210.9 million, based on the prevailing interest rates and trading activity of our Notes.

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We have certain assets that are measured at fair value on a non-recurring basis that are adjusted to fair value only when the carrying values exceed the fair values. The categorization of the framework used to price the assets is considered Level 3 due to the subjective nature of the unobservable inputs used when estimating the fair value.

The following table summarizes the fair value of our financial assets and liabilities that are measured at fair value:

June 30, 2021
Carrying Value on<br> Balance Sheet Fair Value Measurement Category
Level 1 Level 2 Level 3
(Dollars in thousands)
Liabilities:
Estimated fair value of contingent <br>earn-out<br> consideration included in accrued expenses $ 11 — — $ 11
Long-term debt less unamortized debt issuance costs 225,327 — 208,779 —

NOTE 13. INCOME TAXES

We recognize deferred tax assets and liabilities for future tax consequences attributable to differences between our consolidated financial statement carrying amount of assets a nd liabilities and their respective tax bases. We measure these deferred tax assets and liabilities using enacted tax rates expected to apply in the years in which these temporary differences are expected to reverse. We recognize the effect on deferred tax assets and liabilities resulting from a change in tax rates in income in the period that includes the date of the change.

The adoption of ASU 2019-12,

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) in the current year did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof.

At December 31, 2020, we had net operating loss carryforwards for federal income tax purposes of approximately $135.3 million that expire in years 2021 through 2038 and for state income tax purposes of approximately $610.8 million that expire in years 2021 through 2040. As a result of our adjusted cumulative three-year pre-tax book loss as of December 31, 2020, we performed an assessment of positive and negative evidence with respect to the realization of our net deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, the availability of carryforwards and estimates of projected future taxable income. The economic uncertainty from the COVID-19 pandemic provided additional negative evidence that outweighed positive evidence resulting in our conclusion that additional deferred tax assets of $35.1 million related to federal and state net operating loss carryforwards are more likely than not to be not realized. As such, an additional valuation allowance of $35.1 million was recorded, for a total valuation allowance of $48.1 million as of the year ended December 31, 2020.

During the interim period ended June 30, 2021, we computed the income tax provision using the estimated effective annual rate applicable for the full year. We updated our forecast to project income for the 2021 calendar year. In accordance with the guidance under ASC 740-270-25-4, we measured the estimated utilization of the operating loss carryforwards and the release of the valuation allowance for both federal and state jurisdictions.

The effective tax rate differs from our statutory rate as a result of the forecasted change in the valuation allowance against expected operating income and changes to the deferred tax liability for amortization of indefinite-lived intangible assets.

The amortization of our indefinite-lived intangible assets for tax purposes, but not for book purposes, creates deferred tax liabilities. A reversal of deferred tax liabilities may occur when indefinite-lived intangibles: (1) become impaired; or (2) are sold, which would typically only occur in connection with the sale of the assets of a station or groups of stations or the entire company in a taxable transaction. Due to the amortization for tax purposes and not book purposes of our indefinite-lived intangible assets, we expect to continue to generate deferred tax liabilities in future periods exclusive of any impairment losses in future periods. These deferred tax liabilities and net operating loss carryforwards result in differences between our provision for income tax and cash paid for taxes.

We review and reevaluate uncertain tax positions on a quarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an additional charge to the tax provision.

Valuation Allowance (Deferred Taxes)

For financial reporting purposes, we recorded a valuation allowance of $28.4 million as of December 31, 2020 to offset $28.4 million of the deferred tax assets related to the federal net operating loss carryforwards, and $19.7 million of the deferred tax assets related to state net operating loss carryforwards of $15.7 million and other financial statement accrual assets of $4.0 million, for a total valuation allowance of $48.1 million for the year ended December 31, 2020.

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NOTE 14. COMMITMENTS AND CONTINGENCIES

We enter into various agreements in the normal course of business that contain minimum guarantees. Minimum guarantees are typically tied to future events, such as future revenue earned in excess of the contractual level. Accordingly, the fair value of these arrangements is zero.

We may record contingent earn-out consideration representing the estimated fair value of future liabilities associated with acquisitions that may have additional payments due upon the achievement of certain performance targets. The fair value of the contingent earn-out consideration is estimated as of the acquisition date as the present value of the expected contingent payments as determined using weighted probabilities of the expected payment amounts. We review the probabilities of possible future payments to estimate the fair value of any contingent earn-out consideration on a quarterly basis over the earn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the acquired business increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent earn-out consideration liability will increase or decrease, up to the contracted limit, as applicable. Changes in the estimated fair value of the contingent earn-out consideration are reflected in our results of operations in the period in which they are identified. Changes in the estimated fair value of the contingent earn-out consideration may materially impact and cause volatility in our operating results.

We and our subsidiaries, incident to our business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. We evaluate claims based on what we believe to be both probable and reasonably estimable. We maintain insurance that may provide coverage for such matters. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. We believe, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon our condensed consolidated financial position, results of operations or cash flows.

NOTE 15. STOCK INCENTIVE PLAN

Our Amended and Restated 1999 Stock Incentive Plan (the “Plan”) provides for grants of equity-based awards to employees, non-employee directors and officers, and advisors (“Eligible Persons”). The Plan is designed to promote the interests of the company using equity investment interests to attract, motivate, and retain individuals.

A maximum of 8,000,000 shares are authorized under the Plan. All awards have restriction periods tied primarily to employment and/or service. The Plan allows for accelerated or continued vesting in certain circumstances as defined in the Plan including death, disability, a change in control, and termination or retirement. The Board of Directors, or a committee appointed by the Board, has discretion subject to limits defined in the Plan, to modify the terms of any outstanding award. Awards granted to non-employee directors are made in exchange for their services to the company as directors and therefore, the guidance in FASB ASC Topic 505-50

Equity Based Payments to Non-Employees is not applicable.

Under the Plan, the Board, or a committee appointed by the Board, may impose restrictions on the exercise of awards during pre-defined blackout periods. Insiders may participate in plans established pursuant to Rule 10b5-1 under the Exchange Act that allow them to exercise awards subject to pre-established criteria.

We recognize non-cash stock-based compensation expense based on the estimated fair value of awards in accordance with FASB ASC Topic 718 Compensation—Stock Compensation . Stock-based compensation expense fluctuates over time as a result of the vesting periods for outstanding awards and the number of awards that actually vest. The following table reflects the components of stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations for the three- and six- month periods ended June 30, 2021 and 2020:

Three Months Ended June 30, Six Months Ended June 30,
2020 2021 2020 2021
(Dollars in thousands) (Dollars in thousands)
Stock option compensation expense included in unallocated corporate expenses $ 43 $ 24 $ 93 $ 52
Stock option compensation expense included in broadcast operating expenses 37 33 74 61
Stock option compensation expense included in digital media operating expenses 16 27 31 49
Stock option compensation expense included in publishing operating expenses — — 1 —
Total stock-based compensation expense, <br>pre-tax $ 96 $ 84 $ 199 $ 162
Tax expense for stock-based compensation expense (25 ) (22 ) (52 ) (42 )
Total stock-based compensation expense, net of tax $ 71 $ 62 $ 147 $ 120

Stock Option and Restricted Stock Grants

Eligible employees may receive stock option awards annually with the number of shares and type of instrument generally determined by the employee’s salary grade and performance level. Incentive and non-qualified stock option awards allow the recipient to purchase shares of our common stock at a set price, not to be less than the closing market price on the date of award, for no consideration payable by the recipient. The related number of shares underlying the stock option is fixed at the time of the grant. Options generally vest over a four-year period with a maximum term of five years from the vesting date. In addition, certain management and professional level employees may receive stock option awards upon the commencement of employment.

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The Plan also allows for awards of restricted stock that contain transfer restrictions under which they cannot be sold, pledged, transferred or assigned until the period specified in the award, generally from one to five years. Restricted stock awards are independent of option grants and are granted at no cost to the recipient other than applicable taxes owed by the recipient. The awards are considered issued and outstanding from the date of grant.

The fair value of each award is estimated as of the date of the grant using the Black-Scholes valuation model. The expected volatility reflects the consideration of the historical volatility of our common stock as determined by the closing price over a six to ten-year term commensurate with the expected term of the award. Expected dividends reflect the amount of quarterly distributions authorized and declared on our Class A and Class B common stock as of the grant date. The expected term of the awards is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rates for periods within the expected term of the award are based on the U.S. Treasury yield curve in effect during the period the options were granted. We have used historical data to estimate future forfeiture rates to apply against the gross amount of compensation expense determined using the valuation model. These estimates have approximated our actual forfeiture rates.

The weighted-average assumptions used to estimate the fair value of the stock options using the Black-Scholes valuation model were as follows for the three- and six-month periods ended June 30, 2021 and 2020:

Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, 2020 June 30, 2020 June 30, 2021 June 30, 2021
Expected volatility n/a 53.96 % n/a 74.83 %
Expected dividends n/a 7.30 % n/a 0.00 %
Expected term (in years) n/a 7.6 n/a 7.7
Risk-free interest rate n/a 1.14 % n/a 0.96 %

Activity with respect to the company’s option awards during the six-month period ended June 30, 2021 is as follows:

Options Shares Weighted<br> Average<br> Exercise Price Weighted Average<br> Grant Date<br> Fair Value Weighted Average<br> Remaining<br> Contractual Term Aggregate<br> Intrinsic<br> Value
(Dollars in thousands, except weighted average exercise price and weighted average grant date fair value)
Outstanding at January 1, 2021 2,291,020 $ 3.23 $ 1.52 4.3 years $ —
Granted 210,000 2.01 1.44 —
Exercised (185,782 ) 2.11 0.97 188
Forfeited or expired (157,446 ) 6.73 4.74 —
Outstanding at June 30, 2021 2,157,792 $ 2.95 $ 1.33 4.5 years $ 996
Exercisable at June 30, 2021 1,210,417 $ 3.84 $ 1.75 2.8 years $ 167
Expected to Vest 899,533 $ 2.98 $ 1.34 4.5 years $ 786

Activity with respect to the company’s restricted stock awards during the six-month period ended June 30, 2021 is as follows:

Restricted Stock Awards Shares Weighted Average<br> Grant Date Fair Value Weighted Average<br> Remaining Contractual Term Aggregate<br> Intrinsic Value
(Dollars in thousands, except weighted average exercise price and weighted average grant date fair value)
Outstanding at January 1, 2021 107,990 $ 1.85 1.67 years $ 112
Granted — — — —
Lapsed — — — —
Forfeited — — — —
Outstanding at June 30, 2021 107,990 $ 1.85 0.6 years $ 275

The aggregate intrinsic value represents the difference between the company’s closing stock price on June 30, 2021 of $2.55 and the option exercise price of the shares for stock options that were in the money, multiplied by the number of shares underlying such options. The total fair value of options vested during the periods ended June 30, 2021 and 2020 was $0.3 million and $0.4 million, respectively.

As of June 30, 2021, there was $0.1 million of total unrecognized compensation cost related to non-vested stock option awards. This cost is expected to be recognized over a weighted-average period of 2.1 years.

NOTE 16. EQUITY TRANSACTIONS

We account for stock-based compensation expense in accordance with FASB ASC Topic 718, Compensation-Stock Compensation . As a result, $0.1 million and $0.2 million of non-cash stock-based compensation expense has been recorded to additional paid-in capital for the three- and six-month periods ended June 30, 202 1 , respectively, in comparison to $0.1 million and $0.2 million of non-cash stock-based compensation expense having been recorded to additional paid-in capital for the three- and six-month periods ended June 30, 2020, respectively.

Our dividend policy is based upon our Board of Directors’ current assessment of our business and the environment in which we operate. The declaration of any future distributions and the establishment of the per share amount, record dates, and payment dates are subject to final determination by our Board of Directors and dependent upon future earnings, cash flows, financial and legal requirements, and other factors. On May 6, 2020, our Board of Directors voted to discontinue equity distributions until further notice due to the adverse economic impact of the COVID-19 pandemic on our financial position, results of operations, and cash flows.

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NOTE 17. SEGMENT DATA

FASB ASC Topic 280, “ Segment Reporting ,” requires companies to provide certain information about their operating segments. We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which also qualify as reportable segments. Our operating segments reflect how our chief operating decision makers, which we define as a collective group of senior executives, assesses the performance of each operating segment and determines the appropriate allocations of resources to each segment. We continually review our operating segment classifications to align with operational changes in our business and may make changes as necessary.

We measure and evaluate our operating segments based on operating income and operating expenses that do not include allocations of costs related to corporate functions, such as accounting and finance, human resources, legal, tax and treasury, which are reported as unallocated corporate expenses in our condensed consolidated statements of operations included in this quarterly report on Form 10-Q. We also exclude costs such as amortization, depreciation, taxes and interest expense.

Segment performance, as defined by Salem, is not necessarily comparable to other similarly titled captions of other companies.

Broadcasting

Our foundational business is radio broadcasting, which includes the ownership and operation of radio stations in large metropolitan markets. Our broadcasting segment includes our national networks and national sales firms. National companies often prefer to advertise across the United States as an efficient and cost-effective way to reach their target audiences. Our national platform under which we offer radio airtime, digital campaigns and print advertisements can benefit national companies by reaching audiences throughout the United States.

Salem Radio Network TM (“SRN TM ”), based in Dallas, Texas, develops, produces and syndicates a broad range of programming specifically targeted to Christian and family-themed talk stations, music stations and News Talk stations. SRN TM delivers programming via satellite to approximately 3,300 affiliated radio stations throughout the United States, including several of our Salem-owned stations. SRN TM operates five divisions, SRN TM Talk, SRN TM News, SRN TM Websites, SRN TM Satellite Services and Salem Music Network that includes Today’s Christian Music (“TCM”).

Salem Media Representatives (“SMR”) is our national advertising sales firm with offices in 12 U.S. cities. SMR specializes in placing national advertising on Christian and talk formatted radio stations as well as other commercial radio station formats. SMR sells commercial airtime to national advertisers on our radio stations and through our networks, as well as for independent radio station affiliates. SMR also contracts with independent radio stations to create custom advertising campaigns for national advertisers to reach multiple markets.

Salem Surround, our multimedia advertising agency with locations in 33 markets across the United States, offers a comprehensive suite of digital marketing services to develop and execute audience-based marketing strategies for clients on both the national and local level. Salem Surround specializes in digital marketing services for each of our radio stations and websites as well as provides a full-service digital marketing strategy for each of our clients.

Digital Media

Our digital media-based businesses provide Christian, conservative, investing content, e-commerce, audio and video streaming, and other resources digitally through the web. Salem Web Network (“SWN”) websites include Christian content websites; BibleStudyTools.com, Crosswalk.com ® , GodVine.com, iBelieve.com, GodTube ® .com, OnePlace ™ .com, Christianity.com, GodUpdates.com, CrossCards ™ .com, ChristianHeadlines.com, LightSource.com, AllCreated.com, ChristianRadio.com, CCMmagazine.com, SingingNews ® .com and SouthernGospel.com and our conservative opinion websites; collectively known as Townhall Media, include Townhall.com ® , HotAir ™ .com, Twitchy ® .com, RedState ® .com, BearingArms.com, ConservativeRadio.com and pjmedia.com. We also publish digital newsletters through Eagle Financial Publications, which provide market analysis and non-individualized investment strategies from financial commentators on a subscription basis.

Our church e-commerce websites, including SermonSearch ™ .com, ChurchStaffing.com, WorshipHouseMedia.com, SermonSpice ™ .com, WorshipHouseKids.com, Preaching.com, ChristianJobs.com, Youthworker.com, JourneyBoxMedia.com, Playblackmedia.com, and HyperPixelsMedia.com, offer a variety of digital resources including videos, song tracks, sermon archives and job listings to pastors and Church leaders.

Our web content is accessible through all of our radio station websites that feature content of interest to local audiences throughout the United States.

Publishing

Our publishing operating segment includes three businesses: (1) Regnery ® Publishing and Salem Books, traditional book publishers that have published dozens of bestselling books by leading conservative and Christian authors and personalities and (2) Salem Author Services, a self-publishing service for authors through Xulon Press and Mill City Press.

