SalMar
Annual Report 2015

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KSALEM MEDIA GROUP, INC. /DE/ - SALMFiled: March 11, 2016 (period: December 31, 2015)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 000-26497 SALEM MEDIA GROUP, INC.(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE(STATE OR OTHER JURISDICTION OFINCORPORATION OR ORGANIZATION) 77-0121400(I.R.S. EMPLOYER IDENTIFICATION NUMBER) 4880 SANTA ROSA ROADCAMARILLO, CALIFORNIA(ADDRESS OF PRINCIPALEXECUTIVE OFFICES) 93012( ZIP CODE) REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-0400 Securities registered pursuant to Section 12(b) of the Act: Title of each className of the Exchange on which registeredClass A Common Stock, $0.01 par value per shareThe NASDAQ Global Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x 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 1934during 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 filingrequirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired 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 shorterperiod that the registrant was required to submit and post such files). Yes x No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to thebest of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨Accelerated filer xNon-accelerated filer ¨Smaller Reporting Company ¨ (Do not check if Smaller Reporting Company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x As of June 30, 2015, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $73,444,420 based on theclosing sale price as reported on the NASDAQ Global Market. 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 February 26, 2016Common Stock, $0.01 par value per share 19,928,484 sharesClass B Outstanding at February 26, 2016Common Stock, $0.01 par value per share 5,553,696 shares DOCUMENTS INCORPORATED BY REFERENCESource: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Document Parts Into Which IncorporatedProxy Statement for the Annual Meeting of Stockholders Part III, Items 10, 11, 12, 13 and 14 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. TABLE OF CONTENTS PAGE PART I Item 1.Business3Item 1A.Risk Factors21Item 1B.Unresolved Staff Comments40Item 2.Properties40Item 3.Legal Proceedings41Item 4.Mine Safety Disclosures41 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities41Item 6.Selected Financial Data43Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations47Item 7A.Quantitative and Qualitative Disclosures About Market Risk81Item 8.Financial Statements and Supplementary Data82Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure133Item 9A.Controls and Procedures133Item 9B.Other Information135 PART III Item 10.Directors, Executive Officers and Corporate Governance135Item 11.Executive Compensation135Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters135Item 13.Certain Relationships and Related Transactions and Director Independence135Item 14.Principal Accounting Fees and Services135 PART IV Item 15.Exhibits and Financial Statement Schedules136 Signatures149 Exhibit Index151 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 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. All metropolitan statistical area (“MSA”) rank information used in this report, excluding information concerning The Commonwealth of Puerto Rico, isfrom the Fall 2015 Radio Market Survey Schedule & Population Rankings published by Nielsen Audio (“Nielsen”). According to the Radio Market Survey,the population estimates are based upon the 2010 U.S. Bureau Census estimates updated and projected to January 1, 2016 by Nielsen. NOTE REGARDING FORWARD-LOOKING STATEMENTS Salem Media Group, Inc. (“Salem” or the “company,” including references to Salem by “we,” “us” and “our”) makes “forward-looking statements” fromtime to time in both written reports (including this report) and oral statements, within the meaning of federal and state securities laws. Disclosures that usewords 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 ReformAct 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 ofthe date of this report. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations.These risks, as well as other risks and uncertainties, are detailed in Salem’s reports on Forms 10-K, 10-Q and 8-K filed with or furnished to the Securities andExchange Commission. Except as required by law, the company undertakes no obligation to update or revise any forward-looking statements made in thisreport. Any such forward-looking statements, whether made in this report or elsewhere, should be considered in context with the various disclosures made bySalem about its business. These projections and other forward-looking statements fall under the safe harbors of Section 27A of the Securities Act of 1933, asamended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 2 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART I ITEM 1. BUSINESS. CORPORATE INFORMATION Salem Media Group, Inc. (“Salem”) is a domestic multi-media company specializing in Christian and Conservative content, with media propertiescomprising radio broadcasting, digital media, and book, magazine and newsletter publishing. Effective as of February 19, 2015, we changed our name fromSalem Communications Corporation to Salem Media Group, Inc. Salem was formed in 1986 as a California corporation and was reincorporated in Delaware in1999. Our content is intended for audiences interested in Christian and family-themed programming and conservative news talk. Our filings with theSecurities and Exchange Commission are available under the Investor Relations section of our website at www.salemmedia.com. SEGMENT