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 SEPTEMBER 30, 2023
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
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |
(I.R.S. EMPLOYER IDENTIFICATION NUMBER) | |
| |
||
(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 | ||
Indicate by check mark whether the registrant (1) has 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 Yes ☒ No ☐
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.) 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 | ☐ | |||
| ☒ | 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 November 6, 2023 | |
| Common Stock, $0.01 par value per share |
| Class B |
Outstanding at November 6, 2023 | |
| Common Stock, $0.01 par value per share | ||
Table of Contents
SALEM MEDIA GROUP, INC.
INDEX
| PAGE NO. | ||||||
| COVER PAGE |
||||||
| INDEX |
||||||
| 2 | ||||||
| 3 | ||||||
| Item 1. |
Condensed Consolidated Financial Statements | 3 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | ||||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 55 | ||||
| Item 4. |
Controls and Procedures | 56 | ||||
| Item 1. |
Legal Proceedings | 56 | ||||
| Item 1A. |
Risk Factors | 56 | ||||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 56 | ||||
| Item 3. |
Defaults Upon Senior Securities | 56 | ||||
| Item 4. |
Mine Safety Disclosures | 56 | ||||
| Item 5. |
Other Information | 56 | ||||
| Item 6. |
Exhibits | 56 | ||||
| 57 | ||||||
| 58 | ||||||
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,” “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 (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”).
2
Table of Contents
PART I – FINANCIAL INFORMATION
SALEM MEDIA GROUP, INC.
ITEM 1. |
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
3
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
December 31, 2022 (Note 1) |
September 30, 2023 (Unaudited) |
|||||||
ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
$ |
||||||
| Accounts receivable (net of allowances of $ in 2022 and $ in 2023) |
||||||||
| Unbilled revenue |
||||||||
| Income tax receivable |
||||||||
| Other receivables (net of allowances of $ in 2022 and $ in 2023) |
||||||||
| Inventories |
||||||||
| Prepaid expenses |
||||||||
| Assets held for sale |
||||||||
| |
|
|
|
|||||
| Total current assets |
||||||||
| |
|
|
|
|||||
| Notes receivable (net of allowance of $ in 2022 and $ in 2023) |
||||||||
| Property and equipment (net of accumulated depreciation of $ in 2022 and $ in 2023) |
||||||||
| Operating lease right-of-use |
||||||||
| Financing lease right-of-use |
||||||||
| Broadcast licenses |
||||||||
| Goodwill |
||||||||
| Amortizable intangible assets (net of accumulated amortization of $ in 2022 and $ in 2023) |
||||||||
| Deferred financing costs |
||||||||
| Other assets |
||||||||
| |
|
|
|
|||||
| Total assets |
$ |
$ |
||||||
| |
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ |
$ |
||||||
| Accrued expenses |
||||||||
| Accrued compensation and related expenses |
||||||||
| Accrued interest |
||||||||
| Contract liabilities |
||||||||
| Deferred rent income |
||||||||
| Current portion of operating lease liabilities |
||||||||
| Current portion of financing lease liabilities |
||||||||
| Current portion of long-term debt |
||||||||
| |
|
|
|
|||||
| Total current liabilities |
||||||||
| |
|
|
|
|||||
| Long-term debt, less current portion |
||||||||
| Operating lease liabilities, less current portion |
||||||||
| Financing (capital) lease liabilities, less current portion |
||||||||
| Deferred income taxes |
||||||||
| Contract liabilities, long-term |
||||||||
| Deferred rent income, less current portion |
||||||||
| Other long-term liabilities |
||||||||
| |
|
|
|
|||||
| Total liabilities |
||||||||
| |
|
|
|
|||||
| Commitments and contingencies (Note 13) |
||||||||
| Stockholders’ Equity: |
| |||||||
| Class A common stock, $ par value; authorized shares; issued and outstanding at December 31, 2022 and September 30, 2023 |
||||||||
| Class B common stock, $ par value; authorized shares; issued and outstanding at December 31, 2022 and September 30, 2023, respectively |
||||||||
| Additional paid-in capital |
||||||||
| Accumulated deficit |
( |
) |
( |
) | ||||
| Treasury stock, at cost ( shares at December 31, 2022 and September 30, 2023) |
( |
) |
( |
) | ||||
| |
|
|
|
|||||
| Total stockholders’ equity |
||||||||
| |
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ |
$ |
||||||
| |
|
|
|
|||||
See accompanying notes
4
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2023 |
2022 |
2023 |
|||||||||||||
| Net broadcast revenue |
$ | $ |
$ | $ |
||||||||||||
| Net digital media revenue |
||||||||||||||||
| Net publishing revenue |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total net revenue |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Operating expenses: |
||||||||||||||||
| Broadcast operating expenses, exclusive of depreciation and amortization shown below (including $ |