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The table below presents financial information for each operating segment as of June 30, 2021 and 2020 based on the composition of our operating segments:

Broadcast Digital<br> Media Publishing Unallocated<br> Corporate<br> Expenses Consolidated
(Dollars in thousands)
Three Months Ended June 30, 2021
Net revenue $ 46,783 $ 10,339 $ 6,660 $ — $ 63,782
Operating expenses 36,162 8,338 6,426 4,192 55,118
Net operating income (loss) before depreciation, amortization, and net (gain) loss on the disposition of assets $ 10,621 $ 2,001 $ 234 $ (4,192 ) $ 8,664
Depreciation 1,603 860 44 234 2,741
Amortization 4 397 144 — 545
Net (gain) loss on the disposition of assets — 65 (328 ) — (263 )
Net operating income (loss) $ 9,014 $ 679 $ 374 $ (4,426 ) $ 5,641
Three Months Ended June 30, 2020
Net revenue $ 39,470 $ 9,443 $ 3,958 $ — $ 52,871
Operating expenses 33,094 7,653 5,567 3,850 50,164
Net operating income (loss) before depreciation, amortization, change in the estimated fair value of contingent <br>earn-out<br> consideration, impairments, and net (gain) loss on the disposition of assets $ 6,376 $ 1,790 $ (1,609 ) $ (3,850 ) $ 2,707
Depreciation 1,641 767 73 237 2,718
Amortization 5 623 211 1 840
Change in the estimated fair value of contingent <br>earn-out<br> consideration — 3 — — 3
Net (gain) loss on the disposition of assets 30 — — 4 34
Net operating income (loss) $ 4,700 $ 397 $ (1,893 ) $ (4,092 ) $ (888 )
Broadcast Digital<br> Media Publishing Unallocated<br> Corporate<br> Expenses Consolidated
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
(Dollars in thousands)
Six Months Ended June 30, 2021
Net revenue $ 90,831 $ 19,958 $ 12,346 $ — $ 123,135
Operating expenses 69,505 17,011 11,631 8,480 106,627
Net operating income (loss) before depreciation, amortization, change in the estimated fair value of contingent <br>earn-out<br> consideration, impairments, and net (gain) loss on the disposition of assets $ 21,326 $ 2,947 $ 715 $ (8,480 ) $ 16,508
Depreciation 3,128 1,641 91 470 5,330
Amortization 8 829 289 — 1,126
Net (gain) loss on the disposition of assets 318 65 (328 ) — 55
Net operating income (loss) $ 17,872 $ 412 $ 663 $ (8,950 ) $ 9,997
Six Months Ended June 30, 2020
Net revenue $ 84,650 $ 18,547 $ 7,924 $ — $ 111,121
Operating expenses 70,421 15,979 10,629 8,060 105,089
Net operating income (loss) before depreciation, amortization, change in the estimated fair value of contingent <br>earn-out<br> consideration, impairments, and net (gain) loss on the disposition of assets $ 14,229 $ 2,568 $ (2,705 ) $ (8,060 ) $ 6,032
Depreciation 3,286 1,538 142 465 5,431
Amortization 14 1,391 421 1 1,827
Change in the estimated fair value of contingent <br>earn-out<br> consideration — (2 ) — — (2 )
Impairment of indefinite-lived long-term assets other than goodwill 16,994 — 260 — 17,254
Impairment of goodwill 184 10 105 8 307
Net (gain) loss on the disposition of assets 109 — — 4 113
Net operating income (loss) $ (6,358 ) $ (369 ) $ (3,633 ) $ (8,538 ) $ (18,898 )

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Broadcast Digital<br> Media Publishing Unallocated<br> Corporate Consolidated
(Dollars in thousands)
As of June 30, 2021
Inventories, net $ — $ — $ 719 $ — $ 719
Property and equipment, net 63,616 6,746 741 8,312 79,415
Broadcast licenses 320,008 — — — 320,008
Goodwill 2,750 19,589 1,446 — 23,785
Amortizable intangible assets, net 237 2,941 48 — 3,226
As of December 31, 2020
Inventories, net $ — $ — $ 495 $ — $ 495
Property and equipment, net 64,231 6,221 741 7,929 79,122
Broadcast licenses 319,773 — — — 319,773
Goodwill 2,746 19,565 1,446 — 23,757
Amortizable intangible assets, net 246 3,434 337 — 4,017

NOTE 18. SUBSEQUENT EVENTS

During July 2021, the SBA forgave all but $20,000 of the PPP loans outstanding.

On July 2, 2021, we a cquired SeniorResource.com for $0.1 million in cash.

On July 1, 2021, we acquired the ShiftWorship.com domain and digital assets for $2.6 million in cash. The digital content library is operated within Salem Web Network’s church products division.

Subsequent events reflect all applicable transactions through the date of the filing.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

General

Salem Media Group, Inc. is a domestic multimedia company specializing in Christian and conservative content, with media properties comprising radio broadcasting, digital media, and publishing. Our content is intended for audiences interested in Christian and family-themed programming and conservative news talk. We maintain a website at www.salemmedia.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports are available free of charge through our website as soon as reasonably practicable after those reports are electronically filed with or furnished to the SEC. The information on our website is not a part of or incorporated by reference into this or any other report of the company filed with, or furnished to, the SEC.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and related notes included elsewhere in this report on Form 10-Q and our audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020. Our Condensed Consolidated Financial Statements are not directly comparable from period to period due to acquisitions and dispositions. Refer to Note 3 of our Condensed Consolidated Financial Statements on Form 10-Q for details of each of these transactions.

Historical operating results are not necessarily indicative of future operating results. Actual future results may differ from those contained in or implied by the forward-looking statements as a result of various factors. These factors include, but are not limited to:

• the coronavirus <br>(“COVID-19”)<br> is adversely impacting our business,
• risks and uncertainties relating to the need for additional funds to service our debt,
--- ---
• risks and uncertainties relating to the need for additional funds to execute our business strategy,
--- ---
• our ability to access borrowings under our ABL Facility,
--- ---
• reductions in revenue forecasts,
--- ---
• our ability to renew our broadcast licenses,
--- ---
• changes in interest rates,
--- ---
• the timing of our ability to complete any acquisitions or dispositions,
--- ---
• costs and synergies resulting from the integration of any completed acquisitions,
--- ---
• our ability to effectively manage costs,
--- ---
• our ability to drive and manage growth,
--- ---
• the popularity of radio as a broadcasting and advertising medium,
--- ---
• changes in consumer tastes,
--- ---
• the impact of general economic conditions in the United States or in specific markets in which we do business,
--- ---
• industry conditions, including existing competition and future competitive technologies and cancellation,
--- ---
• disruptions or postponements of advertising schedules and programming in response to national or world events,
--- ---
• our ability to generate revenues from new sources, including local commerce and technology-based initiatives,
--- ---
• the impact of regulatory rules or proceedings that may affect our business from time to time, and the future write off of any material portion of the fair value of our FCC broadcast licenses and goodwill.
--- ---

Because these factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any of these forward-looking statements. In addition, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which the statement is made, to reflect the occurrence of unanticipated events or otherwise, except as required by law.

Overview

We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which also qualify as reportable segments. Our operating segments reflect how our chief operating decision makers, which we define as a collective group of senior executives, assess the performance of each operating segment and determine the appropriate allocations of resources to each segment. We continually review our operating segment classifications to align with operational changes in our business and may make changes as necessary.

We measure and evaluate our operating segments based on operating income and operating expenses that exclude costs related to corporate functions, such as accounting and finance, human resources, legal, tax and treasury. We also exclude costs such as amortization, depreciation, taxes and interest expense when evaluating the performance of our operating segments.

Our principal sources of broadcast revenue include:

• the sale of block program time to national and local program producers;

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• the sale of advertising time on our radio stations to national and local advertisers;
• the sale of banner advertisements on our station websites or on our mobile applications;
--- ---
• the sale of digital streaming advertisements on our station websites or on our mobile applications;
--- ---
• the sale of advertisements included in digital newsletters;
--- ---
• fees earned for the creation of custom web pages and custom digital media campaigns for our advertisers through Salem Surround;
--- ---
• the sale of advertising time on our national network;
--- ---
• the syndication of programming on our national network;
--- ---
• the sale of advertising time through podcasts and <br>video-on-demand<br> services;
--- ---
• product sales and royalties for <br>on-air<br> host materials, including podcasts and programs; and
--- ---
• other revenue such as events, including ticket sales and sponsorships, listener purchase programs, where revenue is generated from special discounts and incentives offered to our listeners from our advertisers; talent fees for voice-overs or custom endorsements from our <br>on-air<br> personalities and production services, and rental income for studios, towers or office space.
--- ---

Our principal sources of digital media revenue include:

• the sale of digital banner advertisements on our websites and mobile applications;
• the sale of digital streaming advertisements on websites and mobile applications;
--- ---
• the support and promotion to stream third-party content on our websites;
--- ---
• the sale of advertisements included in digital newsletters;
--- ---
• the digital delivery of newsletters to subscribers; and
--- ---
• the sale of video and graphic downloads.
--- ---

Our principal sources of publishing revenue include:

• the sale of books and <br>e-books;
• publishing fees from authors;
--- ---
• the sale of digital advertising on our magazine websites and digital newsletters;
--- ---
• subscription fees for our print magazine; and
--- ---
• the sale of print magazine advertising.
--- ---

In each of our operating segments, the rates we are able to charge for airtime, advertising and other products and services are dependent upon several factors, including:

• audience share;
• how well our programs and advertisements perform for our clients;
--- ---
• the size of the market and audience reached;
--- ---
• the number of impressions delivered;
--- ---
• the number of advertisements and programs streamed;
--- ---
• the number of page views achieved;
--- ---
• the number of downloads completed;
--- ---
• the number of events held, the number of event sponsorships sold and the attendance at each event;
--- ---
• demand for books and publications;
--- ---
• general economic conditions; and
--- ---
• supply and demand for airtime on a local and national level.
--- ---

Broadcasting

Our foundational business is radio broadcasting, which includes the ownership and operation of radio stations in large metropolitan markets, our national networks and our national sales firms including Salem Surround. Revenues generated from our radio stations, networks and sales firms are reported as broadcast media revenue in our Condensed Consolidated Financial Statements included in Part 1 of this quarterly report on Form 10-Q. Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.

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Broadcast revenues are impacted by the rates radio stations can charge for programming and advertising time, the level of airtime sold to programmers and advertisers, the number of impressions delivered or downloads made, and the number of events held, including the size of the event and the number of attendees. Block programming rates are based upon our stations’ ability to attract audiences that will support the program producers through contributions and purchases of their products. Advertising rates are based upon the demand for advertising time, which in turn is based on our stations and networks’ ability to produce results for their advertisers. We market ourselves to advertisers based on the responsiveness of our audiences. We do not subscribe to traditional audience measuring services for most of our radio stations. In select markets, we subscribe to Nielsen Audio, which develops monthly reports measuring a radio station’s audience share in the demographic groups targeted by advertisers. Each of our radio stations and our networks has a pre-determined level of time available for block programming and/or advertising, which may vary at different times of the day.

Nielsen Audio uses the Portable People Meter TM (“PPM ” ) technology to collect data for its ratings service. PPM is a small device that is capable of automatically measuring radio, television, Internet, satellite radio and satellite television signals encoded by the broadcaster. The PPM offers a number of advantages over traditional diary ratings collection systems, including ease of use, more reliable ratings data, shorter time periods between when advertising runs and actual listening data, and little manipulation of data by users. A disadvantage of the PPM includes data fluctuations from changes to the “panel” (a group of individuals holding PPM devices). This makes all stations susceptible to some inconsistencies in ratings that may or may not accurately reflect the actual number of listeners at any given time. We subscribe to Nielsen Audio for ratings services in 7 of our broadcast markets.

Our results are subject to seasonal fluctuations. As is typical in the broadcasting industry, our second and fourth quarter advertising revenue typically exceeds our first and third quarter advertising revenue. Seasonal fluctuations in advertising revenue correspond with quarterly fluctuations in the retail industry. Additionally, we experience increased demand for political advertising during election, or even numbered years, over non-election or odd numbered years. Political advertising revenue varies based on the number and type of candidates as well as the number and type of debated issues.

Our cash flows from broadcasting are affected by transitional periods experienced by radio stations when, based on the nature of the radio station, our plans for the market and other circumstances, we find it beneficial to change the station format. During this transitional period, when we develop a radio station’s listener and customer base, the station may generate negative or insignificant cash flow.

In broadcasting, trade or barter agreements are commonly used to reduce cash expenses by exchanging advertising time for goods or services. We may enter barter agreements to exchange airtime or digital advertising for goods or services that can be used in our business or that can be sold to our audience under Listener Purchase Programs. The terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime or digital campaign for cash. The value of these non-cash exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive. Each transaction is reviewed to determine that the products, supplies and/or services we receive have economic substance, or value to us. We record barter operating expenses upon receipt and usage of the products, supplies and services, as applicable. We record barter revenue as advertising spots or digital campaigns are delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Barter revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency. During the six months ended June 30, 2021 and 2020, 99% and 98%, respectively of our broadcast revenue was sold for cash.

Broadcast operating expenses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as lease cost and utilities, (iii) marketing and promotional expenses, (iv) production and programming expenses, and (v) music license fees. In addition to these expenses, our network incurs programming costs and lease expenses for satellite communication facilities.

Digital Media

Our digital media based businesses provide Christian, conservative, investing, e-commerce, audio and video streaming, and other resources digitally through the web. Refer to Item 1. Business of our annual report on Form 10-K for the year ended December 31, 2020 for a description of each of our digital media websites and operations. Revenue generated from this segment is reported as digital media revenue in our Condensed Consolidated Financial Statements included in Part 1 of this quarterly report on Form 10-Q.

Digital media revenue is impacted by the rates our sites can charge for advertising time, the level of advertisements sold, the number of impressions delivered or the number of products sold and the number of digital subscriptions sold. Like our broadcasting segment, our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertising revenue. This seasonal fluctuation in advertising revenue corresponds with quarterly fluctuations in the retail advertising industry. We also experience fluctuations in quarter-over-quarter comparisons based on the date on which Easter is observed, as this holiday generates a higher volume of product downloads from our church product websites. Additionally, we experience increased demand for advertising time and placement during election years for political advertisements.

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The primary operating expenses incurred by our digital media businesses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as lease expense and utilities, (iii) marketing and promotional expenses, (iv) royalties, (v) streaming costs, and (vi) cost of goods sold associated with e-commerce sites.

Publishing

Our publishing operations include book publishing through Regnery ® Publishing, a print magazine and our self-publishing services. Revenues generated from this segment are reported as publishing revenue in our Condensed Consolidated Financial Statements included in Part 1 of this quarterly report on Form 10-Q.

Publishing revenue is impacted by the number and the retail price of books and e-books sold, the number and rate of print magazine subscriptions sold, the rate and number of pages of advertisements sold in each print magazine, and the number and rate at which self-published books are published. Regnery ® Publishing revenue is impacted by elections as it generates higher levels of interest and demand for publications containing conservative and political based opinions.

Publishing operating expenses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as lease costs and utilities, (iii) marketing and promotional expenses; and (iv) cost of goods sold that includes printing and production costs, fulfillment costs, author royalties and inventory reserves.

Known Trends and Uncertainties

The COVID-19 global pandemic that began in March 2020 continues to impact our business. Measures taken by federal, state and local governments to prevent the spread of COVID-19 have adversely affected workforces, business operations and overall economic conditions resulting in a significant economic downturn. We experienced a rapid decline in revenue from advertising, programming, events and book sales. Several advertisers reduced or ceased advertising spending due to the outbreak and stay-at-home orders that effectively shut many businesses down. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who have been particularly hard hit due to social distancing and government interventions, and our publishing segment, which derives revenue from book sales through retail stores and live events.

While the economic downturn is expected to be temporary, there remains to be considerable uncertainty around the duration. Advertising revenue continues to improve over the lowest levels that were experienced during April and May of 2020 but remains significantly below prior years. The exact timing and pace of the economic recovery has not been determinable due to varying degrees of restrictions and resurgences. Due to continuing uncertainties regarding the ultimate scope and trajectory of COVID-19’s spread 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. Our businesses could also continue to be impacted by the disruptions from COVID-19 and resulting adverse changes in advertising and consumer behavior.

Lower revenue and longer days to collect receivables negatively impacts future availability under our credit facility. Availability under our Asset Based Loan (“ABL Facility”) 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 ABL Facility increased to $25.0 million at June 30, 2021 compared to $24.8 million at December 31, 2020, of which none was outstanding at June 30, 2021 compared to $5.0 million outstanding at December 31, 2020.

The growth of broadcast revenue associated with the sale of airtime remains challenged. We believe this is due to increased competition from other forms of content distribution and the length of time spent listening to audio streaming services, podcasts and satellite radio. Increases in competition and the mix in listening time may lead advertisers to conclude that the effectiveness of radio has diminished. To reduce the impact of these factors, we continue to enhance our digital assets to complement our broadcast content. The increased use of voice activated platforms, or smart speakers, that provide audiences with the ability to access AM and FM radio stations show increased potential for broadcasters to reach audiences.

Our broadcast spot advertising revenue is particularly dependent on advertising from our Los Angeles and Dallas markets, which generated 13.6% and 21.6%, respectively, of our total net broadcast spot advertising revenue during the six-month period ended June 30, 2021 compared to 15.1% and 20.0%, respectively, of our total net broadcast spot advertising revenue during the same period of the prior year.

Revenue from print magazines, including advertising revenue and subscription revenue, is challenged due to lower demand from the audiences that increasingly use other mediums that deliver comparable information. Book sales are contingent upon overall economic conditions and our ability to attract and retain authors. Decreases in digital revenue could adversely affect our operating results, financial condition and results of operations. Digital revenue is impacted by the nature and delivery of page views and the number of advertisements per page. We have experienced a shift in the number of page views from desktop devices to mobile devices. While mobile page views have increased dramatically, they carry a lower number of advertisements per page and are generally sold at lower rates. A shift from desktop page views to mobile device views negatively impacts revenue as mobile devices carry lower rates and less advertisement per page. To minimize the impact that any one of these areas could have, we continue to explore opportunities to cross-promote our brands and our content, and to strategically monitor costs.