INFORMATION We have two reportable segments, radio broadcasting and digital media. Digital media (formerly “Internet and e-commerce”) became a reportablesegment as of the first quarter of 2011 upon the realization of organic and acquisition-related revenue growth. Our acquisition of Eagle Publishing on January10, 2014, including Regnery Publishing, Eagle Financial Publications, Eagle Wellness, Human Events and Red State, resulted in operational changes to ourbusiness and a realignment of our operating segments. We now have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing. Wechanged the composition of our operating segments to reflect management’s view of the operating results for each segment. Our operating segments reflect how our chief operating decision makers, which we define as a collective group of senior executives, assesses theperformance of each operating segment and determines the appropriate allocations of resources to each segment. Our operating segments do not all meet thequantitative thresholds to qualify as reportable segments; however, we have elected to disclose the results of these non-reportable operating segments as webelieve this information is useful to readers of our financial statements. We continue to review our operating segment classifications to align with operationalchanges in our business and may make future changes as necessary. We measure and evaluate our operating segments based on operating income and operating expenses that do not include allocations of costs related tocorporate functions, such as accounting and finance, human resources, legal, tax and treasury; nor do they include costs such as amortization, depreciation,taxes or interest expense. Changes to our operating segments did not impact the reporting units used to test non-amortizable assets for impairment. All priorperiods presented are updated to reflect this new composition of our operating segments. Refer to Note 17 – Segment Data in the notes to our consolidatedfinancial statements contained in Item 8 of this annual report on Form 10-K for additional information. BUSINESS STRATEGY We are fundamentally committed to programming and content emphasizing Christian values, conservative family themes and news. Our commitment tothese values means that we may choose not to switch to other formats or pursue potentially more profitable business opportunities in response to changes inaudience preferences. Our goal is to produce and deliver compelling content to audiences interested in Christian and family-themed programming and conservative news talkto be considered the market-leader for all audiences, programmers and advertisers. Our media platform consists of traditional media including radiobroadcasting, print magazines and book publishing as well as emerging media, including web portals and digital publications. We continually pursue theexpansion of our media platform as the marketplace evolves while aggressively managing operating costs and cash flows. Expansion opportunities for ourmedia platform include increasing the strength and reach of our broadcast signals, investing in and building Internet websites, promoting our authors and on-air talent, including their own publications, and increasing the distribution and page views for our print and digital content. Our national presence in each ofthese mediums provides advertisers and programmers with a powerful and integrated platform to reach audiences throughout the United States withoutcompromising the sense of community involvement and branding that we generate locally with sponsored events and promotions. Broadcasting Our foundational business is the ownership and operation of radio stations in large metropolitan markets. Our radio stations carry national and localprogramming content as well as national and local advertisers. We produce and sponsor a number of community events that we believe are important inbuilding our brand identity. We also believe that our active community involvement, including remote broadcasts, client events, concerts and tie-ins tomajor events, builds station awareness and listener loyalty. We promote our station websites on-air and at community events to direct participants to ourwebsites specifically designed for each of our radio stations. Audiences can access our entire library of digital content and online publications from any ofour station websites. 3 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. To operate our broadcast entities efficiently, we assemble market clusters, or multiple radio stations operating within the same geographic market.Several benefits are achievable when operating market clusters. First, we are able to offer advertisers and programmers access to multiple audiences byproviding airtime on each radio station in that market when advantageous. Second, we realize cost and operating efficiencies by consolidating sales,technical and administrative support, promotional functions and other shared overhead costs such as rent, when possible. Third, the addition of new radiostations into existing markets allows us to leverage our hands-on knowledge of that market to increase our appeal to new listeners and advertisers. We own and/or operate 116 radio stations in 40 markets, including 71 stations in 22 of the top 25 markets, consisting of 34 FM radio stations and 82 AMradio stations. We are one of only three commercial radio broadcasters with radio stations in all of the top 10 markets. We are the sixth largest radiobroadcaster in the United States as measured by number of radio stations overall and the third largest operator as measured by number of stations