||||||||||||||||
| Legal settlement |
||||||||||||||||
| Digital media operating expenses, exclusive of depreciation and amortization shown below |
||||||||||||||||
| Publishing operating expenses, exclusive of depreciation and amortization shown below |
||||||||||||||||
| Unallocated corporate expenses exclusive of depreciation and amortization shown below (including $ |
||||||||||||||||
| Debt modification costs |
||||||||||||||||
| Depreciation |
||||||||||||||||
| Amortization |
||||||||||||||||
| Change in the estimated fair value of contingent earn-out consideration |
( |
) |
( |
) | ( |
) | ||||||||||
| Impairment of indefinite-lived long-term assets other than goodwill |
||||||||||||||||
| Impairment of goodwill |
||||||||||||||||
| Net (gain) loss on the disposition of assets |
( |
) |
( |
) | ( |
) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Operating income (loss) |
( |
) | ( |
) |
( |
) | ||||||||||
| Other income (expense): |
||||||||||||||||
| Interest income |
||||||||||||||||
| Interest expense |
( |
) | ( |
) |
( |
) | ( |
) | ||||||||
| Gain (loss) on early retirement of long-term debt |
( |
) | ( |
) | ||||||||||||
| Earnings (loss) from equity method investment |
( |
) | ||||||||||||||
| Net miscellaneous income and (expenses) |
( |
) | ( |
) |
( |
) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss before income taxes |
( |
) | ( |
) |
( |
) | ( |
) | ||||||||
| Provision for (benefit from) income taxes |
( |
) |
( |
) | ( |
) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss |
$ | ( |
) | $ |
( |
) |
$ | ( |
) | $ |
( |
) | ||||
| |
|
|
|
|
|
|
|
|||||||||
| Basic loss per share data: |
||||||||||||||||
| Basic income per share |
$ | ( |
) | $ |
( |
) |
$ | ( |
) | $ |
( |
) | ||||
| Diluted loss per share data: |
||||||||||||||||
| Diluted income per share |
$ | ( |
) | $ |
( |
) |
$ | ( |
) | $ |
( |
) | ||||
| Basic weighted average shares outstanding |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Diluted weighted average shares outstanding |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
See accompanying notes
5
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 Paid-In |
Accumulated |
Treasury |
||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Stock |
Total |
|||||||||||||||||||||||||
| Stockholders’ equity, December 31, 2021 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Options exercised |
— | — | — | — | — | |||||||||||||||||||||||||||
| Lapse of restricted shares |
— | — | — | — | — | — | — | |||||||||||||||||||||||||
| Net income |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Stockholders’ equity, March 31, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Net income |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Stockholders’ equity, June 30, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Options exercised |
— | — | — | — | — | |||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Stockholders’ equity, September 30, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||||
| |
|
|
|
|
|
|
|
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|
|||||||||||||||||
Class A Common Stock |
Class B Common Stock |
Additional Paid-In |
Accumulated |
Treasury |
||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Stock |
Total |
|||||||||||||||||||||||||
| Stockholders’ equity, December 31, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | ( |
) |
— | ( |
) | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Stockholders’ equity, March 31, 2023 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||||
| |
|
|
|
|
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|
|
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|
|
|
|
|
|||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | ( |
) |
— | ( |
) | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Stockholders’ equity, June 30, 2023 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||||
| |
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|
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|
|||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | ( |
) |
— | ( |
) | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Stockholders’ equity, September 30, 2023 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||||||
| |
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|||||||||||||||||
See accompanying notes
6
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended September 30, |
||||||||
2022 |
2023 |
|||||||
| OPERATING ACTIVITIES |
||||||||
| Net loss |
$ | ( |
) | $ |
( |
) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Non-cash stock-based compensation |
||||||||
| Depreciation and amortization |
||||||||
| Amortization of deferred financing costs |
||||||||
| Non-cash lease expense |
||||||||
| Accretion of acquisition-related deferred payments and contingent earn-out consideration |
||||||||
| Provision for bad debts |
( |