Key Financial Performance Indicators – Same-Station Definition

In the discussion of our results of operations below, we compare our broadcast operating results between periods on an as-reported basis, which includes the operating results of all radio stations and networks owned or operated at any time during either period and on a Same Station basis. Same Station is a Non-GAAP financial measure used both in presenting our results to stockholders and the investment community as well as in our internal evaluations and management of the business. We believe that Same Station Operating Income provides a meaningful comparison of period over period performance of our core broadcast operations as this measure excludes the impact of new stations, the impact of stations we no longer own or operate, and the impact of stations operating under a new programming format. Our presentation of Same Station Operating Income is not intended to be considered in isolation or as a substitute for the most directly comparable financial measures reported in accordance with GAAP. Our definition of Same Station Operating Income is not necessarily comparable to similarly titled measures reported by other companies. Refer to “NON-GAAP FINANCIAL MEASURES” below for a reconciliation of these non-GAAP performance measures to the most comparable GAAP measures.

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We define Same Station net broadcast revenue as net broadcast revenue from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. We define Same Station broadcast operating expenses as broadcast operating expenses from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. Same Station Operating Income includes those stations we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. Same Station Operating Income for a full calendar year is calculated as the sum of the Same Station results for each of the four quarters of that year.

Non-GAAP Financial Measures

Management uses certain non-GAAP financial measures defined below in communications with investors, analysts, rating agencies, banks and others to assist such parties in understanding the impact of various items on our financial statements. We use these non-GAAP financial measures to evaluate financial results, develop budgets, manage expenditures and as a measure of performance under compensation programs.

Our presentation of these non-GAAP financial measures should not be considered as a substitute for or superior to the most directly comparable financial measures as reported in accordance with GAAP.

Item 10(e) of Regulation S-K defines and prescribes the conditions under which certain non-GAAP financial information may be presented in this report. We closely monitor EBITDA, Adjusted EBITDA, Station Operating Income (“SOI”), Same Station net broadcast revenue, Same Station broadcast operating expenses, Same Station Operating Income, Digital Media Operating Income, and Publishing Operating Income (Loss), all of which are non-GAAP financial measures. We believe that these non-GAAP financial measures provide useful information about our core operating results, and thus, are appropriate to enhance the overall understanding of our financial performance. These non-GAAP financial measures are intended to provide management and investors a more complete understanding of our underlying operational results, trends and performance.

The performance of a radio broadcasting company is customarily measured by the ability of its stations to generate SOI. We define SOI as net broadcast revenue less broadcast operating expenses. Accordingly, changes in net broadcast revenue and broadcast operating expenses, as explained above, have a direct impact on changes in SOI. SOI is not a measure of performance calculated in accordance with GAAP. SOI should be viewed as a supplement to and not a substitute for our results of operations presented on the basis of GAAP. We believe that SOI is a useful non-GAAP financial measure to investors when considered in conjunction with operating income (the most directly comparable GAAP financial measures to SOI), because it is generally recognized by the radio broadcasting industry as a tool in measuring performance and in applying valuation methodologies for companies in the media, entertainment and communications industries. SOI is commonly used by investors and analysts who report on the industry to provide comparisons between broadcasting groups. We use SOI as one of the key measures of operating efficiency and profitability, including our internal reviews associated with impairment analysis of our indefinite-lived intangible assets. SOI does not purport to represent cash provided by operating activities. Our statement of cash flows presents our cash activity in accordance with GAAP and our income statement presents our financial performance prepared in accordance with GAAP. Our definition of SOI is not necessarily comparable to similarly titled measures reported by other companies.

We define Same Station net broadcast revenue as net broadcast revenue from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. We define Same Station broadcast operating expenses as broadcast operating expenses from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. Same Station Operating Income includes those stations we own or operate in the same format on the first and last day of each quarter, as well as the corresponding quarter of the prior year. Same Station Operating Income for a full calendar year is calculated as the sum of the Same Station-results for each of the four quarters of that year. We use Same Station Operating Income, a non-GAAP financial measure, both in presenting our results to stockholders and the investment community, and in our internal evaluations and management of the business. We believe that Same Station Operating Income provides a meaningful comparison of period over period performance of our core broadcast operations as this measure excludes the impact of new stations, the impact of stations we no longer own or operate, and the impact of stations operating under a new programming format. Our presentation of Same Station Operating Income is not intended to be considered in isolation or as a substitute for the most directly comparable financial measures reported in accordance with GAAP. Our definition of Same Station net broadcast revenue, Same Station broadcast operating expenses and Same Station Operating Income is not necessarily comparable to similarly titled measures reported by other companies.

We apply a similar methodology to our digital media and publishing group. Digital Media Operating Income is defined as net digital media revenue less digital media operating expenses. Publishing Operating Income (Loss) is defined as net publishing revenue less publishing operating expenses. Digital Media Operating Income and Publishing Operating Income (Loss) are not measures of performance in accordance with GAAP. Our presentations of these non-GAAP financial performance measures are not to be considered a substitute for or superior to our operating results reported in accordance with GAAP. We believe that Digital Media Operating Income and Publishing Operating Income (Loss) are useful non-GAAP financial measures to investors, when considered in conjunction with operating income (the most directly comparable GAAP financial measure), because they are comparable to those used to measure performance of our broadcasting entities. We use this analysis as one of the key measures of operating efficiency, profitability and in our internal review. This measurement does not purport to represent cash provided by operating activities. Our statement of cash flows presents our cash activity in accordance with GAAP and our income statement presents our financial performance in accordance with GAAP. Our definitions of Digital Media Operating Income and Publishing Operating Income (Loss) are not necessarily comparable to similarly titled measures reported by other companies.

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We define EBITDA as net income before interest, taxes, depreciation, and amortization. We define Adjusted EBITDA as EBITDA before gains or losses on the sale or disposition of assets, before changes in the estimated fair value of contingent earn-out consideration, before gains on bargain purchases, before the change in fair value of interest rate swaps, before impairments, before net miscellaneous income and expenses, before (gain) loss on early retirement of debt, before (gain) loss from discontinued operations and before non-cash compensation expense. EBITDA and Adjusted EBITDA are commonly used by the broadcast and media industry as important measures of performance and are used by investors and analysts who report on the industry to provide meaningful comparisons between broadcasters. EBITDA and Adjusted EBITDA are not measures of liquidity or of performance in accordance with GAAP and should be viewed as a supplement to and not a substitute for or superior to our results of operations and financial condition presented in accordance with GAAP. Our definitions of EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures reported by other companies.

For all non-GAAP financial measures, investors should consider the limitations associated with these metrics, including the potential lack of comparability of these measures from one company to another.

We use non-GAAP financial measures to evaluate financial performance, develop budgets, manage expenditures, and determine employee compensation. Our presentation of this additional information is not to be considered as a substitute for or superior to the most directly comparable measures reported in accordance with GAAP.

Reconciliation of Non-GAAP Financial Measures:

In the tables below, we present a reconciliation of net broadcast revenue, the most comparable GAAP measure, to Same Station net broadcast revenue, and broadcast operating expenses, the most comparable GAAP measure to Same Station broadcast operating expense. We show our calculation of Station Operating Income and Same Station Operating Income, which is reconciled from net income, the most comparable GAAP measure in the table following our calculation of Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these non-GAAP measures are not to be considered a substitute for or superior to the most directly comparable measures reported in accordance with GAAP.

Three Months Ended June 30, Six Months Ended June 30,
2020 2021 2020 2021
(Dollars in thousands)
Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue
Net broadcast revenue $ 39,470 $ 46,783 $ 84,650 $ 90,831
Net broadcast revenue – acquisitions — (79 ) — (79 )
Net broadcast revenue – dispositions (220 ) (42 ) (443 ) (38 )
Net broadcast revenue – format change (104 ) (205 ) (280 ) (345 )
Same Station net broadcast revenue $ 39,146 $ 46,457 $ 83,927 $ 90,369
Reconciliation of Broadcast Operating Expenses To Same Station Broadcast Operating Expenses
Broadcast operating expenses $ 33,094 $ 36,162 $ 70,421 $ 69,505
Broadcast operating expenses – acquisitions — (38 ) — (38 )
Broadcast operating expenses – dispositions (379 ) (79 ) (881 ) (185 )
Broadcast operating expenses – format change (259 ) (206 ) (519 ) (384 )
Same Station broadcast operating expenses $ 32,456 $ 35,839 $ 69,021 $ 68,898
Reconciliation of Operating Income to Same Station Operating Income
Station Operating Income $ 6,376 $ 10,621 $ 14,229 $ 21,326
Station operating (income) loss –acquisitions — (41 ) — (41 )
Station operating loss – dispositions 159 37 438 147
Station operating loss – format change 155 1 239 39
Same Station – Station Operating Income $ 6,690 $ 10,618 $ 14,906 $ 21,471

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In the table below, we present our calculations of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these non-GAAP performance indicators are not to be considered a substitute for or superior to the directly comparable measures reported in accordance with GAAP.

Three Months Ended Six Months Ended
June 30, June 30,
2020 2021 2020 2021
(Dollars in thousands)
Calculation of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
Net broadcast revenue $ 39,470 $ 46,783 $ 84,650 $ 90,831
Less broadcast operating expenses (33,094 ) (36,162 ) (70,421 ) (69,505 )
Station Operating Income $ 6,376 $ 10,621 $ 14,229 $ 21,326
Net digital media revenue $ 9,443 $ 10,339 $ 18,547 $ 19,958
Less digital media operating expenses (7,653 ) (8,338 ) (15,979 ) (17,011 )
Digital Media Operating Income $ 1,790 $ 2,001 $ 2,568 $ 2,947
Net publishing revenue $ 3,958 $ 6,660 $ 7,924 $ 12,346
Less publishing operating expenses (5,567 ) (6,426 ) (10,629 ) (11,631 )
Publishing Operating Income (Loss) $ (1,609 ) $ 234 $ (2,705 ) $ 715

In the table below, we present a reconciliation of net income (loss), the most directly comparable GAAP measure to Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these non-GAAP performance indicators are not to be considered a substitute for or superior to the most directly comparable measures reported in accordance with GAAP.

Three Months Ended Six Months Ended
June 30, June 30,
2020 2021 2020 2021
(Dollars in thousands)
Reconciliation of Net Income (Loss) to Operating Income and Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss)
Net income (loss) $ (2,515 ) $ 2,257 $ (57,719 ) $ 2,580
Plus provision for (benefit from) income taxes (2,380 ) (488 ) 30,779 (358 )
Plus net miscellaneous income and (expenses) (6 ) (63 ) 46 (85 )
Plus (gain) on early retirement of long-term debt — — (49 ) —
Plus interest expense, net of capitalized interest 4,013 3,935 8,045 7,861
Less interest income — — — (1 )
Net operating income (loss) $ (888 ) $ 5,641 $ (18,898 ) $ 9,997
Plus net (gain) loss on the disposition of assets 34 (263 ) 113 55
Plus change in the estimated fair value of contingent <br>earn-out<br> consideration 3 — (2 ) —
Plus impairment of indefinite-lived long-term assets other than goodwill — — 17,254 —
Plus impairment of goodwill — — 307 —
Plus depreciation and amortization 3,558 3,286 7,258 6,456
Plus unallocated corporate expenses 3,850 4,192 8,060 8,480
Combined Station Operating Income, Digital Media Operating Income and Publishing Operating Loss $ 6,557 $ 12,856 $ 14,092 $ 24,988
Station Operating Income $ 6,376 $ 10,621 $ 14,229 $ 21,326
Digital Media Operating Income 1,790 2,001 2,568 2,947
Publishing Operating Income (Loss) (1,609 ) 234 (2,705 ) 715
$ 6,557 $ 12,856 $ 14,092 $ 24,988

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In the table below, we present a reconciliation of Adjusted EBITDA to EBITDA to Net Income (Loss), the most directly comparable GAAP measure. EBITDA and Adjusted EBITDA are non-GAAP financial performance measures that are not to be considered a substitute for or superior to the most directly comparable measures reported in accordance with GAAP.

Three Months Ended Six Months Ended
June 30, June 30,
2020 2021 2020 2021
(Dollars in thousands)
Reconciliation of Adjusted EBITDA to EBITDA to Net Income (Loss)
Net income (loss) $ (2,515 ) $ 2,257 $ (57,719 ) $ 2,580
Plus interest expense, net of capitalized interest 4,013 3,935 8,045 7,861
Plus provision for (benefit from) income taxes (2,380 ) (488 ) 30,779 (358 )
Plus depreciation and amortization 3,558 3,286 7,258 6,456
Less interest income — — — (1 )
EBITDA $ 2,676 $ 8,990 $ (11,637 ) $ 16,538
Plus net (gain) loss on the disposition of assets 34 (263 ) 113 55
Plus change in the estimated fair value of contingent <br>earn-out<br> consideration 3 — (2 ) —
Plus impairment of indefinite-lived long-term assets other than goodwill — — 17,254 —
Plus impairment of goodwill — — 307 —
Plus net miscellaneous (income) and expenses (6 ) (63 ) 46 (85 )
Plus (gain) on early retirement of long-term debt — — (49 ) —
Plus <br>non-cash<br> stock-based compensation 96 84 199 162
Adjusted EBITDA $ 2,803 $ 8,748 $ 6,231 $ 16,670

RESULTS OF OPERATIONS

Three months ended June 30, 2021 compared to the three months ended June 30, 2020

The following factors affected our results of operations and cash flows for the three months ended June 30, 2021 as compared to the same period of the prior year:

Acquisitions and Divestitures

The operating results of our business acquisitions and asset purchases are included in our consolidated results of operations from their respective closing date or the date that we began operating them under an LMA or TBA. The operating results of business and asset divestitures are excluded from our consolidated results of operations from their respective closing date or the date that a third-party began operating them under an LMA or TBA.

• On June 1, 2021, we acquired radio stations <br>KDIA-AM<br> and <br>KDYA-AM<br> in San Francisco, California for $0.6 million in cash.
• On May 25, 2021, we sold Singing News Magazine and Singing News Radio for $0.1 million in cash.
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• On April 28, 2021, we acquired the Centerline New Media domain and digital assets for $1.3 million in cash. The digital content library is operated within Salem Web Network’s church products division.
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• On March 8, 2021, we acquired the Triple Threat Trader newsletter. We paid no cash at the time of closing and assumed deferred subscription liabilities of $0.1 million.
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• On March 18, 2021, we sold radio station <br>WKAT-AM<br> and an FM translator in Miami, Florida for $3.5 million. The buyer began operating the station under a LMA in November 2020.
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• On September 15, 2020, we acquired the Hyper Pixels Media website and related assets for $1.1 million in cash. We paid $0.4 million in cash upon closing with deferred payments of $0.4 million due January 31, 2021 and $0.3 million due September 15, 2021.
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• On April 6, 2020, we sold radio station <br>WBZW-AM<br> and an FM translator construction permit in Orlando, Florida, for $0.2 million in cash.
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Net Broadcast Revenue

Three Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Net Broadcast Revenue $ 39,470 $ 46,783 18.5 % 74.7 % 73.3 %
Same Station Net Broadcast Revenue $ 39,146 $ 46,457 18.7 %

All values are in US Dollars.

The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source.

Three Months Ended June 30,
2020 2021
(Dollars in thousands)
Block Programming:
National $ 11,770 29.8 % $ 11,861 25.4 %
Local 5,632 14.3 % 5,817 12.4 %
17,402 44.1 % 17,678 37.8 %
Broadcast Advertising:
National 2,587 6.6 % 3,458 7.4 %
Local 7,788 19.7 % 10,546 22.5 %
10,375 26.3 % 14,004 29.9 %
Broadcast Digital (local) 5,655 14.3 % 7,728 16.5 %
Infomercials 228 0.6 % 225 0.5 %
Network 4,226 10.7 % 4,950 10.6 %
Other Revenue 1,584 4.0 % 2,198 4.7 %
Net Broadcast Revenue $ 39,470 100.0 % $ 46,783 100.0 %

Block programming revenue increased by $0.3 million including a $0.2 million increase in local programming and a $0.1 million increase in national programming. Our Christian Teaching and Talk radio stations generated $0.2 million in additional local programming revenue from an increase in the programs on-air and a $0.1 million increase in national programming revenue due to the impact of early-payment discounts offered to certain customers during the prior year. Local programming revenue also increased by $0.1 million on our News Talk radio stations that was offset with a $0.1 million decline in revenue from our Spanish Christian Teaching and Talk stations due to the sale of radio station WKAT-AM in Miami, Florida.

Advertising revenue, net of agency commissions, increased by $3.6 million, including a $2.7 million increase in local advertising and a $0.9 million increase in national advertising. Excluding the impact of political, advertising revenue increased by $3.5 million, of which $2.7 million was local and $0.8 million was national. Increases, net of political, include $2.5 million from our Contemporary Christian Music format radio stations, primarily in our Dallas, Los Angeles, and Atlanta markets, $0.4 million from our News Talk format radio stations, $0.2 million from our Christian Teaching and Talk format radio stations and $0.5 million increase from other station formats, that were offset by a $0.1 million decline from our Spanish Christian Teaching and Talk format stations. The increases are attributable to a higher demand for airtime associated with improving economic conditions as pandemic restrictions begin to ease that can in turn result in higher spot rates for prime airtime spots.