in the top 25markets. We also program the Family Talk™ Christian-themed talk format station on SiriusXM Channel 131. Salem Radio Network® and Salem Media Representatives™ Our broadcasting operations also include our national networks of affiliated radio stations. Salem Radio Network® (“SRN”), based in Dallas, Texas,develops, produces and syndicates a broad range of programming specifically targeted to Christian and family-themed talk stations, music stations andgeneral News Talk stations. SRN delivers programming via satellite to approximately 2,800 affiliated radio stations throughout the Unites States, includingseveral of our Salem owned stations. We also own and operate SRN News Network (“SNN”), Salem Music Network (“SMN”), Today’s Christian Music (“TCM”) and Singing News Network(formerly Solid Gospel Network), which are radio networks that produce and distribute talk, news and music programming to radio stations throughout theUnited States, including several of our Salem owned stations. Salem Media RepresentativesTM (“SMR”) is our national advertising sales firm with offices in 8cities. SMR specializes in placing national advertising on religious and other format commercial radio stations. SMR sells commercial airtime to nationaladvertisers on our radio stations and through our networks, as well as for independent radio station affiliates. National companies often prefer to advertise across the United States as an efficient and cost effective way to reach their target audiences. Advertisers canbenefit from our national platform under which we offer radio airtime, digital advertisements, and print magazine advertisements that reach audiencesthroughout the United States. SRN and our radio stations each have relationships with SMR for the sale of available SRN spot advertising. SMR alsocontracts with individual radio stations to sell airtime to national advertisers desiring to include selected company stations in national buys coveringmultiple markets. Digital Media Our digital strategy is to continue to build a robust web-based platform designed for audiences interested in Christian and family-themed content andconservative news. The Internet continues to change the way in which media is delivered to audiences. Continual advancements with online search enginesand social media sites provide consumers with numerous methods to locate specific information and content online. These advancements have also enabled alarge number of individuals to create and publish content that may or may not be tailored to a specific consumer. Our editorial staff, including our on-airpersonalities, provide web-based commentaries, programs, text, audio and video content that we believe to be knowledge-based, credible and reliable. Ourhighly specific web-based content provides advertisers a unique and powerful way to reach their targeted audiences. Publishing Our publishing strategy mirrors that of our other operating segments - to build and maintain a distribution network targeting audiences interested inChristian and family-themed content as well as conservative news. Our acquisition of Regnery Publishing, a publisher of conservative books founded in1947, expanded our publishing operations to include book publishing in addition to print magazines and our self-publishing service. Regnery Publishinghas published dozens of bestselling books by leading conservative authors and personalities, including Ann Coulter, Newt Gingrich, David Limbaugh, EdKlein, Mark Steyn and Dinesh D'Souza. 4 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Audience Growth The continued success of our business is dependent upon our ability to reach a growing audience. We continually seek opportunities for growth byincreasing the strength and number of our broadcast signals, increasing the number of page-views on our digital platform, increasing book sales andincreasing our subscriber base for published magazines and digital content. To accomplish this, we produce content that we believe is both compelling andof high commercial value based on our market testing and fine-tuning. We rely on a combination of research, marketing, targeted promotions and live eventsto create visibility and brand awareness in each of our markets. By maximizing our audience share, we achieve higher ratings and page turns that can beconverted into advertising revenues. To maximize results, we cross-promote our content on each of our media platforms to enhance our brand names andreach our targeted audiences. We believe that the growth of our media platform provides advertisers with effective methods to reach an expanding audience. Technical Improvements We continually seek ways to expand our media reach from a technological perspective. For broadcasting, we seek growth opportunities by increasing thestrength and number of our broadcast signals allowing us to reach listeners from both our day and night signals. We recently acquired several radio stationsand over the last few years, we have invested in FM translators. FM translators allow our AM stations to be heard on FM and expand the listenership of ourFM HD channels including the potential to create new stations using the HD-2, HD-3 and HD-4 channel capacity. We continue to build or purchase websitesthat allow our audiences to view our content online or through digital streaming. Our website content is available on numerous iPhone® and Androidapplications. All of our radio stations, and several of our web portals, have iPhone® and Android applications that can be used for digital streaming andviewing our content on mobile devices. Sales Professionals We have assembled an