) | ( |
) | ||||
| Deferred income taxes |
( |
) | ( |
) | ||||
| Change in the estimated fair value of contingent earn-out consideration |
( |
) | ( |
) | ||||
| Impairment of indefinite-lived long-term assets other than goodwill |
||||||||
| Impairment of goodwill |
||||||||
| (Gain) loss on early retirement of long-term debt |
||||||||
| Net (gain) loss on the disposition of assets |
( |
) | ( |
) | ||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable and unbilled revenue |
( |
) | ||||||
| Income tax receivable |
( |
) | ||||||
| Inventories |
( |
) | ||||||
| Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
| Accounts payable and accrued expenses |
||||||||
| Operating lease liabilities |
( |
) | ( |
) | ||||
| Contract liabilities |
( |
) | ( |
) | ||||
| Deferred rent income |
( |
) | ( |
) | ||||
| Other liabilities |
( |
) | ( |
) | ||||
| Income taxes payable |
( |
) | ||||||
| |
|
|
|
|||||
| Net cash provided by (used in) operating activities |
( |
) | ||||||
| |
|
|
|
|||||
| INVESTING ACTIVITIES |
||||||||
| Cash paid for capital expenditures net of tenant improvement allowances |
( |
) | ( |
) | ||||
| Capital expenditures reimbursable under tenant improvement allowances and trade agreements |
( |
) | ( |
) | ||||
| Deposits paid on broadcast assets and radio station acquisitions |
( |
) | ||||||
| Purchases of broadcast assets and radio stations |
( |
) | ( |
) | ||||
| Purchases of digital media businesses and assets |
( |
) | ( |
) | ||||
| Return of equity investment in limited liability corporations |
||||||||
| Equity investment in limited liability corporations |
( |
) | ( |
) | ||||
| Proceeds from sale of assets |
||||||||
| Other |
||||||||
| |
|
|
|
|||||
| Net cash provided by (used in) investing activities |
( |
) | ||||||
| |
|
|
|
|||||
| FINANCING ACTIVITIES |
||||||||
| Proceeds from the issuance of 2028 Notes |
||||||||
| Payments to repurchase 2024 Notes |
( |
) | ( |
) | ||||
| Proceeds from borrowings under ABL Facility |
||||||||
| Payments on ABL Facility |
( |
) | ( |
) | ||||
| Payments of debt issuance costs |
( |
) | ( |
) | ||||
| Payments of acquisition-related contingent earn-out consideration |
( |
) | ( |
) | ||||
| Proceeds from the exercise of stock options |
||||||||
| Payments on financing lease liabilities |
( |
) | ( |
) | ||||
| Book overdraft |
( |
) | ||||||
| |
|
|
|
|||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| |
|
|
|
|||||
| Net increase in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents at beginning of year |
||||||||
| |
|
|
|
|||||
| Cash and cash equivalents at end of period |
$ | $ |
||||||
| |
|
|
|
|||||
See accompanying notes
7
SALEM MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
(Unaudited)
Nine Months Ended September 30, |
||||||||
2022 |
2023 |
|||||||
| Supplemental disclosures of cash flow information: |
||||||||
| Cash paid during the period for: |
||||||||
| Cash paid for interest, net of capitalized interest |
$ | $ |
||||||
| Cash paid for interest on finance lease liabilities |
$ | $ |
||||||
| Net cash paid for (received from) income taxes |
$ | $ |
||||||
| Other supplemental disclosures of cash flow information: |
||||||||
| Barter revenue |
$ | $ |
||||||
| Barter expense |
$ | $ |
||||||
| Non-cash investing and financing activities: |
||||||||
| Capital expenditures reimbursable under tenant improvement allowances |
$ | $ |
||||||
| Right-of-use |
$ | $ |
||||||
| Right-of-use |
$ | $ |
||||||
| Net assets and liabilities assumed in a non-cash acquisition |
$ | $ |
||||||
| Estimated present value of contingent-earn out consideration |
$ | $ |
||||||
See accompanying notes
8
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 15 – Segment Data.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements of Salem include the company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
Information with respect to the three and nine months ended September 30, 2023 and 2022 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, 2022. 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, 2022 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.
Equity Method Investment
We invested in OneParty America LLC (“OPA”), an entity formed for the purpose of developing, producing, and distributing a documentary motion picture. We analyzed our investment to determine the degree to which we influenced OPA. The determination of the degree to which we can influence an investee requires extensive analysis depending on the terms and nature of each investment.
We reviewed OPA in accordance with the guidance within Accounting Standards Codification (“ASC”) 810. Based on our analysis using the variable interest model, we determined that OPA was a Variable Interest Entity (“VIE”), but because we did not have a controlling financial interest, we were not the primary beneficiary of OPA. Accordingly, we accounted for our investment in OPA in accordance with ASC .