Broadcast digital revenue, net of agency commissions, or net digital revenue generated from our broadcast markets and networks, increased by $2.1 million due to growth in digital product offerings and the launch of the Salem Podcast Network in January 2021. Salem Podcast Network is a highly specialized platform for conservative, political, news, family-oriented podcasts with talk show hosts including Dinesh D’Souza, Todd Starnes and Charlie Kirk. Salem Podcast Network joins Salem Surround, our multimedia digital advertising agency providing digital marketing services to our customers, and SalemNow, our on-demand

pay-per-view video streaming platform launched in the fourth quarter of 2020, along with our owned and operated station branded websites to offer new digital products and services. Increases in digital revenue include a $1.3 million increase in digital marketing services through Salem Surround, a $1.2 million increase from Salem Podcast Network, a $0.4 million increase in streaming revenue and a $0.4 million increase in digital advertising revenue from our station websites that were partially offset by a $1.3 million decline in revenue from SalemNow that released two successful titles during the prior year. There were no significant changes in digital rates as compared to the prior year.

There were no significant changes in the number of infomercials aired and no significant changes in rates. The placement of infomercials can vary significantly from one period to another due to the number of time slots available and the degree to which the infomercial content is considered to be of interest to our audience.

Network revenue, excluding amounts reported with digital, increased by $0.7 million due to a $0.8 million increase in revenue from our nationally syndicated host programs offset by a $0.1 million decline in political advertising.

Other revenue increased by $0.6 million due to a $0.3 million increase in listener purchase program revenue from higher listener participation and half price tuition tickets sold as schools and businesses started to re-open, a $0.1 million increase in event revenue due to the re-opening of live events, a $0.1 million increase in TBA fees associated with radio station KBJD-AM, Denver, Colorado and a $0.1 million increase in talent fees. Event revenue varies from period to period based on the nature and timing of events, audience demand, and in some cases, the weather which can affect attendance.

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On a Same Station basis, net broadcast revenue increased $7.3 million, which reflects these items net of the impact of stations with acquisition, dispositions, and format changes.

Net Digital Media Revenue

Three Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Net Digital Media Revenue $ 9,443 $ 10,339 9.5 % 17.9 % 16.2 %

All values are in US Dollars.

The following table shows the dollar amount and percentage of net digital media revenue for each digital media revenue source.

Three Months Ended June 30,
2020 2021
(Dollars in thousands)
Digital Advertising, net $ 4,547 48.2 % $ 4,393 42.5 %
Digital Streaming 853 9.0 862 8.3
Digital Subscriptions 2,157 22.8 3,299 31.9
Digital Downloads 1,802 19.1 1,694 16.4
e-commerce 27 0.3 67 0.6
Other Revenues 57 0.6 24 0.2
Net Digital Media Revenue $ 9,443 100.0 % $ 10,339 100.0 %

National digital revenue, net of agency commissions, or net revenue generated from our owned and operated Christian and conservative opinion websites, declined by $0.2 million due to a lower number of advertisements on our conservative opinion websites within Townhall Media. Our conservative opinion websites experience lower demand and lower page views during non-election years. We also experience lower demand from advertisers who move advertising spending to digital programmatic advertisers, such as Facebook and Google, and we may lose advertisers who decide to reduce or eliminate advertising on political-content websites such as ours. We continue to acquire, develop and promote the use of mobile applications to reduce our dependency on page views from digital programmatic advertisers. Because mobile page views carry fewer advertisements and tend to have shorter site visits as compared to desktop, our growth in mobile page views exceeds our growth in revenue from the mobile applications.

Digital streaming revenue was consistent with that of the same period of the prior year with no significant changes in sales volume or rates.

Digital subscription revenue increased by $1.1 million including a $0.5 million increase from Eagle Financial Publications, a $0.4 million increase from Christianjobs.com and Churchstaffing.com within SWN due to an increase in job postings, and a $0.2 million increase from Townhall Media’s launch of Townhall VIP, a subscription service. The number of subscribers to Eagle Financial Publications increased due an increased investment in marketing with no significant changes in rates over the prior period.

Digital download revenue decreased by $0.1 million due to declines in the number of downloads purchased from our church product websites, WorshipHouseMedia.com and SermonSpice TM .com. Digital downloads are impacted by timing of Easter holiday, which was on Sunday April 4, 2021, resulting in a majority of the associated revenue being generated on or before March 31, 2021. There were no significant changes in rates.

E-commerce revenue includes in-app purchases that increased in volume with no significant changes in rates.

Other revenue includes revenue sharing arrangements for mobile applications and mail list rentals which declined slightly in volume with no significant changes in rates.

Net Publishing Revenue

Three Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Net Publishing Revenue $ 3,958 $ 6,660 68.3 % 7.5 % 10.4 %

All values are in US Dollars.

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The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source.

Three Months Ended June 30,
2020 2021
(Dollars in thousands)
Book Sales $ 2,698 68.2 % $ 6,212 93.3 %
Estimated Sales Returns & Allowances (560 ) (14.1 ) (1,918 ) (28.8 )
Net Book Sales 2,138 54.1 4,294 64.5
E-Book<br> Sales 250 6.3 453 6.8
Self-Publishing Fees 1,051 26.5 1,550 23.3
Print Magazine Subscriptions 174 4.4 104 1.6
Print Magazine Advertisements 91 2.3 54 0.8
Digital Advertising 52 1.3 70 1.1
Other Revenue 202 5.1 135 2.0
Net Publishing Revenue $ 3,958 100.0 % $ 6,660 100.0 %

Net book sales increased by $2.2 million including a $2.0 million increase from Regnery ® Publishing and a $0.2 million increase from Salem Author Services. Book sales through Regnery ® Publishing reflect a 197% increase in volume largely attributable to the reopening of bookstores and retail locations, offset with a 12% decrease in the average price per unit sold. Revenue is directly attributable to the number of titles released each period and the composite mix of titles available that can vary significantly from period to period based on the book release date and the number of titles that achieve placement on bestseller lists, which can increase awareness and demand for the book. The increase of $1.4 million in estimated sales returns and allowances is based on a higher volume of print books sold through Regnery ® Publishing. The $0.2 million increase in Salem Author Services book sales was due to an increase in the number of books sold as trade shows and events resumed with no significant changes in sale prices.

Regnery ® Publishing e-book sales increased by $0.2 million with a 9% increase in the average price per unit sold from sales incentives and a 57% increase in sales volume. E-book sales can also vary based on the composite mix of titles released and available in each period. Revenues can vary significantly based on the book release date and the number of titles that achieve placement on bestseller lists, which can increase awareness and demand for the book.

Self-publishing fees increased $0.5 million due an increase in the number of authors publishing books with no change in fees charged to authors.

Declines in print magazine subscription revenues and advertising revenues reflect the sale of Singing News Magazine on May 25, 2021, and ongoing lower consumer demand and distribution levels prior to the sale.

Digital adverting revenue generated from our publishing division was consistent with that of the prior year with no changes in sales volume and rates.

Other revenue includes change fees, video trailers, and subright revenue for foreign translation and audio books for original published titles from Regnery ® Publishing. Subright revenue declined $0.1 million due to lower demand.

There were no changes in volume or rates.

Broadcast Operating Expenses

Three Months Ended June 30,
2020 2021 Change Change 2020 2021
(Dollars in thousands) % of Total Net Revenue
Broadcast Operating Expenses $ 33,094 $ 36,162 $ 3,068 9.3 % 62.6 % 56.7 %
Same Station Broadcast Operating Expenses $ 32,456 $ 35,839 $ 3,383 10.4 %

Broadcast operating expenses increased by $3.1 million, including a $1.6 million increase in payroll costs of which $0.3 million relates to growth in digital marketing services and the remainder is attributable to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020, a $0.9 million increase in costs associated with the new Salem Podcast Network, a $0.6 million increase in advertising and event costs, a $0.6 million increase in third-party marketing costs associated with digital marketing services, a $0.5 million increase in health insurance costs, a $0.3 million increase in facilities related expenses, and a $0.2 million increase in production and programming costs. These costs were partially offset with a $1.1 million decline in bad debt expense due to the additional reserves recorded in the prior year because of the uncertainties of the COVID-19 pandemic on collections, a $0.1 million decline in employee benefit costs from the suspension of the 401(k) match, and a $0.7 million decline in cost of sales from SalemNow that experienced increase costs in 2020 from the release of two successful titles during that period.

On a same-station basis, broadcast operating expenses increased by $3.4 million reflecting these items net of the impact of station dispositions and format changes.

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Digital Media Operating Expenses

Three Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Digital Media Operating Expenses $ 7,653 $ 8,338 9.0 % 14.5 % 13.1 %

All values are in US Dollars.

Digital media operating expenses increased by $0.7 million including a $0.5 million increase in advertising and promotional expenses, a $0.2 million increase payroll and employee benefits expense, a $0.1 million increase in bad debt expense and a $0.1 million increase in sales-based commissions and bonuses, offset by a $0.3 million decline in royalties. Increases in advertising and promotional expenses are driven by a new video initiative for Eagle Financial Publications that management believes to be beneficial for the business. The increase in payroll expenses reflects the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020.

Publishing Operating Expenses

Three Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Publishing Operating Expenses $ 5,567 $ 6,426 15.4 % 10.5 % 10.1 %

All values are in US Dollars.

Publishing operating expenses increased by $0.9 million, including a $0.8 million increase in costs of sales, a $0.5 million increase in royalty expense based on higher sales, and a $0.2 million increase in payroll expenses from the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020 that were offset by a $0.7 million decline in bad debt expense. Cost of goods sold increased $0.8 million including a $0.8 million increase from print books sold by Regnery ® Publishing and a $0.1 million increase from Salem Author Services due to a higher volume of book sales that was offset by a $0.1 million decline from Salem Publishing due to the sale of Singing News Magazine. The gross profit margin for Regnery ® Publishing improved to 50% from 32% as sales volume increased while material costs increased only slightly. Regnery ® Publishing margins vary based on the volume of e-book sales, which have higher margins due to the nature of delivery and no reserve for sales returns and allowances. The gross profit margin for Salem Author Services improved to 74% from 70% due to lower paper costs for print book sales.

Unallocated Corporate Expenses

Three Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Unallocated Corporate Expenses $ 3,850 $ 4,192 8.9 % 7.3 % 6.6 %

All values are in US Dollars.

Unallocated corporate expenses include shared services, such as accounting and finance, human resources, legal, tax and treasury, that are not directly attributable to any one of our operating segments. The net increase of $0.3 million includes a $0.5 million increase in payroll expense due to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020 that was offset with a $0.1 million decline in employee benefit expense due to the suspension of the 401(k) match, and a $0.1 million decline in professional service fees.

Depreciation Expense

Three Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Depreciation Expense $ 2,718 $ 2,741 0.8 % 5.1 % 4.3 %

All values are in US Dollars.

Depreciation expense was consistent with that of the prior year. There were no changes in our depreciation methods or in the estimated useful lives of our asset groups.

Amortization Expense

Three Months Ended June 30,
2020 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Amortization Expense $ 840 545 ) (35.1) % 1.6 % 0.9 %

All values are in US Dollars.

The decrease in amortization expense reflects the impact of fully amortized domain names, customer lists and contracts, and subscriber base lists that had estimated useful lives of three to five years. These items were fully amortized at or near the beginning of 2021 resulting in lower amortization expense. There were no changes in our amortization methods or the estimated useful lives of our intangible asset groups.

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Net (Gain) Loss on the Disposition of Assets

Three Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Net (Gain) Loss on the Disposition of assets $ 34 $ (263 ) ) (873.5) % 0.1 % (0.4) %

All values are in US Dollars.

The net (gain) loss on the disposition of assets of ($0.3 million) for the three-month period ending June 30, 2021 includes a ($0.5 million) pre-tax gain on the sale of Singing News Magazine and Singing News Radio that was offset by an additional $0.1 million loss recorded at the time of closing on the sale of radio station WKAT-AM and FM translator in Miami, Florida as well as various other fixed asset disposals.

The net (gain) loss on the disposition of assets of $34,000 for the three-month period ended June 30, 2020 reflects various fixed asset disposals.

Other Income (Expense)

Three Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Interest Expense $ (4,013 ) $ (3,935 ) (1.9) % (7.6) % (6.2) %
Net Miscellaneous Income and (Expenses) 6 63 950.0% —  % 0.1%

All values are in US Dollars.

Interest expense includes interest due on outstanding debt balances and non-cash accretion associated with deferred installments. The decrease of $0.1 million reflects the lower outstanding balance of the Notes, the lower outstanding balance of the ABL Facility, and finance lease obligations outstanding during the three-months ended June 30, 2021.

Net miscellaneous income and expenses includes non-operating receipts such as usage fees and other expenses.

Provision for (Benefit from) Income Taxes

Three Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Provision for (Benefit from) Income Taxes $ (2,380 ) $ (488 ) (79.5) % (4.5) % (0.8) %

All values are in US Dollars.

Our benefit from income taxes decreased $1.9 million to $0.5 million tax provision for the three months ended June 30, 2021 compared to a $2.4 million for the same period of the prior year. The provision for income taxes as a percentage of income before income taxes, or the effective tax rate was (27.6)% for the three months ended June 30, 2021 compared to 48.6% for the same period of the prior year. The effective tax rate for each period differs from the federal statutory income rate of 21.0% due to state income taxes, certain expenses that are not deductible for tax purposes, and changes in the valuation allowance. The effective tax rate of (27.6)% is driven by certain expenses that are nondeductible for income tax purposes relative to pre-tax book loss, tax expense attributable to deductible amortization on indefinite lived assets for fully valued state jurisdictions and projected utilization of operating loss carryforwards.

Net Income (Loss)

Three Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Net Income (Loss) $ (2,515 ) $ 2,257 (189.7) % (4.8) % 3.5 %

All values are in US Dollars.

Net income increased by $4.8 million to $2.3 million for the three months ended June 30, 3021 compared to a net loss of $2.5 million during the same period of the prior year due to an increase in revenue with a lower increase in operating and other expenses as described above.

Six months ended June 30, 2021 compared to the six months ended June 30, 2020

The following factors affected our results of operations and cash flows for the six months ended June 30, 2021 as compared to the same period of the prior year:

Acquisitions, Divestitures and Other Transactions

The operating results of our business acquisitions and asset purchases are included in our consolidated results of operations from their respective closing date or the date that we began operating them under an LMA or TBA. The operating results of business and asset divestitures are excluded from our consolidated results of operations from their respective closing date or the date that a third-party began operating them under an LMA or TBA.

• On June 1, 2021, we acquired radio stations <br>KDIA-AM<br> and <br>KDYA-AM<br> in San Francisco, California for $0.6 million in cash.
• On May 25, 2021, we sold Singing News Magazine and Singing News Radio for $0.1 million in cash.
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• On April 28, 2021, we acquired the Centerline New Media domain and digital assets for $1.3 million in cash. The digital content library is operated within Salem Web Network’s church products division.
• On March 8, 2021, we acquired the Triple Threat Trader newsletter. We paid no cash at the time of closing and assumed deferred subscription liabilities of $0.1 million.
--- ---
• On March 18, 2021, we sold radio station <br>WKAT-AM<br> and an FM translator in Miami, Florida for $3.5 million. The buyer began operating the station under a LMA in November 2020.
--- ---
• On September 15, 2020, we acquired the Hyper Pixels Media website and related assets for $1.1 million in cash. We paid $0.4 million in cash upon closing with deferred payments of $0.4 million due January 31, 2021 and $0.3 million due September 15, 2021.
--- ---
• On April 6, 2020, we sold radio station <br>WBZW-AM<br> and an FM translator construction permit in Orlando, Florida, for $0.2 million in cash.
--- ---

Debt Transactions

During the six months ended June 30, 2021, we received $11.2 million in aggregate principal amount of PPP loans through the SBA that were available to our radio stations and networks under the CAA. During July 2021, the SBA forgave all but $20,000 of the PPP loans.

During the six-months ended June 30, 2020, we completed repurchases of $3.5 million of the Notes for $3.4 million in cash, recognizing a net gain of $49,000 after adjusting for bond issuance costs.

Equity Transactions

No distributions were declared or paid during six month period ended June 30, 2021, compared to distributions of $0.7 million ($0.025 per share) declared and paid during the six-month period ended June 30, 2020 based upon our Board’s then current assessment of our business as detailed in Note 16 – Equity Transactions.

Net Broadcast Revenue

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Net Broadcast Revenue $ 84,650 $ 90,831 7.3 % 76.2 % 73.8 %
Same Station Net Broadcast Revenue $ 83,927 $ 90,369 7.7 %

All values are in US Dollars.

The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source.