effective, highly trained sales staff that is responsible for converting our audience share into revenue. We operate a focused, sales-oriented culture that rewards selling efforts through a commission and bonus compensation structure. We hire sales professionals that are capable of sellingboth integrated and stand-alone advertisements. We provide our sales professionals with the tools and resources necessary to compete effectively in themarketplace. We sell and market our platforms as stand-alone products or in combination with other offerings. Based on our experience, we tailor ourplatform to meet each advertiser’s needs, including the geographic coverage area, event sponsorships and special features, digital promotions, e-mailsponsorships, and/or print advertisements. Significant Community Involvement We expect our public image to reflect the lifestyle and viewpoints of the target demographic groups that we serve. We regularly collaborate withorganizations serving the Christian and family-themed audience and we sponsor and support events important to this group. We believe that our ongoingactive involvement and our strong relationships within the Christian community provide us with a unique competitive advantage that significantly improvesthe marketability of our media platform to advertisers and programmers targeting such communities. Our sponsored events include listener rallies, speakingtours, pastor appreciation events and concerts such as our Celebrate Freedom® Music Festival and our Fishfest®. Local events such as these connect us withour listeners and enable us to create an enhanced awareness and name recognition in each of our markets. This involvement allows for increased effectivenessin developing and improving our programming formats, which contribute to a greater audience share and higher ratings over the long-term. Corporate Structure Management of our operations is decentralized. Our operational vice presidents and general managers are located throughout the United States. We relyon this strategy of decentralization, which we believe encourages each general manager and vice president to apply innovative techniques for improving andgrowing their operations that may be beneficial in other markets. Our broadcast operations vice presidents, some of whom are also station general managers, are experienced radio broadcasters with expertise in sales,programming, marketing and production. Each of our broadcast operations vice presidents oversee several markets on a regional basis. Our digital andpublishing operations vice presidents and general managers are also located throughout the United States in offices in which our entities operate. All of our business segments receive executive leadership and oversight from our corporate staff. Corporate staff members have experience and expertisein, among other things, accounting and finance, treasury, risk management, insurance, information technology, human resources, legal, engineering, realestate, strategic direction and other support functions designed to provide resources to local management. Corporate staff oversees placement and ratenegotiations for our national block programs. Centralized oversight of our block programming is necessary because our key programming partners purchasetime in several of our radio markets. 5 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Recent Events During the year ended December 31, 2015, we completed or entered into the following transactions: Debt On January 30, 2015, we repaid $2.0 million in principal on our senior secured credit facility, consisting of a term loan of $300.0 million (“Term LoanB”) and paid interest due as of that date. We recorded a $15,000 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and$27,000 in bank loan fees associated with the principal repayment. Equity During the year ended December 31, 2015, our Board of Directors declared quarterly equity distributions to all stockholders of record of our Class A andClass B common stock as follows: Announcement Date Record Date Payment Date Amount Per Share Total Cash Distributed (in thousands) December 1, 2015 December 15, 2015 December 29, 2015 $0.0650 $1,656 September 1, 2015 September 16, 2015 September 30, 2015 $0.0650 $1,655 June 2, 2015 June 16, 2015 June 30, 2015 $0.0650 $1,654 March 5, 2015 March 17, 2015 March 31, 2015 $0.0650 $1,647 The actual declaration of any future equity distributions and the establishment of the per share amount, record dates, and payment dates are subject tofinal determination by our Board of Directors and dependent upon future earnings, cash flows, financial requirements, and other factors. The current policy ofour Board of Directors is to review all relevant factors on a quarterly basis to determine the appropriate amount, if any, to allocate toward a cash distributionwith the general principle of using approximately 20% of free cash flow. Free cash flow is a non-GAAP financial measure defined in Item 7, Management’sDiscussion and Analysis of Financial Condition and Results of Operations included with this annual report on Form 10-K. Broadcast Acquisitions We completed a number of broadcast acquisitions during the year, most notable from Disney’s divestiture of its Radio Disney properties. Of the elevenradio stations that we acquired during 2015, 10 were former Radio Disney properties. With the exception of WSDZ-AM in the St. Louis, Missouri market,each of these acquisitions were in markets in which we already have broadcast facilities and staff, or “tuck-in” acquisitions. Tuck-in acquisitions are madewhen we believe it is advantageous to increase the strength