Table of Contents
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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
INCORPORATION OR ORGANIZATION)
 
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
6400 NORTH BELT LINE ROAD
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
Symbol(s)
 
Name of each exchange
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
Common Stock, $0.01 par value per share
  
5,553,696 shares
 
 
 

Table of Contents
SALEM MEDIA GROUP, INC.
INDEX
 
     PAGE NO.  
  
  
     2  
  
     3  
     32  
     64  
     64  
  
     64  
     64  
     64  
     64  
     64  
     64  
     64  
     65  
     66  
 
1

Table of Contents
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”).
 
2

Table of Contents
PART I – FINANCIAL INFORMATION
SALEM MEDIA GROUP, INC.
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
3

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
 
     December 31, 2020
(Note 1)
   
June 30, 2021

(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
 
    
 
 
   
 
 
 
See accompanying notes
 
4

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
(Unaudited)
 
    
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
     2020    
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
 
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes
 
5

Table of Contents
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share and per share data)
 
    
Class A
Common Stock
    
Class B
Common Stock
    
Additional
                    
    
Shares
    
Amount
    
Shares
    
Amount
    
Paid-In

Capital
    
Accumulated
Deficit
   
Treasury
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
Common Stock
    
Class B
Common Stock
    
Additional
                    
    
Shares
    
Amount
    
Shares
    
Amount
    
Paid-In

Capital
    
Accumulated
Deficit
   
Treasury
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
 
6

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SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
    
Six Months Ended

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
stock-based compensation
     199    
 
162
 
Depreciation and amortization
     7,258    
 
6,456
 
Amortization of deferred financing costs
     461    
 
426
 
Non-cash
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
earn-out
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
e
 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
 
Ended

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
investing and financing activities:
                
Capital expenditures reimbursable under tenant improvement allowances
   $ 94    
$
19
 
Right-of-use
assets acquired through operating leases
   $ 2,655    
$
1,957
 
Right-of-use
assets acquired through financing leases
   $ —      
$
4
 
Non-cash
capital expenditures for property & equipment acquired under trade agreements
   $ 4    
$
27
 
Net assets and liabilities assumed in a
non-cash
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;
 
   
reducing staffing levels;
 
   
implementing temporary company-wide pay cuts of 5%, 7.5% or 10% depending on salary level;
 
   
furloughing certain employees;
 
   
temporarily suspending the company 401(k) match;
 
   
requesting rent concessions from landlords;
 
   
requesting discounts from vendors;
 
   
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 
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
a
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
earn-out
consideration;
 
   
fair value measurements;
 
   
contingency reserves;
 
   
allowance for doubtful accounts;
 
   
sales returns and allowances;
 
   
barter transactions;
 
   
inventory reserves;
 
   
reserves for royalty advances;
 
   
fair value of equity awards;
 
   
self-insurance reserves;
 
   
estimated lives for tangible and intangible assets;
 
   
assessment of contract-based factors, asset-based factors, entity-based factors and market-based factors to determine the lease term impacting
Right-Of-Use
(“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
earn-out
consideration
   
11
 
   
 
 
 
Total purchase price consideration
 
$
2,027
 
   
 
 
 
The fair value of the net assets acquired was allocated as follows:
 
         
Net Broadcast
Assets Acquired
    
Net Digital
Assets Acquired
    
Total
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
June 30,
    
Six Months Ended
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