Six Months Ended June 30,
2020 2021
(Dollars in thousands)
Block Programming:
National $ 23,804 28.1 % $ 23,322 25.7 %
Local 12,440 14.7 % 11,773 13.0 %
36,244 42.8 % 35,095 38.6 %
Broadcast Advertising:
National 6,544 7.7 % 7,118 7.8 %
Local 19,145 22.6 % 19,441 21.4 %
25,689 30.3 % 26,559 29.2 %
Broadcast Digital (local) 9,948 11.8 % 14,797 16.3 %
Infomercials 536 0.6 % 462 0.5 %
Network 8,614 10.2 % 9,821 10.8 %
Other Revenue 3,619 4.3 % 4,097 4.5 %
Net Broadcast Revenue $ 84,650 100.0 % $ 90,831 100.0 %

Block programming revenue declined by $1.1 million, including a $0.6 million decline in local programming revenue and a $0.5 million decline in national programming revenue. The decline includes $0.6 million from our Christian Teaching and Talk stations, $0.3 million from our News Talk stations and $0.3 million from our Spanish Christian Teaching and Talk stations that were offset by an increase of $0.1 million for our Contemporary Christian Music stations. Each of these formats experienced cancellations beginning in March 2020 when many programmers, primarily ministries, cancelled programming to offset lost revenues. Event cancellations impacted many programmers who lost a significant portion of their revenue during the COVID-19 pandemic.

Advertising revenue, net of agency commissions, increased by $0.9 million, $1.0 million net of political, due to a $0.6 million increase in national advertising net of political and a $0.4 million increase in local advertising revenue net of political. The increase includes $1.7 million from our Contemporary Christian Music format radio stations, primarily in our Atlanta and Dallas markets, that was offset with a $0.4 million decline from our News Talk format radio stations and a $0.3 million decline from our Christian Teaching and Talk format radio stations. The increases in Atlanta and Dallas reflect an increase in demand for advertising as pandemic restrictions ease that can in turn creates higher spot rates for prime airtime spots. The year-to-date decline from other formats reflects the ongoing impact of cancellations that resulted from the COVID-19 pandemic.

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Broadcast digital revenue, net of agency commissions, or net digital revenue generated from our broadcast markets and networks, increased by $4.9 million due to growth in digital product offerings and the launch of the Salem Podcast Network in January 2021. Salem Podcast Network is a highly specialized platform for conservative, political, news, family-oriented podcasts with talk show hosts including Dinesh D’Souza, Todd Starnes and Charlie Kirk. Salem Podcast Network joins Salem Surround, our multimedia digital advertising agency providing digital marketing services to our customers, and SalemNow, our on-demand

pay-per-view video streaming platform launched in the fourth quarter of 2020, along with our owned and operated station branded websites to offer new digital products and services. Increases in digital revenue include a $3.0 million increase from Salem Podcast Network, a $1.3 million increase in digital marketing services through Salem Surround, a $0.7 million increase in streaming revenue and a $0.5 million increase in digital advertising revenue from our station websites and an increase of $0.6 million from our networks that were partially offset by a $1.3 million decline in revenue from SalemNow that released two successful titles during the prior year. There were no significant changes in digital rates as compared to the prior year.

Declines in infomercial revenue were due to a reduction in the number of infomercials aired with no significant changes in rates as compared to the prior year. The placement of infomercials can vary significantly from one period to another due to the number of time slots available and the degree to which the infomercial content is considered to be of interest to our audience.

Network revenue, net of amounts reported as digital, increased by $1.2 million due to a $1.3 million increase in revenue from our nationally syndicated host programs that was partially offset by a $0.2 million decline in political advertising.

Other revenue increased by $0.5 million due to a $0.3 million increase in listener purchase program revenue from higher listener participation and half price tuition tickets sold as schools and businesses started to re-open, a $0.1 million increase in TBA fees associated with radio station KBJD-AM, Denver, Colorado and a $0.1 million increase in talent fees. Event revenue varies from period to period based on the nature and timing of events, audience demand, and in some cases, the weather which can affect attendance.

On a Same Station basis, net broadcast revenue increased $6.4 million, which reflects the above described items net of the impact of stations with acquisitions, dispositions and format changes.

Net Digital Media Revenue

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Net Digital Media $ 18,547 $ 19,958 7.6 % 16.7 % 16.2 %

All values are in US Dollars.

The following table shows the dollar amount and percentage of net digital media revenue for each digital media revenue source.

Six Months Ended June 30,
2020 2021
(Dollars in thousands)
Digital Advertising, net $ 9,260 49.9 % $ 8,806 44.1 %
Digital Streaming 1,768 9.5 1,706 8.5
Digital Subscriptions 4,292 23.2 6,072 30.4
Digital Downloads 3,047 16.4 3,173 15.9
e-commerce 55 0.3 98 0.5
Other Revenues 125 0.7 103 0.5
Net Digital Media Revenue $ 18,547 100.0 % $ 19,958 100.0 %

National digital revenue, net of agency commissions, or net revenue generated from our owned and operated Christian and conservative opinion websites declined by $0.5 million due to a lower volume of advertisements on our conservative opinion websites within Townhall Media. Revenue declines of $0.1 million from Salem Web Network were offset with a $0.1 million increase in sales from Eagle Financial Publications. Our conservative opinion websites experience lower demand and lower page views during non-election years. We also experience lower demand from advertisers who move advertising spending to digital programmatic advertisers, such as Facebook and Google, and we may lose advertisers who decide to reduce or eliminate advertising on political-content websites such as ours. We continue to acquire, develop and promote the use of mobile applications to reduce our dependency on page views from digital programmatic advertisers. Because mobile page views carry fewer advertisements and tend to have shorter site visits as compared to desktop, our growth in mobile page views exceeds our growth in revenue from the mobile applications.

Digital streaming revenue decreased $0.1 million as compared to the prior year based on a slightly lower demand for content available from our Christian websites. There were no significant changes in rates as compared to the prior year.

Digital subscription revenue increased $1.8 million on a consolidated basis reflecting a $0.8 million increase in revenues from Eagle Financial Publications, a $0.5 million increase from Christianjobs.com and Churchstaffing.com within Salem Web Network due to increases in job postings as job markets start to re-open and a $0.5 million increase in revenues from Townhall Media’s launch of Townhall VIP, a subscription service. Eagle Financial Publications saw an increase in the number of subscribers due to an increased investment in marketing with no significant changes in rates over the same period of the prior year.

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Digital download revenue increased by $0.1 million from our church product websites, WorshipHouseMedia.com and SermonSpice TM .com. There were no significant changes in rates as compared to the prior year.

E-commerce revenue includes in-app purchases through Salem Web Network that increased slightly in volume with no significant changes in rates over the prior year.

Other revenue includes revenue sharing arrangements for mobile applications and mail list rentals which remained consistent as with no changes in volume or rates.

Net Publishing Revenue

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Net Publishing Revenue $ 7,924 $ 12,346 55.8 % 7.1 % 10.0 %

All values are in US Dollars.

The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source.

Six Months Ended June 30,
2020 2021
(Dollars in thousands)
Book Sales $ 5,391 68.0 % $ 10,513 85.2 %
Estimated Sales Returns & Allowances (1,530 ) (19.3 ) (3,011 ) (24.4 )
Net Book Sales 3,861 48.7 7,502 60.8
E-Book<br> Sales 504 6.4 792 6.4
Self-Publishing Fees 2,453 31.0 3,174 25.7
Print Magazine Subscriptions 351 4.4 262 2.1
Print Magazine Advertisements 193 2.4 122 1.0
Digital Advertising 151 1.9 132 1.1
Other Revenue 411 5.2 362 2.9
Net Publishing Revenue $ 7,924 100.0 % $ 12,346 100.0 %

Net book sales increased by $3.6 million which includes a $3.5 million increase in Regnery ® Publishing as book sales reflect a 133% increase in volume largely attributable to the reopening of bookstores and retail locations, offset by a 6% decrease in the average price unit sold and a $0.1 million increase in Salem Author Services. The increase in the number of print books sold through Regnery ®

Publishing resulted in a $1.5 million increase to the estimated sales returns and allowances. The increase in book sales from Salem Author Services of $0.1 million was due to books sold at tradeshows with events resuming in limited capacity as pandemic restrictions are lifted. There were no significant changes in sale prices for Salem Author Services as compared to the prior year.

Regnery ® Publishing e-book sales increased $0.3 million with a 34% increase in the average price per unit sold from sales incentives and a 32% increase in sales volume. E-book sales can also vary based on the composite mix of titles released and available in each period. Revenues can vary significantly based on the book release date and the number of titles that achieve placement on bestseller lists, which can increase awareness and demand for the book.

Self-publishing fees increased $0.7 million due an increase in the number of authors and services provided with no change in fees charged to authors.

Declines in print magazine subscription revenues and advertising revenues reflect the sale of Singing News Magazine on May 25, 2021, and ongoing lower consumer demand and distribution levels prior to the sale.

Other revenue includes change fees, video trailers, and subright revenue for foreign translation and audio books for original published titles from Regnery ® Publishing. Subright revenue declined $0.1 million due to lower demand.

Broadcast Operating Expenses

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Broadcast Operating Expenses $ 70,421 $ 69,505 ) (1.3 )% 63.4 % 56.4 %
Same Station Broadcast Operating Expenses $ 69,021 $ 68,898 ) (0.2 )%

All values are in US Dollars.

Broadcast operating expenses declined by $0.9 million, including a $3.0 million decline in bad debt expense due to the additional reserves recorded in the prior year from uncertainties of the COVID-19 pandemic on collections, a $0.9 million decline in the cost of sales from SalemNow that incurred higher costs in the prior year from the release of two successful titles, a $0.5 million decline in employee benefit costs due to the suspension of the 401(k) match, a $0.3 million decline in event and entertainment costs due to the expenses associated with events that took place prior to the pandemic restrictions in early 2020, and a $0.2 million decrease in facility related expenses that were offset with a $1.4 million increase in costs associated with the new Salem Podcast Network, a $1.1 million increase in payroll costs attributable to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020, a $0.6 million increase in third-party marketing costs associated with digital marketing services, a $0.4 million increase in advertising and promotions, a $0.3 million increase in hosting fees and a $0.3 million increase in professional services.

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On a same-station basis, broadcast operating expenses decreased by $0.1 million. The decrease in broadcast operating expenses on a same station basis reflects these items net of the impact of start-up costs associated with acquisitions, station dispositions and format changes.

Digital Media Operating Expenses

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Digital Media Operating Expenses $ 15,979 $ 17,011 6.5 % 14.4 % 13.8 %

All values are in US Dollars.

Digital media operating expenses increased by $1.0 million, including a $0.8 million increase in advertising and promotional expenses, a $0.5 million increase in sales-based commissions and incentives, and a $0.3 million increase in payroll costs that were offset by a $0.2 million decrease in bad debt expense, a $0.1 million decrease in costs of sales, a $0.1 million decrease in employee benefit costs due to the suspension of the 401(k) match, and $0.1 million decrease in royalties. Increases in advertising and promotional expenses are driven by a new video initiative for Eagle Financial Publications that management believes to be beneficial for the business. The increase in payroll related expenses reflects the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020.

Publishing Operating Expenses

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Publishing Operating Expenses $ 10,629 $ 11,631 9.4 % 9.6 % 9.4 %

All values are in US Dollars.

Publishing operating expenses increased by $1.0 million, including a $1.0 million increase in costs of sales, a $0.5 million increase in royalty expense based on higher sales, a $0.4 million increase in payroll costs due to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020, and a $0.2 million increase in advertising and promotional costs that were offset by a $0.7 million decrease in bad debt expense, a $0.3 million decrease in facility related expenses due to the termination of a lease in Washington D.C., and a $0.1 million decrease in employee benefit costs due to the suspension of the 401(k) match. Cost of goods sold increased $1.0 million including a $1.0 million increase from print books sold by Regnery ® Publishing and $0.1 million increase from Salem Author Services due to higher volume of book sales offset by a $0.1 million decline Salem Publishing due to the sale of Singing News Magazine. The gross profit margin for Regnery ® Publishing improved to 55% from 40% as sales volume increased while material costs increased only slightly. Regnery ® Publishing margins vary based on the volume of e-book sales, which have higher margins due to the nature of delivery and no reserve for sales returns and allowances. The gross profit margin for Salem Author Services improved to 75% from 71% due to lower paper costs for print book sales.

Unallocated Corporate Expenses

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Unallocated Corporate Expenses $ 8,060 $ 8,480 5.2 % 7.3 % 6.9 %

All values are in US Dollars.

Unallocated corporate expenses include shared services, such as accounting and finance, human resources, legal, tax and treasury, that are not directly attributable to any one of our operating segments. The increase of $0.4 million includes a $0.7 million increase in payroll costs due to the January 2021 reinstatement of company-wide pay cuts that were implemented in 2020 that were offset by a $0.2 million decrease in travel and entertainment-related expenses due to the events that took place prior to the pandemic restrictions in early 2020 and a $0.1 million decrease in employee benefit costs due to the suspension of the 401(k) match.

Depreciation Expense

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Depreciation Expense $ 5,431 $ 5,330 ) (1.9 )% 4.9 % 4.3 %

All values are in US Dollars.

The decrease in depreciation expense reflects the impact of prior year capital expenditures for data processing equipment and computer software that had shorter estimated useful lives as compared to towers or other assets and were fully depreciated during the current year. There were no changes in our depreciation methods or in the estimated useful lives of our asset groups.

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Amortization Expense

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Amortization Expense $ 1,827 $ 1,126 ) (38.4 )% 1.6 % 0.9 %

All values are in US Dollars.

The decrease in amortization expense reflects the impact of fully amortized domain names, customer lists and contracts, and subscriber base lists that had estimated useful lives of three to five years. These items were fully amortized at or near the beginning of the 2021 calendar year resulting in lower amortization expense for this year. There were no changes in our amortization methods or the estimated useful lives of our intangible asset groups.

Impairment of Indefinite-Lived Long-Term Assets Other Than Goodwill

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars<br><br><br><br>in thousands) % of Total Net Revenue
Impairment of Indefinite-Lived Long-Term Assets Other Than Goodwill $ 17,254 $ — ) (100.0 )% 15.5 % — %

All values are in US Dollars.

We performed an interim review of broadcast licenses for certain markets during the first quarter of 2020 due to the COVID-19 pandemic and the resulting stay-at-home orders that began to adversely impact revenues. We engaged an independent third-party appraisal and valuation firm to assist us with determining the fair value of our broadcast licenses. Based on our interim review and analysis in the first quarter of 2020, we recorded an impairment charge of $17.0 million to the value of broadcast licenses in Chicago, Cleveland, Louisville, Philadelphia, Portland, Sacramento and Tampa. We also recorded an impairment charge of $0.3 million to the value of mastheads during our interim review in the first quarter of 2020. These impairments were driven by decreases in projected revenues due to the current estimated impact of COVID-19 and an increase in the WACC. We believe that these factors are indicative of trends in the industry as a whole and not unique to our company or operations. There were no indications of impairment as of our interim review during the second quarter of 2020.

Impairment of Goodwill

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars<br><br><br><br>in thousands) % of Total Net Revenue
Impairment of Goodwill $ 307 $ — ) (100.0 )% 0.3 % — %

All values are in US Dollars.

We performed an interim review of goodwill for impairment during the first quarter of 2020 due to the COVID-19 pandemic and the resulting stay-at-home orders that began to adversely impact revenues. We engaged an independent third-party appraisal and valuation firm to assist us with determining the enterprise value for certain entities. Based on our interim review and analysis in the first quarter of 2020, we recorded an impairment charge of $0.3 million. These impairments were driven by decreases in projected revenues due to the current estimated impact of COVID-19 and an increase in the WACC. We believe that these factors are indicative of trends in the industry as a whole and not unique to our company or operations. There were no indications of impairment as of our interim review during the second quarter of 2020.

Net (Gain) Loss on the Disposition of Assets

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Net (Gain) Loss on the Disposition of assets $ 113 $ 55 ) (51.3 )% 0.1 % — %

All values are in US Dollars.

The net (gain) loss on the disposition of assets of $0.1 million for the six-month period ended June 30, 2021 reflects the $0.5 million pre-tax gain on the sale of Singing News Magazine and Singing News Radio offset by $0.4 million additional loss recorded at closing on the sale of radio station WKAT-AM and FM translator in Miami, Florida and various fixed asset disposals.

The net (gain) loss on the disposition of assets of $0.1 million for the six-month period ended June 30, 2020 reflects various fixed asset disposals.

Other Income (Expense)

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Interest Income $ — $ 1 100.0 % — % — %
Interest Expense (8,045 ) (7,861 ) ) (2.3 )% (7.2 )% (6.4 )%
Gain on Early Retirement of Long-Term Debt 49 — ) (100.0 )% — % — %
Net Miscellaneous Income and (Expenses) (46 ) 85 (284.8 )% — % 0.1 %

All values are in US Dollars.

Interest income represents earnings on excess cash and interest due under promissory notes.

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Interest expense includes interest due on outstanding debt balances and non-cash accretion associated with deferred installments. The decrease of $0.2 million reflects the lower outstanding balance of the Notes, the lower outstanding balance of the ABL Facility, and finance lease obligations outstanding during the three-months ended June 30, 2021.

The gain on the early retirement of long-term debt reflects $3.5 million of repurchases of the Notes at prices below face value resulting in a pre-tax gain of $49,000 for the six-month period ended June 30, 2020.

Net miscellaneous income and expenses includes non-operating receipts such as usage fees and other miscellaneous expenses.

Provision for (Benefit from) Income Taxes

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Provision for (Benefit from) Income Taxes $ 30,779 $ (358 ) ) (101.2 )% 27.7 % (0.3 )%

All values are in US Dollars.