, Consolidation
323-30
, Investments – Equity Method and Joint Ventures
We recorded our equity method investment at cost with subsequent adjustments to the carrying value for our share of the earnings or losses of OPA. Distributions received from the equity method investment were recorded as reductions in the carrying value of such investment and are classified on the unaudited condensed consolidated interim statements of cash flows pursuant to the cumulative earnings approach. Under the cumulative earnings approach, distributions received are accounted for as a return on investment in cash inflows from operating activities unless the cumulative distributions received exceed the cumulative equity in earnings recognized from the investment. When such an excess occurs, the current period distributions up to this excess are considered returns of investment and are classified as cash inflows from investing activities.
The documentary motion picture, , was released in May 2022. We recorded $3.9 million of earnings from our equity investment in OPA. At June 30, 2022, we recorded a net receivable of $1.3 million from OPA that is included in other receivables in our Condensed Consolidated Balance sheet representing our share of profit from the documentary motion picture. The balance of that receivable was paid in full at the end of September 30, 2023.
2000 Mules
We monitor equity method investments for impairment and records a reduction in the carrying value if the carrying exceeds the estimated fair value. An impairment charge is recorded when such impairment is deemed to be other than temporary. To determine whether an impairment is other than temporary, we consider our ability and intent to hold the investment until the carrying amount is fully recovered. Circumstances that indicate an impairment may have occurred include factors such as decreases in quoted market prices or declines in the operations of the investee. The evaluation of the investment for potential impairment requires us to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions. There were no indications of impairment at September 30, 2023.
Use of Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates require the use of judgment as future events, and the effect of these events cannot be predicted with certainty.
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 evaluate and update our assumptions and estimates on an ongoing basis and we may consult outside experts to assist as considered necessary.
Significant areas for which management uses estimates include:
• |
revenue recognition; |
• |
asset impairments, including broadcasting licenses and goodwill; |
• |
contingency reserves; |
• |
allowance for doubtful accounts; |
• |
barter transactions; |
• |
assessment of contract-based factors, asset-based factors, entity-based factors and market-based factors to determine the lease term impacting Right-Of-Use |
• |
determining the Incremental Borrowing Rate (“IBR”) for calculating ROU assets and lease liabilities |
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, 2022 filed with the SEC on March 10, 2023, 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 Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Update (“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.
Accounting Standards Adopted in 2023
In September 2022, the FASB issued ASU , to enhance the transparency about the use of supplier finance programs. The ASU was effective January 1, 2023, and is to be applied retrospectively with early adoption permitted. We do not currently utilize Supplier Finance programs, therefore, the adoption of ASU
2022-04
, Liabilities – Supplier Finance Programs (Subtopic
405-50):
Disclosure of Supplier Finance Program ObligationsNo. 2022-04
did not have a material impact on our condensed consolidated financial position, results of operations, cash flows, or presentation thereof. In March 2022, the FASB issued ASU (Topic 326):. This amended guidance will eliminate the accounting designation of a loan modification as a TDR, including eliminating the measurement guidance for TDRs. The amendments also enhance existing disclosure requirements and introduce new requirements related to modifications of receivables made to borrowers experiencing financial difficulty. Additionally, this guidance requires entities to disclose gross write-offs by year of origination for financing receivables, such as loans and interest receivable. The ASU was effective January 1, 2023, and is required to be applied prospectively, except for the recognition and measurement of TDRs which can be applied on a modified retrospective basis. The adoption of ASU
2022-02,
Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures
Financial Instruments – Credit Losses
No. 2022-02
did not have a material impact on our condensed consolidated financial position, results of operations, cash flows, or presentation thereof. In October 2021 the FASB issued ASU 202108, which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic) rather than adjust them to fair value at the acquisition date. The ASU was effective January 1, 2023, with early adoption permitted. The adoption of ASU
,
-
,
Business Combinations (Topic
805
): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
606
No. 2021-08
did not have a material impact on our consolidated financial position, results of operations, cash flows, or presentation thereof. Recent Accounting Standards or Updates Not Yet Effective
In March 2023, the FASB issued ASU . The ASU amends the accounting for leasehold improvements in common control arrangements by requiring a lessee in a common control lease arrangement to amortize leasehold improvements that it owns over the improvements’ useful life to the common control group, regardless of the lease term, if the lessee continues to control the use of the underlying asset through a lease. Further, a lessee that no longer controls the use of the underlying asset will derecognize the remaining carrying amount of the improvements through an adjustment to equity, reflecting the transfer of the asset to the lessor under common control. This ASU is
2023-01,
Leases (Topic 842) – Common Control Arrangements
effective for fiscal years beginning after December 15, 2023 (fiscal 2024), including interim periods within those fiscal years. Early adoption is p
ermitted in any annual or interim period as of the beginning of the related fiscal year. We are evaluating the effect of adopting this new accounting guidance
.