Our provision for income taxes decreased $31.1 million to a benefit of ($0.4) million for the six months ended June 30, 2021 as compared to a provision for income taxes of $30.8 million for the same period of the prior year. The provision for income taxes as a percentage of income before income taxes, or the effective tax rate was (16.1)% for the six months ended June 30, 2021 compared to (114.3)% for the same period of the prior year. The effective tax rate for each period differs from the federal statutory income rate of 21.0% due to state income taxes, certain expenses that are not deductible for tax purposes, and changes in the valuation allowance. The effective tax rate of (16.1)% is driven by certain expenses that are nondeductible for income tax purposes relative to pre-tax book loss, tax expense attributable to deductible amortization on indefinite lived assets for fully valued state jurisdictions and projected utilization of operating loss carryforwards.

Net Income (Loss)

Six Months Ended June 30,
2020 2021 Change Change % 2020 2021
(Dollars in thousands) % of Total Net Revenue
Net Income (Loss) $ (57,719 ) $ 2,580 (104.5 )% (51.9 )% 2.1 %

All values are in US Dollars.

Net income increased by $60.3 million to $2.6 million for the six months ended June 30, 2021 compared to a net loss of $57.7 million during the same period of the prior year due to an increase in revenue with a lower increase in operating and other expenses as described above.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results can be materially different from these estimates and assumptions.

Significant areas for which management uses estimates include:

• going concern evaluations;
• revenue recognition;
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• asset impairments, including broadcasting licenses, goodwill and other indefinite-lived intangible assets;
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• fair value measurements;
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• contingency reserves;
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• allowance for doubtful accounts;
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• sales returns and allowances;
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• barter transactions;
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• inventory reserves;
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• reserves for royalty advances;
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• fair value of equity awards;
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• self-insurance reserves;
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• estimated lives for tangible and intangible assets;
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• assessment of contract-based factors, asset-based factors, entity-based factors and market-based factors to determine the lease term impacting <br>Right-Of-Use<br> (“ROU”) assets and lease liabilities;
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• determining the Incremental Borrowing Rate (“IBR”) for calculating ROU assets and lease liabilities
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• income tax valuation allowances; and
• uncertain tax positions.
--- ---

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.

The COVID-19 pandemic 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.

We believe the following accounting policies and the related judgments and estimates are critical accounting policies that affect the preparation of our Condensed Consolidated Financial Statements.

Going Concern

Management is responsible for evaluating conditions or events as related to uncertainties that raise substantial doubt about our ability to continue as a going concern and to provide related footnote disclosures, as applicable. Management’s estimates and assumptions, used in the evaluation of our ability to meet our obligations as they become due within one year after the date our financial statements are issued, are based on the facts and circumstances at such date and are subject to a material and high level of subjectivity and uncertainty due to the matters themselves being uncertain and subject to modification. The effect of any individual or aggregate changes in the estimates and assumptions, or the facts and circumstances, could be material to the financial statements.

Revenue Recognition

Significant management judgments and estimates must be made in connection with determining the amount of revenue to be recognized in any accounting period. We must assess the promises within each sales contract to determine if they are distinct performance obligations. Once the performance obligation(s) are determined, the transaction price is allocated to the performance obligation(s) based on a relative standalone selling price basis. If a sales contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price. If the stand-alone selling price is not determinable, an estimate is used.

We make significant estimates related to variable consideration at the point of sale, including estimates for refunds and product returns. Under ASC Topic 606, estimates of variable consideration are to be recognized before contingencies are resolved in certain circumstances, including when it is probable that a significant reversal in the amount of any estimated cumulative revenue will not occur.

A growing source of revenue is generated from digital product offerings, which allow for enhanced audience interaction and participation, and integrated digital advertising solutions. When offering digital products, another party may be involved in providing the goods or services that make up a performance obligation to the customer. These include the use of third-party websites for social media campaigns. We must evaluate if we are the principal or agent in order to determine if revenue should be reported gross as principal or net as agent. In this evaluation, we consider if we obtain control of the specified goods or services before they are transferred to our customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price. The determination of whether we control a specified good or service immediately prior to the good or service being transferred requires us to make reasonable judgments on the nature of each agreement. We have determined that we are acting as principal when we manage all aspects of a social media campaign, including reviewing and approving target audiences, monitoring actual results and making modifications as needed and when we are responsible for delivering campaign results to our customers regardless of the use of a third-party or parties.

Trade and Barter Transactions

In broadcasting, trade or barter agreements are commonly used to reduce cash expenses by exchanging advertising time for goods or services. We may enter barter agreements to exchange airtime or digital advertising for goods or services that can be used in our business or that can be sold to our audience under Listener Purchase Programs. The terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime or digital campaign for cash. The value of these non-cash exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive. Each transaction must be reviewed to determine that the products, supplies and/or services we receive have economic substance, or value to us. We record barter operating expenses upon receipt and usage of the products, supplies and services, as applicable. We record barter revenue as advertising spots or digital campaigns are delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Barter revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.

Broadcast Licenses, Goodwill and Other Indefinite-Lived Intangible Assets

Approximately 65% of our total assets at June 30, 2021 consisted of indefinite-lived intangible assets including broadcast licenses, goodwill and mastheads. These indefinite-lived intangible assets originated from acquisitions in which a significant amount of the purchase price was allocated to broadcast licenses and goodwill. We do not amortize indefinite-lived intangible assets, but rather

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test for impairment annually or more frequently if events or circumstances indicate that an asset may be impaired. 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.

Impairment testing requires an estimate of the fair value of our indefinite-lived intangible assets. We believe that these estimates of fair value are critical accounting estimates as the value is significant in relation to our total assets and the estimates incorporate variables and assumptions based on our experiences and judgment about our future operating performance. Fair value measurements use significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value, including assumptions about risk. If actual future results are less favorable than the assumptions and estimates used in our estimates, we are subject to future impairment charges, the amount of which may be material. The unobservable inputs are defined in FASB ASC Topic 820, Fair Value Measurements and Disclosures as Level 3 inputs discussed in Note 12 of our Financial Statements and Supplementary Data.

The first step of our impairment testing is to perform a qualitative assessment as to whether it is more likely than not that an indefinite-lived intangible asset is impaired. This qualitative assessment requires significant judgment when considering the events and circumstances that may affect the estimated fair value of our indefinite-lived intangible assets. These events and circumstances are not all-inclusive and are not by themselves indicators of impairment. We consider external and internal factors when reviewing the following events and circumstances, which are presented in the order of what we believe to be the strongest to weakest indicators of impairment:

(1) the difference between any recent fair value calculations and the carrying value;
(2) financial performance, such as station operating income, including performance as compared to projected results used in prior estimates of fair value;
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(3) macroeconomic economic conditions, including limitations on accessing capital that could affect the discount rates used in prior estimates of fair value;
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(4) industry and market considerations such as a decline in market-dependent multiples or metrics, a change in demand, competition, or other economic factors;
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(5) operating cost factors, such as increases in labor, that could have a negative effect on future expected earnings and cash flows;
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(6) legal, regulatory, contractual, political, business, or other factors;
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(7) other relevant entity-specific events such as changes in management or customers; and
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(8) any changes to the carrying amount of the indefinite-lived intangible asset.
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If it is more likely than not that an impairment exists, we are required to perform a second step to preparing a quantitative analysis to estimate the fair or enterprise value of the assets. We did not find reconciliation to our current market capitalization meaningful in the determination of our enterprise value given current factors that impact our market capitalization, including but not limited to: limited trading volume, the impact of our publishing segment operating losses and the significant voting control of our Chairman and Chief Executive Officer. We engage an independent third-party appraisal and valuation firm to assist us with determining the enterprise value as part of our quantitative review.

If the results of our quantitative analysis indicate that the fair value of a reporting unit is less than its carrying value, an impairment is recorded equal to the amount by which the carrying value exceeds the estimated fair value.

We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of our indefinite-lived intangible assets, however, these estimates and assumptions are highly judgmental in nature. Actual results can be materially different from estimates and assumptions. If actual market conditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of our indefinite-lived intangible assets below the amounts reflected on our balance sheet, we may recognize future impairment charges, the amount of which may be material.

Business Acquisitions

We account for business acquisitions in accordance with the acquisition method of accounting as specified in FASB ASC Topic 805 Business Combinations . The total acquisition consideration is allocated to assets acquired and liabilities assumed based on their estimated fair values as of the date of the transaction. 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. The excess of consideration paid over the estimated fair values of the net assets acquired is recorded as goodwill and any excess of fair value of the net assets acquired over the consideration paid is recorded as a gain on bargain purchase. Prior to recording a gain, the acquiring entity must reassess whether all acquired assets and assumed liabilities have been identified and recognized and perform re-measurements to verify that the consideration paid, assets acquired, and liabilities assumed have been properly valued.

Acquisitions may include contingent earn-out 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.

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A majority of our radio station acquisitions have consisted primarily of the FCC licenses to broadcast in a particular market. We often do not acquire the existing format, or we change the format upon acquisition when we find it beneficial. As a result, a substantial portion of the purchase price for the assets of a radio station is allocated to the broadcast license. Under ASU 2017-01, a fewer number of our radio station acquisitions qualify as business acquisitions and instead are accounted for 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.

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 asset categories in our financial statements. 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 the purchase price allocations represent the appropriate estimated fair value of the assets acquired and we have not had to modify our purchase price allocations.

We estimate the economic life of each tangible and intangible asset acquired to determine the period of time in which the asset should be depreciated or amortized. A considerable amount of judgment is required in assessing the economic life of each asset. We consider our own experience with similar assets, industry trends, market conditions and the age of the property at the time of our acquisition to estimate the economic life of each asset. If the financial condition of the assets were to deteriorate, the resulting change in life or impairment of the asset could cause a material impact and volatility in our operating results. To date, we have not experienced changes in the economic life established for each major category of our assets.

Fair Value Measurements

FASB ASC Topic 820, Fair Value Measurements and Disclosures established a single definition of fair value in generally accepted accounting principles and requires expanded disclosure requirements about fair value measurements. The provision applies to other accounting pronouncements that require or permit fair value measurements. This includes applying the fair value concept to (i) nonfinancial assets and liabilities initially measured at fair value in business combinations; (ii) reporting units or nonfinancial assets and liabilities measured at fair value in conjunction with goodwill impairment testing; (iii) other nonfinancial assets measured at fair value in conjunction with impairment assessments; and (iv) asset retirement obligations initially measured at fair value.

The fair value provisions include guidance on how to estimate the fair value of assets and liabilities in the current economic environment and reemphasize that the objective of a fair value measurement remains an exit price. If we were to conclude that there has been a significant decrease in the volume and level of activity of the asset or liability in relation to normal market activities, quoted market values may not be representative of fair value and we may conclude that a change in valuation technique or the use of multiple valuation techniques may be appropriate.

The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market, and the characteristics specific to the transaction. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have less (or no) pricing observability and a higher degree of judgment utilized in measuring fair value.

FASB ASC Topic 820 established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring fair value. This framework defined three levels of inputs to the fair value measurement process and requires that each fair value measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three broad levels of inputs defined by the FASB ASC Topic 820 hierarchy are as follows:

• Level 1 Inputs—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;
• Level 2 Inputs—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability; and
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• Level 3 Inputs—unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).
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We believe that we have used reasonable estimates and assumptions to calculate the estimated fair value of our financial assets as discussed in Note 12 in the notes to our Condensed Consolidated Financial Statements contained in Part 1 of this quarterly report on Form 10-Q.

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Contingency Reserves

In the ordinary course of business, we are involved in various legal proceedings, lawsuits, arbitration and other claims that are complex in nature and have outcomes that are difficult to predict. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. Certain of these proceedings are discussed in Note 14, Commitments and Contingencies, contained in our Condensed Consolidated Financial Statements.

We record contingency reserves to the extent we conclude that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. The establishment of the reserve is based on a review of all relevant factors, the advice of legal counsel, and the subjective judgment of management. The reserves we have recorded to date have not been material to our consolidated financial position, results of operations or cash flows. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

While we believe that the final resolution of any known maters, individually and in the aggregate, will not have a material adverse effect upon our consolidated financial position, results of operations or cash flows, it is possible that we could incur additional losses. We maintain insurance that may provide coverage for such matters. Future claims against us, whether meritorious or not, could have a material adverse effect upon our consolidated financial position, results of operations or cash flows, including losses due to costly litigation and losses due to matters that require significant amounts of management time that can result in the diversion of significant operational resources.

Allowance for Doubtful Accounts

We evaluate the balance reserved in our allowance for doubtful accounts on a quarterly basis based on our historical collection experience, the age of the receivables, specific customer information and current economic conditions. We increased our reserve percentages based on the adverse economic conditions due to the COVID-19 pandemic and the expected impact on the ability of our customers to make payments. Past due balances are generally not written-off until all collection efforts have been unsuccessful, including use of a collection agency. A considerable amount of judgment is required in assessing the likelihood of ultimate realization of these receivables, including the current creditworthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

Sales Returns and Allowances

We provide for estimated returns for products sold with the right of return, primarily book sales associated with Regnery ® Publishing. We record an estimate of these product returns as a reduction of revenue in the period of the sale. Our estimates are based upon historical sales returns, the amount of current period sales, economic trends and any changes in customer demand and acceptance of our products. We regularly monitor actual performance to estimated return rates and make adjustments as necessary. Estimated return rates utilized for establishing estimated returns reserves have approximated actual returns experience. However, actual returns may differ significantly, either favorably or unfavorably, from these estimates if factors such as the historical data we used to calculate these estimates do not properly reflect future returns or as a result of changes in economic conditions of the customer and/or the market. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

Inventory Reserves

Inventories consist of published books from Regnery ® Publishing Inventory is recorded at the lower of cost or net realizable value as determined on a First-In

First-Out cost method. We review historical data and our own experiences to estimate the fair value of inventory on hand. Our analysis includes reviewing actual sales returns, allowance estimates, royalty reserves, overall economic conditions and demand for each title. We record a provision to expense the balance of unsold inventory that we believe to be unrecoverable. We regularly monitor actual performance to our estimates and make adjustments as necessary. Estimated inventory reserves may be adjusted, either favorably or unfavorably, if factors such as the historical data we used to calculate these estimates do not properly reflect future returns or as a result of changes in economic conditions of the customer and/or the market. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

Reserves for Royalty Advances

Royalties due to book authors are paid in advance and capitalized. Royalties are expensed as the related book revenues are earned or when we determine that future recovery of the royalty is not likely. We reviewed historical data associated with royalty advances, earnings and recoverability based on actual results of Regnery ® Publishing. Historically, the longer the unearned portion of an advance remains outstanding, the less likely it is that we will recover the advance through the sale of the book. We apply this historical experience to outstanding royalty advances to estimate the likelihood of recovery. A provision was established to expense the balance of any unearned advance which we believe is not recoverable. Our analysis also considers other discrete factors, such as death of an author, any decision to not pursue publication of a title, poor market demand or other relevant factors. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected.

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Fair Value of Equity Awards

We account for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation . We record equity awards with stock-based compensation measured at the fair value of the award as of the grant date. We determine the fair value of each award using the Black-Scholes valuation model that requires the input of highly subjective assumptions, including the expected stock price volatility and expected term of the award granted. The exercise price for each award is equal to or greater than the closing market price of Salem Media Group, Inc. common stock as of the date of the award. We use the straight-line attribution method to recognize share-based compensation costs over the expected service period of the award. Upon exercise, cancellation, forfeiture, or expiration of the award, deferred tax assets for awards with multiple vesting dates are eliminated for each vesting period on a first-in,

first-out basis as if each vesting period was a separate award. We have not modified our estimates or assumptions used in our valuation model. We believe that our estimates and assumptions are reasonable and that our stock-based compensation is accurately reflected in our results of operations.

Partial Self-Insurance on Employee Health Plan

We provide health insurance benefits to eligible employees under a self-insured plan whereby we pay actual medical claims subject to certain stop loss limits. We record self-insurance liabilities based on actual claims filed and an estimate of those claims incurred but not reported. Our estimates are based on historical data and probabilities. Any projection of losses concerning our liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors such as future inflation rates, changes in severity, benefit level changes, medical costs and claim settlement patterns. Should the actual amount of claims increase or decrease beyond what was anticipated, we may adjust our future reserves. Our self-insurance liability was $0.5 million at June 30, 2021, and December 31, 2020. We have not modified our estimate methodology and we have not historically recognized significant losses from changes in our estimates.

Leases

We account for leases under the provisions of FASB ASC Topic 842, “ Leases” (“ASC 842”). We consider all relevant facts and circumstances, to determine whether a contract is or contains a lease at inception. Our analysis includes whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This consideration involves judgment with respect to whether we have the right to obtain substantially all of the economic benefits from the use of the identified asset and whether we have the right to direct the use of the identified asset.

Lease Term – Impact on Right-of-Use Assets and Lease Liabilities

The lease term can materially impact the value of the Right-of-Use (“ROU”) assets and lease liabilities recorded on our balance sheet as required under ASC 842. We calculate the term for each lease agreement to include the noncancellable period specified in the agreement together with (1) the periods covered by options to extend the lease if we are reasonably certain to exercise that option, (2) periods covered by an option to terminate if we are reasonably certain not to exercise that option and (3) period covered by an option to extend (or not terminate) if controlled by the lessor. The assessment of whether we are reasonably certain to exercise an option to extend a lease requires significant judgement surrounding contract-based factors, asset-based factors, entity-based factors and market-based factors. These factors, detailed below, are evaluated based on the facts and circumstances at the time we enter a lease agreement.

Contract-Based Factors:

• The existence of a bargain renewal option
• The existence of contingent or variable payments
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• The nature and terms of renewal or termination options
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• The costs the lessee would incur to restore the asset before returning it to the lessor
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Asset-Based Factors:

• The existence of significant lessee-installed leasehold improvements that would still have economic value when the option becomes exercisable
• The physical location of the asset
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• The costs that would be incurred to replace or find an alternative asset
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Entity-Based Factors:

• Historical practice
• Management’s intent
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• Common industry practice
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• The financial impact on the entity of extending or terminating the lease
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• The importance of the leased asset to the entity’s operations
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Market-Based Factors:

• Market rental or purchase rates for comparable assets
• Potential implications of local regulations and statutory requirements
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We have not modified our estimate methodology since adopting ASC 842 on January 1, 2019.

Incremental Borrowing Rate

The ROU asset and related lease liabilities recorded under ASC 842 are calculated based on the present value of the lease payments using (1) the rate implicit in the lease or (2) the lessee’s Incremental Borrowing Rate (“IBR”). IBR is defined as the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

We estimate the IBR applicable to Salem using significant judgement and estimates, including the estimated value of the underlying leased asset, and the following available evidence:

The credit history of Salem Media Group

Our most recent credit facility consisted of 6.75% Senior Secured Notes and an ABL revolver. As of each month end, the weighted average interest rate on outstanding debt is calculated.

The credit worthiness of Salem Media Group

We review our credit ratings from third parties, including Standard & Poor’s and Moody’s.

Class of the underlying asset and the remaining term of the arrangement

We use a portfolio approach applying a single IBR to all leases with reasonably similar characteristics, including the remaining lease term, the underlying assets and the economic environment. We group leases according to the nature of leased asset and the lease term. We have six main categories of leases, (1) Buildings, (2) Equipment, (3) Land, (4) Other (Parking Facilities), (5) Towers and (6) Vehicles.

We consider vehicles to have a higher risk for collateral that is mitigated by the shorter term of the lease that would typically range from three to five years. We consider building and towers to have a higher risk based on (1) the longer lease term of up to thirty years and (2) a higher outstanding balance that is mitigated by the lower risk that the collateralized asset would lose significant value.

The debt incurred under the lease liability as compared to amounts that would be borrowed

We review the cost to finance comparable amounts under our ABL and based on the current market environment as derived from available economic data.

We referred to the Bloomberg Single B Rated Communications Yield Curve (unsecured) and considered adjustments for industry risk factors and the estimated value of the underlying leased asset to be collateral for the debt incurred.

From this analysis, we develop a matrix to estimate the IBR for each major category of leases. We review our IBR estimates on a quarterly basis and update as necessary. We have not modified our estimate methodology since adopting ASC 842 on January 1, 2019.

Impairment of ROU Assets

ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.

ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.

After a careful analysis of the guidance, we concluded that the appropriate unit of accounting for testing ROU assets for impairment is the broadcast market cluster level for radio station operations and the entity or division level for digital media entities, publishing entities and networks. Corporate ROU assets are tested on a consolidated level with consideration given to all cash flows of the company as corporate functions do not generate cash flows and are funded by revenue-producing activities at lower levels of the entity.

ASC 360 requires three steps to identify, recognize and measure the impairment of a long-lived asset (asset group) to be held and used:

Step 1 – Consider whether Indicators of Impairment are Present

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As detailed in ASC 360-10-35-21, the following are examples of impairment indicators:

• A significant decrease in the market price of a long-lived asset (asset group)
• A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition
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• A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator
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• An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group)
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• A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group)
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• A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent.
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Other indicators should be considered if we believe that the carrying amount of an asset (asset group) may not be recoverable.

Step 2—Test for Recoverability

If indicators of impairment are present, we are required to perform a recoverability test comparing the sum of the estimated undiscounted cash flows attributable to the long-lived asset or asset group in question to the carrying amount of the long-lived asset or asset group.

ASC 360 does not specifically address how operating lease liabilities and future cash outflows for lease payments should be considered in the recoverability test. Under ASC 360, financial liabilities, or long-term debt, generally are excluded from an asset group while operating liabilities, such as accounts payable, generally are included. ASC 842 characterizes operating lease liabilities as operating liabilities. Because operating lease liabilities may be viewed as having attributes of finance liabilities as well as operating liabilities, it is generally acceptable for a lessee to either include or exclude operating lease liabilities from an asset group when testing whether the carrying amount of an asset group is recoverable provided the approach is applied consistently for all operating leases and when performing Steps 2 and 3 of the impairment model in ASC 360.

In cases where we have received lease incentives, including operating lease liabilities in an asset group may result in the long-lived asset or asset group having a zero or negative carrying amount because the incentives reduce our ROU assets. We elected to exclude operating lease liabilities from the carrying amount of the asset group such that we test ROU assets for operating leases in the same manner that we test ROU assets for financing leases.

Undiscounted Future Cash Flows

The undiscounted future cash flows in Step 2 are based on our own assumptions rather than a market participant. If an election is made to exclude operating lease liabilities from the asset or asset group, all future cash lease payments for the lease should also be excluded. The standard requires lessees to exclude certain variable lease payments from lease payments and, therefore, from the measurement of a lessee’s lease liabilities. Because these variable payments do not reduce the lease liability, we include the variable payments we expect to make in our estimate of the undiscounted cash flows in the recoverability test (Step 2) using a probability-weighted approach.

Step 3—Measurement of an Impairment Loss

If the undiscounted cash flows used in the recoverability test are less than the carrying amount of the long-lived asset (asset group), we are required to estimate the fair value of the long-lived asset or asset group and recognize an impairment loss when the carrying amount of the long-lived asset or asset group exceeds the estimated fair value. We elected to exclude operating lease liabilities from the estimated fair value, consistent with the recoverability test. Any impairment loss for an asset group must reduce only the carrying amounts of a long-lived asset or assets of the group, including the ROU assets. The loss must be allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets, except that the loss allocated to an individual long-lived asset of the group must not reduce the carrying amount of that asset below its fair value whenever the fair value is determinable without undue cost and effort. ASC 360 prohibits the subsequent reversal of an impairment loss for an asset held and used.

Fair Value Considerations

When determining the fair value of a ROU asset, we must estimate what market participants would pay to lease the asset or what a market participant would pay up front in one payment for the ROU asset, assuming no additional lease payments would be due. The ROU asset must be valued assuming its highest and best use, in its current form, even if that use differs from the current or intended use. If no market exists for an asset in its current form, but there is a market for a transformed asset, the costs to transform the asset are considered in the fair value estimate. Refer to Note 12, Fair Value Measurements.

There were no indications of impairment during the period ended June 30, 2021.

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Income Tax Valuation Allowances (Deferred Taxes)

In preparing our condensed consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax exposure and assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes. Our judgments, assumptions and estimates relative to the current provision for income tax consider current tax laws, our interpretation of current tax laws and possible outcomes of audits conducted by tax authorities. Reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities are established if necessary. Although we believe our judgments, assumptions and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

We calculate our current and deferred tax provisions based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the tax implications are known. Tax law and rate changes are reflected in the income tax provision in the period in which such changes are enacted.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period in which we make such a determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance.

Income Taxes and Uncertain Tax Positions

We are subject to audit and review by various taxing jurisdictions. We may recognize liabilities on our financial statements for positions taken on uncertain tax positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others may be subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the balance sheet. It is inherently difficult and subjective to estimate such amounts, as this requires us to make estimates based on the various possible outcomes. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

We review and reevaluate uncertain tax positions on a quarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an additional charge to the tax provision. At June 30, 2021, we recognized liabilities associated with uncertain tax positions around our subsidiary Salem Communications Holding Company’s Pennsylvania tax filing. The position taken on the tax returns follows Pennsylvania Notice 2016-01 which provides guidance for reversal of intercompany interest income and associated expense yielding a net loss for Pennsylvania. Beginning January 1, 2021, we no longer accrue intercompany interest, therefore, any liability associated with intercompany interest for future years is eliminated. The current liability recognized for the tax position is $0.3 million including interest and penalties. Our evaluation was performed for all tax years that remain subject to examination, which range from 2016 through 2020.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of funds are operating cash flows, borrowings under credit facilities and proceeds from the sale of selected assets or businesses. We have historically funded, and will continue to fund, expenditures for operations, administrative expenses, and capital expenditures from these sources. We have historically financed acquisitions through borrowings, including borrowings under credit facilities and, to a lesser extent, from operating cash flow and from proceeds on selected asset dispositions. We expect to fund future acquisitions from cash on hand, borrowings under our credit facilities, operating cash flow and possibly through the sale of income-producing assets or proceeds from debt and equity offerings.

The COVID-19 global pandemic that began in March 2020 continues to impact our business. Measures taken by federal, state and local governments to prevent the spread of COVID-19 have adversely affected workforces, business operations and overall economic conditions resulting in a significant economic downturn. We experienced a rapid decline in revenue from advertising, programming, events and book sales. Several advertisers reduced or ceased advertising spending due to the outbreak and stay-at-home orders that effectively shut many businesses down. The revenue decline impacted our broadcast segment, which derives substantial revenue from local advertisers who have been particularly hard hit due to social distancing and government interventions, and our publishing segment, which derives revenue from book sales through retail stores and live events.

While the economic downturn is expected to be temporary, there remains to be considerable uncertainty around the duration. Advertising revenue continues to improve over the lowest levels that were experienced during April and May of 2020 but remains significantly below prior years. The exact timing and pace of the economic recovery has not been determinable due to varying degrees of restrictions and resurgences. Due to continuing uncertainties regarding the ultimate scope and trajectory of COVID-19’s spread 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. Our businesses could also continue to be impacted by the disruptions from COVID-19 and resulting adverse changes in advertising and consumer behavior.

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Lower revenue and longer days to collect receivables negatively impacts future availability under our credit facility. Availability under our Asset Based Loan (“ABL Facility”) 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 ABL Facility increased to $25.0 million at June 30, 2021, compared to $24.8 million at December 31, 2020, of which none was outstanding at June 30, 2021 compared to $5.0 million outstanding at December 31, 2020.

In response to these developments we implemented several measures during 2020 to reduce costs and conserve cash to ensure that we have adequate cash to meet our debt servicing requirements, including:

• limiting capital expenditures;
• reducing discretionary spending, including travel and entertainment;
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• eliminating open positions and freezing new hires;
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• reducing staffing levels;
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• implementing temporary pay cuts of 5%, 7.5% or 10% depending on salary level;
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• furloughing certain employees;
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• temporarily suspending the company 401(k) match;
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• requesting rent concessions from landlords;
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• requesting discounts from vendors;
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• offering early payment discounts to certain customers in exchange for advance cash payments; and
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• suspending the payment of equity distributions until further notice.
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As the economy begins to show signs of recovery, many of these cost reduction initiatives have been reversed during 2021. We continue to operate with lower staffing levels, we have not reinstated the company 401(k) match and we have not paid equity distributions on our common stock.

We have utilized certain benefits of the CARES Act, and we may be entitled to benefits under the CAA based on our individual locations, including:

• we deferred $3.3 million of employer FICA taxes from April 2020 through December 2020 , with 50% payable in December 2021 and 50% payable in December 2022;
• relaxation of interest expense deduction limitation for income tax purposes; and
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• Paycheck Protection Program (“PPP”) loans available based on the eligibility determined on a <br>per-location<br> basis of $11.2 million on a consolidated basis.
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During 2020 we began keeping higher balances of cash and cash equivalents on-hand to meet operating needs due to the adverse economic conditions of the COVID-19 pandemic. Historically, we kept the balance of cash and cash equivalents on-hand low in order to reduce the balance of outstanding debt. Our ABL Facility automatically covers any shortfalls in operating cash flows such that we are not required to hold excess cash balances on hand. Our cash and cash equivalents increased to $19.9 million at June 30, 2021 compared to $19.0 million at June 30, 2020. Working capital increased $25.7 million to $9.1 million at June 30, 2021, compared to $(16.7) million at June 30, 2020 due to the $0.8 million increase in cash and cash equivalents and a $19.0 million decrease in the outstanding balance on the ABL Facility, that was partially offset by a decrease in trade accounts receivable of $2.1 million and a $4.2 million decrease in contract liabilities offset by a $3.4 million increase in net accounts payable and accrued expenses.

Operating Cash Flows

Our largest source of operating cash inflows are receipts from customers in exchange for advertising and programming. Other sources of operating cash inflows include receipts from customers for digital downloads and streaming, book sales, subscriptions, self-publishing fees, ticket sales, sponsorships, and vendor promotions. The adverse economic impact of the COVID-19 pandemic negatively impacted our revenue and cash receipts from customers. Advertising revenue continues to improve over the lowest levels that were experienced during April and May of 2020 but remains significantly below prior years. The exact timing and pace of the economic recovery has not been determinable due to varying degrees of restrictions and resurgences. A majority of our operating cash outflows consist of payments to employees, such as salaries and benefits, and vendor payments under facility and tower leases, talent agreements, inventory purchases and recurring services such as utilities and music license fees. Our operating cash flows are subject to factors such as fluctuations in preferred advertising media and changes in demand caused by shifts in population, station listenership, demographics, and audience tastes. In addition, our operating cash flows may be affected if our customers are unable to pay, delay payment of amounts owed to us, or if we experience reductions in revenue, or increases in costs and expenses.

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Net cash provided by operating activities during the six-month period ended June 30, 2021, decreased by $8.8 million to $10.2 million compared to $19.0 million during the same period of the prior year. Cash provided by operating activities includes the impact of the following items:

• Total net revenue increased by $12.0 million;
• Operating expenses decreased by $16.9 million;
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• Trade accounts receivables, net of allowances, increased by $0.1 million compared to a decrease of $8.3 million for the same period of the prior year;
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• Unbilled revenue decreased $0.6 million;
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• Our Day’s Sales Outstanding, or the average number of days to collect cash from the date of sale, increased to 58 days at June 30, 2021, from 56 days in the same period of the prior year;
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• Deferred income tax liabilities increased by $1.0 million compared to an increase of $68.9 million during the same period of the prior year; and
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• Net accounts payable and accrued expenses increased $0.9 million to $24.2 million from $23.3 million as of the prior year.
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Investing Cash Flows

Our primary source of investing cash inflows includes proceeds from the sale of assets or businesses. Investing cash outflows include cash payments made to acquire businesses, to acquire property and equipment and to acquire intangible assets such as domain names. While our focus continues to be on deleveraging the company, we remain committed to explore and pursue strategic acquisitions.

We undertake projects from time to time to upgrade our radio station technical facilities and/or FCC broadcast licenses, expand our digital and web-based offerings, improve our facilities and upgrade our computer infrastructures. The nature and timing of these upgrades and expenditures can be delayed or scaled back at the discretion of management. Based on our original 2021 budget, we plan to incur additional capital expenditures of approximately $3.9 million during the remainder of 2021.

We plan to fund any future purchases and any future acquisitions from cash on hand, operating cash flow or our credit facilities.

Net cash used in investing activities increased $2.7 million to $3.2 million during the six-month period ended June 30, 2021, from net cash used of $0.5 million during the same period of the prior year. The increase in cash provided by investing activities was the result of:

• We paid $1.9 million in cash for acquisitions during the six months ended June 30, 2021, compared to none during the same period of the prior year;
• Cash paid for capital expenditures increased $1.5 million to $4.0 million from $2.5 million;
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• We collected $2.4 million in cash for the cash surrender value of split dollar life insurance policies in 2020; and
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• Receipts from asset sales provided $3.6 million of cash during the six months ended June 30, 2021, compared to $0.2 million during the same period of the prior year.
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Financing Cash Flows

Financing cash inflows include borrowings under our credit facilities and any proceeds from the exercise of stock options issued under our stock incentive plan. Financing cash outflows include repayments of our credit facilities, the payment of equity distributions and payments of amounts due under deferred installments and contingency earn-out consideration associated with acquisition activity.

During the six-month period ended June 30, 2021, the principal balances outstanding under the Notes and ABL Facility ranged from $216.3 million to $221.3 million. We received $11.2 million in aggregate principal amount of PPP loans through the SBA available to our radio stations and networks by location under the CAA that were funded during the first quarter of 2021 and outstanding at June 30, 2021. These outstanding balances were ordinary and customary based on our operating and investing cash needs during this time. We have used the PPP loans for eligible purposes and are applying for loan forgiveness based on the terms. During July 2021, the SBA forgave all but $20,000 of the PPP loans.

Our sole source of cash available for making any future equity distributions is our operating cash flow, subject to our credit facilities and Notes, which contain covenants that restrict the payment of dividends and equity distributions unless certain specified conditions are satisfied. On May 6, 2020, our Board of Directors voted to discontinue equity distributions until further notice due to the adverse economic impact of the COVID-19 pandemic on our financial position, results of operations, and cash flows.