In June 2022, the FASB issued ASU . This amended guidance clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective January 1, 2024, and is to be applied prospectively with early adoption permitted. 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.
2022-03,
Fair Value Measurement (Topic 820) Fair Value Measurement of Equity Securities Subject to Contractual Sales Restrictions
NOTE 3. RECENT TRANSACTIONS
During the nine-month period ended September 30, 2023, we completed or entered into the following transactions:
Related Party Transaction
On May 25, 2023, we sold to a related party the economic interests in the leases at our Greenville, South Carolina radio transmitter site for $3.5 million resulting in a 3.3 million.
pre-tax
gain of $Debt Transactions
Because the availability of our ABL Facility was less than $4.5 million during the quarter, we were required to test against the fixed charge coverage ratio covenant. The fixed charge coverage ratio was below the required 1.0 to 30.0 million to $25.0 million with a minimum availability of $1.0 million. Finally, the interest rate on the ABL Facility was increased to Secured Overnight Financing Rate (“SOFR”) plus 4 % or base rate plus 3.0 % effective July 1, 2023.
1.0
level during the quarter and therefore, we were not in compliance with that covenant. During the quarter, we signed multiple monthly forbearance agreements for which the recent forbearance agreement was dated November 2, 2023, whereby the bank agreed not to exercise remedies on the default. Additionally, the notional amount of the revolver was reduced from $On March 20, 2023, we issued $44.7 million in new 7.125 % Senior Secured Notes due 2028 (“2028 Notes”) at a discount of $41.9 million resulting in an effective yield of 8.625 %. We used a portion of the proceeds of this borrowing to redeem the remaining $36.5 million of 6.75 % Senior Secured Notes due 2024 (“2024 Notes”). The redemption of the 2024 Notes closed on March 27, 2023.
On January 19, 2023, we repurchased $2.5 million of the 2024 Notes at 97.25 % of face value recognizing a gain of $39,000 after adjusting for debt issue costs.
Acquisitions
On March 24, 2023, we closed on the acquisition of Digital Felt Productions and the digital content library through its www.digitalfelt.com domain and website for $25,000 in cash.
On February 1, 2023, we closed on the acquisition of the George Gilder Report and other digital newsletters and related website assets. We assumed the deferred subscription liabilities paying no cash at the time of closing. We will pay the seller 25 % of net revenue generated from sales of most Eagle Financial products during the next year to subscribers who are on George Gilder subscriber lists that are not already on Eagle Financial lists. We recorded goodwill of approximately $1.2 million associated with the expected synergies to be realized upon combining the operations into our digital media platform within Eagle Financial Publications. The accompanying Condensed Consolidated Statement of Operations reflects the operating results of this entity as of the closing date within our digital media segment.
On January 10, 2023, we closed on the acquisition of radio stations 3.0 million in cash.
WWFE-AM,
WRHC-AM,
two FM translators and six office condominiums in Miami, Florida for $On January 6, 2023, we closed on the acquisition of radio station 3.2 million in cash.
WMYM-AM
and an FM translator in Miami, Florida for $The total purchase price consideration for our business acquisitions and asset purchases during the nine-month period ending September 30, 2023, is as follows:
| Description |
Total Consideration |
|||
(Dollars in thousands) |
||||
| Cash payments made upon closing |
$ |
|||
| Escrow deposits paid in prior years |
||||
| Fair value of contingent earn-out consideration |
||||
| |
|
|||
| Total purchase price consideration |
$ |
|||
| |
|
|||
11
The allocations presented in the table below are based upon estimates of the fair values using valuation techniques including income, cost and market approaches. The following preliminary purchase price allocations are based upon the valuation of assets and these estimates and assumptions are subject to change as we obtain additional information during the measurement period, which may be up to one year from the acquisition date. Differences between the preliminary and final valuation could be substantially different from the initial estimate.
Net Broadcast Assets Acquired |
Net Digital Media Assets Acquired |
Total Net Assets |
||||||||||||
| Assets |
||||||||||||||
| |
Property and equipment |
$ |
$ |
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