Net cash provided by financing activities increased $6.0 million to $6.5 million during the six-month period ended June 30, 2021, compared to $0.5 million during the same period of the prior year. The increase in cash provided from financing activities includes:

• Proceeds of $11.2 million under PPP loans were received during the <br>six-months<br> ended June 30, 2021;
• A $1.9 million increase in the book overdraft from the prior year;
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• We used $3.4 million in cash to repurchase $3.5 million in face value of the 6.75% Senior Secured Notes during the same period of the prior year; and
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• Net repayments on our ABL Facility were $5.0 million during the <br>six-months<br> ended June 30, 2021, compared to net borrowings of $6.6 million during the same period of the prior year.

Salem Media Group, Inc. has no independent assets or operations, the subsidiary guarantees relating to certain debt are full and unconditional and joint and several, and any subsidiaries of Salem Media Group, Inc. other than the subsidiary guarantors are minor.

SBA PPP Loans

We received $11.2 million in aggregate principal amount of PPP loans through the Small Business Administration (“SBA”) during the first quarter of 2021 available to our radio stations and networks by location under the CAA. The PPP loans and accrued interest are forgivable provided that the proceeds are used for eligible purposes, including payroll, benefits, rent and utilities within the covered period of up to 24 weeks from funding of the loans. The amount of PPP loan and accrued interest that is forgiven can be reduced if we reduce payroll or eliminate positions during the covered period. We are using, and intend to continue to use, the PPP loan proceeds according to the terms and will file timely applications for forgiveness. The PPP loans accrue interest at 1% annually and mature in five years for any amount that is not forgiven. The PPP loans are reflected in long-term debt in the accompanying condensed consolidated financial statements in accordance with FASB ASC Topic 470, Debt , until the loans are repaid or legally discharged. During July 2021, the SBA forgave all but $20,000 of the PPP loans.

6.75% Senior Secured Notes

On May 19, 2017, we issued the Notes in a private placement. The Notes are guaranteed on a senior secured basis by our existing subsidiaries (the “Subsidiary Guarantors”). The Notes bear interest at a rate of 6.75% per year and mature on June 1, 2024, unless they are earlier redeemed or repurchased. Interest initially accrued on the Notes from May 19, 2017, and is payable semi-annually, in cash in arrears, on June 1 and December 1 of each year, commencing December 1, 2017.

The Notes are secured by a first-priority lien on substantially all assets of ours and the Subsidiary Guarantors other than the ABL Facility Priority Collateral (as described below) (the “Notes Priority Collateral”). There is no direct lien on our FCC licenses to the extent prohibited by law or regulation (other than the economic value and proceeds thereof).

The Notes were redeemable, in whole or in part, at any time on or before June 1, 2020, at a price equal to 100% of the principal amount of the Notes plus a “make-whole” premium as of, and accrued and unpaid interest, if any, to, but not including, the redemption date. At any time on or after June 1, 2020, the Notes are redeemable at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth in the Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date.

The indenture relating to the Notes (the “Indenture”) contains covenants that, among other things and subject in each case to certain specified exceptions, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional debt; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets; (vi) engage in transactions with affiliates; and (vii) sell or transfer assets.

The Indenture provides for the following events of default (each, an “Event of Default”): (i) default in payment of principal or premium on the Notes at maturity, upon repurchase, acceleration, optional redemption or otherwise; (ii) default for 30 days in payment of interest on the Notes; (iii) the failure by us or certain restricted subsidiaries to comply with other agreements in the Indenture or the Notes, in certain cases subject to notice and lapse of time; (iv) the failure of any guarantee by certain significant Subsidiary Guarantors to be in full force and effect and enforceable in accordance with its terms, subject to notice and lapse of time; (v) certain accelerations (including failure to pay within any grace period) of other indebtedness of ours or any restricted subsidiary if the amount accelerated (or so unpaid) is at least $15 million; (vi) certain judgments for the payment of money in excess of $15 million; (vii) certain events of bankruptcy or insolvency with respect to us or any significant subsidiary; and (viii) certain defaults with respect to any collateral having a fair market value in excess of $15 million. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare the principal of the Notes and any accrued interest on the Notes to be due and payable immediately, subject to remedy or cure in certain cases. Certain events of bankruptcy or insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default. At June 30, 2021, we were, and we remain, in compliance with all of the covenants under the Indenture.

Based on the balance of the Notes currently outstanding, we are required to pay $14.6 million per year in interest on the Notes. As of June 30, 2021, accrued interest on the Notes was $1.2 million.

We incurred debt issuance costs of $6.3 million that were recorded as a reduction of the debt proceeds that are being amortized to non-cash interest expense over the life of the Notes using the effective interest method. During the three and six-month periods ended June 30, 2021, $0.2 million and $0.4 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense. During the three and six-month periods ended June 30, 2020, $0.2 million and $0.4 million, respectively, of debt issuance costs associated with the Notes was amortized to interest expense.

We may from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to repurchase the Notes in open market transactions, privately negotiated transactions, by tender offer or otherwise, as market conditions warrant.

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Based on the then existing market conditions, we completed repurchases of our 6.75% Senior Secured Notes at amounts less than face value as follows:

Date Principal Repurchased Cash Paid % of Face Value Bond Issue Costs Net Gain
(Dollars in thousands)
January 30, 2020 $ 2,250 $ 2,194 97.50 % $ 34 $ 22
January 27, 2020 1,245 1,198 96.25 % 20 27
December 27, 2019 3,090 2,874 93.00 % 48 167
November 27, 2019 5,183 4,548 87.75 % 82 553
November 15, 2019 3,791 3,206 84.58 % 61 524
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
December 21, 2018 2,000 1,835 91.75 % 38 127
December 21, 2018 1,850 1,702 92.00 % 35 113
December 21, 2018 1,080 999 92.50 % 21 60
November 17, 2018 1,500 1,357 90.50 % 29 114
May 4, 2018 4,000 3,770 94.25 % 86 144
April 10, 2018 4,000 3,850 96.25 % 87 63
April 9, 2018 2,000 1,930 96.50 % 43 27
$ 38,659 $ 35,586 $ 706 $ 2,367

Asset-Based Revolving Credit Facility

On May 19, 2017, we entered into the ABL Facility pursuant to a Credit Agreement (the “Credit Agreement”) by and among us and our subsidiaries party thereto as borrowers, Wells Fargo Bank, National Association, as administrative agent and lead arranger, and the lenders that are parties thereto. We used the proceeds of the ABL Facility, together with the net proceeds from the Notes offering, to repay outstanding borrowings under our previously existing senior credit facilities, and related fees and expenses. Current proceeds from the ABL Facility are used to provide ongoing working capital and for other general corporate purposes, including permitted acquisitions.

The ABL Facility is a five-year $30.0 million revolving credit facility due March 1, 2024, which includes a $5.0 million subfacility for standby letters of credit and a $7.5 million subfacility for swingline loans. All borrowings under the ABL Facility accrue interest at a rate equal to a base rate or LIBOR plus a spread. The spread, which is based on an availability-based measure, ranges from 0.50% to 1.00% for base rate borrowings and 1.50% to 2.00% for LIBOR borrowings. If an event of default occurs, the interest rate may increase by 2.00% per annum. Amounts outstanding under the ABL Facility may be paid and then reborrowed at our discretion without penalty or premium. Additionally, we pay a commitment fee on the unused balance from 0.25% to 0.375% per year based on the level of borrowings.

On October 20, 2020, we entered into a fourth amendment to our ABL Facility that provides a one-time waiver with respect to the current covenant testing period allowing the covenant trigger event date be the first day after the availability on the ABL Facility had equaled or exceeded (1) 15% of the maximum revolver amount and (2) $4.5 million and a waiver permitting our July 2020 financial statements to be issued on or before September 30, 2020 due to delays that were caused by a ransomware attack.

On April 7, 2020, we entered into a third amendment to ABL Facility that increased the advance rate on eligible accounts receivable from 85% to 90% and extended the maturity date from May 19, 2022 to March 1, 2024. The April 7, 2020 amendment also allows for an alternative benchmark rate that may include SOFR due to LIBOR being scheduled to be discontinued at the end of calendar year 2021.

Availability under the ABL Facility 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. As of June 30, 2021, the amount available under the ABL Facility was $25.0 million of which none was outstanding. The ABL Facility has a first-priority lien on our and the Subsidiary Guarantors’ accounts receivable, inventory, deposit and securities accounts, certain real estate and related assets (the “ABL Facility Priority Collateral”) and by a second-priority lien on the Notes Priority Collateral. There is no direct lien on our FCC licenses to the extent prohibited by law or regulation (other than the economic value and proceeds thereof).

The Credit Agreement includes a springing fixed charge coverage ratio of 1.0 to 1.0, which is tested during the period commencing on the last day of the fiscal month most recently ended prior to the date on which Availability (as defined in the Credit Agreement) is less than the greater of 15% of the Maximum Revolver Amount (as defined in the Credit Agreement) and $4.5 million and continuing for a period of 60 consecutive days after the first day on which Availability exceeds such threshold amount. The Credit Agreement also includes other negative covenants that are customary for credit facilities of this type, including covenants that, subject to exceptions described in the Credit Agreement, restrict our ability and the ability of our subsidiaries (i) to incur additional indebtedness; (ii) to make investments; (iii) to make distributions, loans or transfers of assets; (iv) to enter into, create, incur, assume or suffer to exist any liens, (v) to sell assets; (vi) to enter into transactions with affiliates; (vii) to merge or consolidate with, or dispose of all assets to a third party, except as permitted thereby; (viii) to prepay indebtedness; and (ix) to pay dividends.

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The Credit Agreement provides for the following events of default: (i) default for non-payment of any principal or letter of credit reimbursement when due or any interest, fees or other amounts within five days of the due date; (ii) the failure by any borrower or any subsidiary to comply with any covenant or agreement contained in the Credit Agreement or any other loan document, in certain cases subject to applicable notice and lapse of time; (iii) any representation or warranty made pursuant to the Credit Agreement or any other loan document is incorrect in any material respect when made; (iv) certain defaults of other indebtedness of any borrower or any subsidiary of indebtedness of at least $10 million; (v) certain events of bankruptcy or insolvency with respect to any borrower or any subsidiary; (vi) certain judgments for the payment of money of $10 million or more; (vii) a change of control; and (viii) certain defaults relating to the loss of FCC licenses, cessation of broadcasting and termination of material station contracts. If an event of default occurs and is continuing, the Administrative Agent and the Lenders may accelerate the amounts outstanding under the ABL Facility and may exercise remedies in respect of the collateral. At June 30, 2021, we were, and we remain, in compliance with all of the covenants under Credit Agreement.

We incurred debt issue costs of $0.9 million that were recorded as an asset and are being amortized to non-cash interest expense over the term of the ABL Facility using the effective interest method. During the three and six-month periods ended June 30, 2021, $29,000 and $0.1 million, respectively, of debt issuance costs associated with the ABL was amortized to interest expense. During the three and six-month periods ended June 30, 2020, $50,000 and $0.1 million, respectively, of debt issue costs associated with the ABL was amortized to interest expense.

We report outstanding balances on the ABL Facility as short-term regardless of the maturity date based on use of the ABL Facility to fund ordinary and customary operating cash needs with frequent repayments. We believe that our borrowing capacity under the ABL Facility allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve months.

Summary of long-term debt obligations

Long-term debt consisted of the following:

December 31, 2020 June 30, 2021
(Dollars in thousands)
6.75% Senior Secured Notes $ 216,341 $ 216,341
Less unamortized debt issuance costs based on imputed interest rate of 7.08% (2,577 ) (2,209 )
6.75% Senior Secured Notes net carrying value 213,764 214,132
Asset-Based Revolving Credit Facility principal outstanding 5,000 —
SBA Paycheck Protection Program loans — 11,195
Long-term debt less unamortized debt issuance costs $ 218,764 $ 225,327
Less current portion (5,000 ) —
Long-term debt less unamortized debt issuance costs, net of current portion $ 213,764 $ 225,327

In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of June 30, 2021:

• $216.3 million aggregate principal amount of Notes with semi-annual interest payments at an annual rate of 6.75%; and
• Commitment fee of 0.25% to 0.375% per annum on the unused portion of the ABL Facility.
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Maturities of Long-Term Debt

Principal repayment requirements under all long-term debt agreements outstanding at June 30, 2021 for each of the next five years and thereafter are as follows:

Amount
For the Year Ended June 30, (Dollars in thousands)
2022 $ —
2023 —
2024 216,341
2025 —
2026 11,195
Thereafter —
$ 227,536

Impairment Losses on Goodwill and Indefinite-Lived Intangible Assets

We have incurred significant impairment losses with regards to our indefinite-lived intangible assets. We believe that the impairments are indicative of trends in the industry as a whole and are not unique to our company or operations. While impairment charges are non-cash in nature and do not violate the covenants on our debt agreements, the potential for future impairment charges can be viewed as a negative factor with regard to forecasted future performance and cash flows.

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The valuation of intangible assets is subjective and based on estimates rather than precise calculations. The fair value measurements of our indefinite-lived intangible assets use significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value including assumptions about risk. If actual future results are less favorable than the assumptions and estimates we used, we are subject to future impairment charges, the amount of which may be material. Given the current economic environment and uncertainties that can negatively impact our business, there can be no assurance that our estimates and assumptions made for the purpose of our indefinite-lived intangible fair value estimates will prove to be accurate.

OFF-BALANCE SHEET ARRANGEMENTS

At June 30, 2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures. Our management, including our principal executive and financial officers, have conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and financial officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We and our subsidiaries, incident to our business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. We maintain insurance that may provide coverage for such matters. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. We believe, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon our annual consolidated financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS.

Not required for smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

See “Exhibit Index” below.

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EXHIBIT INDEX

Exhibit<br><br><br>Number Exhibit Description Form File No. Date of First Filing Exhibit<br>Number Filed<br>Herewith
31.1 Certification of Edward G. Atsinger III Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act. — — — — X
31.2 Certification of Evan D. Masyr Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act. — — — — X
32.1 Certification of Edward G. Atsinger III Pursuant to 18 U.S.C. Section 1350. — — — — X
32.2 Certification of Evan D. Masyr Pursuant to 18 U.S.C. Section 1350. — — — — X
101 The following financial information from the Quarterly Report on Form 10Q for the three and six months ended June 30, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets (ii) Condensed Consolidated Statements of Operations (iii) the Condensed Consolidated Statements of Cash Flows (iv) the Notes to the Condensed Consolidated Financial Statements. — — — — X
104 The cover page of this Quarterly Report on Form 10-Q, formatted in inline XBRL.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Salem Media Group, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SALEM MEDIA GROUP, INC.
August 4, 2021 By: /s/ EDWARD G. ATSINGER III
Edward G. Atsinger III
Chief Executive Officer
(Principal Executive Officer)
August 4, 2021 By: /s/ EVAN D. MASYR
Evan D. Masyr
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

66

EX-31.1

EXHIBIT 31.1

I, Edward G. Atsinger III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Salem Media<br>Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a<br>material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report,<br>fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining<br>disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act<br>Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
--- ---
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be<br>designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is<br>being prepared;
--- ---
(b) Designed such internal control over financial reporting, or caused such internal control over financial<br>reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting<br>principles;
--- ---
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this<br>report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that<br>occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal<br>control over financial reporting; and
--- ---
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of<br>internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
--- ---
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over<br>financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
--- ---
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in<br>the registrant’s internal control over financial reporting.
--- ---

Date: August 4, 2021

/s/ EDWARD G. ATSINGER III
Edward G. Atsinger III
President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

I, Evan D. Masyr, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Salem Media<br>Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a<br>material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report,<br>fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining<br>disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act<br>Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
--- ---
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be<br>designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is<br>being prepared;
--- ---
(b) Designed such internal control over financial reporting, or caused such internal control over financial<br>reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting<br>principles;
--- ---
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this<br>report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that<br>occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal<br>control over financial reporting; and
--- ---
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of<br>internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
--- ---
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over<br>financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
--- ---
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in<br>the registrant’s internal control over financial reporting.
--- ---

Date: August 4, 2021

/s/ EVAN D. MASYR
Evan D. Masyr
Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in his capacity as President and Chief Executive Officer of Salem Media Group, Inc. (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on his knowledge:

• the Quarterly Report of the Company on Form 10-Q for the period ended<br>June 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
• the information contained in the Report fairly presents, in all material respects, the financial condition and<br>results of operations of the Company.
--- ---
Dated: August 4, 2021
--- --- ---
By: /s/ EDWARD G. ATSINGER III
Edward G. Atsinger III
President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in his capacity as Executive Vice President and Chief Financial Officer of Salem Media Group, Inc. (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on his knowledge:

• the Quarterly report of the Company on Form 10-Q for the period ended<br>June 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
• the information contained in the Report fairly presents, in all material respects, the financial condition and<br>results of operations of the Company.
--- ---
Dated: August 4, 2021
--- --- ---
By: /s/ EVAN D. MASYR
Evan D. Masyr
Executive Vice President and Chief Financial Officer

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