and number of our broadcast signals while minimizing costs under our market cluster-operatingconcept. The St. Louis market, being one of the top 25 radio markets in the United States, provides a unique opportunity to expand our platform in a newmarket. A summary of our broadcast acquisitions, in order of most recent, is as follows: On December 18, 2015, we acquired radio station WSDZ-AM in St. Louis, Missouri, for $0.3 million in cash. On December 15, 2015, we acquired radio station KDIZ-AM in Minneapolis, Minnesota, for $0.4 million in cash. On December 11, 2015, we acquired radio station WWMI-AM in Tampa, Florida, for $0.8 million in cash. On December 8, 2015, we acquired radio station KDDZ-AM in Denver, Colorado, for $0.6 million in cash. On December 4, 2015, we acquired radio station KDZR-AM in Portland, Oregon, for $0.3 million in cash. On October 1, 2015, we acquired radio station KKSP-FM in Little Rock, Arkansas for $1.5 million in cash. On September 15, 2015, we acquired radio station KEXB-AM (formerly KMKI-AM) in Dallas, Texas, for $3.0 million in cash. On September 10, 2015, we acquired radio station WBIX-AM (formerly WMKI-AM) in Boston, Massachusetts, for $0.5 million in cash. On May 12, 2015, we acquired radio station WPGP-AM (formerly WDDZ-AM) in Pittsburgh, Pennsylvania, for $1.0 million in cash. On May 7, 2015, we acquired radio station WDWD-AM in Atlanta, Georgia, for $2.8 million in cash. 6 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On April 7, 2015, we acquired land and real estate used in the operations of our radio stations in Greenville, South Carolina, for $0.2 million in cash. On March 27, 2015, we acquired radio station WDYZ-AM in Orlando, Florida, for $1.3 million in cash. We began operating this station under an AssetPurchase Agreement (“APA”) as of December 10, 2014. Digital Acquisitions We continued to expand our digital platform with acquisitions of complementary businesses and assets. A summary of our digital acquisitions and assetpurchases, in order of most recent, is as follows: On December 7, 2015, we acquired the Instapray mobile applications and a related website for $0.1 million in cash. On October 29, 2015, we acquired DividendYieldHunter.com for $42,500 in cash, with $21,250 paid at closing and $21,250 payable in January 2016. On September 3, 2015, we acquired a Spanish Bible mobile application and its related website and Facebook properties for $0.5 million in cash. On September 1, 2015, we acquired the DailyBible mobile applications, including all content, code and functionality, for $1.5 million in cash. On July 1, 2015, we acquired DividendInvestor.com for $1.0 million in cash and the assumption of $70,000 in deferred subscription liabilities. On June 4, 2015, we acquired the Gene Smart Wellness e-commerce website for $0.1 million in cash. On May 6, 2015, we acquired domain names, mobile applications and code functionality for the Daily Bible Devotion for $1.1 million in cash. Underterms of the APA, we may pay up to an additional $0.3 million in contingent earn-out consideration payable over the next two years based upon theachievement of certain benchmarks. The estimated fair value of the contingent earn-out consideration was recorded at the present value of $0.1 million and isdiscussed in more detail in Note 4 in the notes to our consolidated financial statements contained in Item 8 of this annual report on Form 10-K. On February 6, 2015, we acquired Bryan Perry’s Cash Machine and Bryan Perry’s Premium Income financial publications (“Bryan Perry Newsletters”)with assets valued at $0.6 million and we assumed deferred subscription liabilities of $0.4 million. We paid no cash to the seller upon closing. Futureamounts payable to the seller are contingent upon net subscriber revenues over a two-year period from the closing date, of which we will pay the seller 50%.There is no minimum or maximum contractual amount. The estimated fair value of the contingent earn-out consideration was recorded at the present value of$0.2 million and is discussed in more detail in Note 4 in the notes to our consolidated financial statements contained in Item 8 of this annual report on Form10-K. Throughout the year ending December 31, 2015, we acquired other domain names and assets associated with our digital media operating segment forapproximately $0.1 million in cash. A summary of our business acquisitions and asset purchases for the year ended December 31, 2015, 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 Cost (Dollars in thousands) December 18, 2015 WSDZ-AM, St. Louis, Missouri (business acquisition) $275 December 15, 2015 KDIZ-AM, Minneapolis, Minnesota (business acquisition) 375 December 11, 2015 WWMI-AM, Tampa, Florida(business acquisition) 750 December 8, 2015 KDDZ-AM, Denver, Colorado (business acquisition) 550 December 7, 2015 Instapray mobile applications (asset acquisition) 118 December 4, 2015 KDZR-AM, Portland, Oregon (business acquisition) 275 October 29, 2015 DividendYieldHunter.com (asset acquisition) 43 October 1, 2015 KKSP-FM, Little Rock, Arkansas (business acquisition) 1,500 September 15, 2015 KEXB-AM (formerly KMKI-AM) Dallas, Texas (business acquisition) 3,000 September 10, 2015 WBIX-AM (formerly WMKI-AM), Boston, Massachusetts (business acquisition) 500 September 3, 2015 Spanish Bible mobile applications (business acquisition) 500 September 1, 2015 DailyBible mobile applications (business acquisition) 1,500 July 1, 2015 DividendInvestor.com (business acquisition) 1,000 June 4, 2015 Gene Smart Wellness (asset acquisition) 100 May 12, 2015 WPGP-AM (formerly WDDZ-AM), Pittsburgh, Pennsylvania (businessacquisition) 1,000 May 7, 2015 WDWD-AM, Atlanta, Georgia (business acquisition) 2,750 May 6, 2015 Daily Bible Devotion (business acquisition) 1,242 April 7, 2015 Land and Studio Building, Greenville, South Carolina (asset purchase) 201 March 27, 2015 WDYZ-AM, Orlando, Florida (business acquisition) 1,300 February 6, 2015 Bryan Perry Newsletters (business acquisition) 158 Various Purchase of domain names and digital media assets (asset purchases) 134 $17,271 7 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Refer to Note 3 - Acquisitions and Recent Transactions in the notes to our consolidated financial statements contained in Item 8 of this annual report onForm 10-K for additional information and details related to our acquisition activity. Pending Transactions On April 1, 2015, we began programming KHTE-FM, Little Rock, Arkansas under a 36-month Time Brokerage Agreement (“TBA”) that can be extendedto 48 months. We have the option to acquire the station for $1.2 million in cash during the TBA period. The accompanying consolidated statements ofoperations included in this annual report on Form 10-K reflect the operating results of this entity as of the TBA date. On December 15, 2015, we entered an APA to acquire an FM Translator in Columbus, Ohio for $0.4 million in cash. The transaction is expected to closein the first half of 2016. On December 31, 2015, we ceased programming KVCE-AM, Dallas, Texas upon expiration of our TBA. Radio Stations We own and/or operate a national portfolio of 116 radio stations in 40 markets, consisting of 34 FM stations and 82 AM stations. We program our radiostations in formats that we believe target the various demographic segments of audiences interested in Christian and family-themed programming andconservative news talk content. Our five main formats are (1) Christian Teaching and Talk, (2) News Talk, (3) Contemporary Christian Music, (4) SpanishLanguage Christian Teaching and Talk and (5) Business. Christian Teaching and Talk. We currently program 42 of our radio stations in our foundational format, Christian Teaching and Talk, which is talkprogramming emphasizing Christian and family themes. Through this format, a listener can hear Bible teachings and sermons, as well as gain insight toquestions related to daily life, such as raising children or religious legal rights in education and in the workplace. This format uses block programming timeto offer a learning resource and a source of personal support for listeners. Listeners often contact our programmers to ask questions, obtain materials on asubject matter or receive study guides based on what they have learned on the radio. Block Programming. We sell blocks of airtime on our Christian Teaching and Talk format stations to a variety of national and local religious andcharitable organizations that we believe create compelling radio programs. Historically, more than 95% of these religious and charitable organizationsrenew their annual programming relationships with us. Based on our historical renewal rates, we believe that block programming provides a steady andconsistent source of revenue and cash flows. Our top ten programmers have remained relatively constant and average nearly 25 years on-air. Over the lastfive years, block-programming revenue has generated 40% to 42% of our total net broadcast revenue. Satellite Radio. We program SiriusXM Channel 131, the exclusive Christian Teaching and Talk channel on SiriusXM, reaching the entire nation 24hours a day, seven days a week. News Talk. We currently program 31 of our radio stations in a News Talk format. Our research shows that our News Talk format is highly complementaryto our core Christian Teaching and Talk format. As programmed by Salem, both of these formats express conservative views and family values. Our NewsTalk format also provides for the opportunity to leverage syndicated talk programming produced by SRN to radio stations throughout the Unites States.Syndication of our programs allows Salem to reach listeners in markets in which we do not own or operate radio stations. Contemporary Christian Music. We currently program 13 radio stations in a Contemporary Christian Music (“CCM”) format, branded The FISH® inmost markets. Through the CCM format, we are able to bring listeners the words of inspirational recording artists, set to upbeat contemporary music. Ourmusic format, branded “Safe for the Whole Family®”, features sounds that listeners of all ages can enjoy and lyrics that can be appreciated. The CCM genrecontinues to be popular. We believe that the listener base for CCM is under-served in terms of radio coverage, particularly in larger markets, and that ourstations fill an otherwise void area in listener choices. 8 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Spanish Language Christian Teaching and Talk. We currently program nine of our radio stations in a Spanish Language Christian Teaching and Talkformat. This format is similar to our core Christian Teaching and Talk format in that it broadcasts biblical and family-themed programming, but theprogramming is specifically tailored for Spanish-speaking audiences. Additionally, block programming on our Spanish Language Christian Teaching andTalk stations is primarily local rather than national. Business. We currently program 13 of our radio stations in a business format. Our business format features financial commentators, business talk, andnationally recognized Bloomberg programming. The business format operates similar to our Christian Teaching and Talk format in that it features long-formblock programming. Revenues generated from each of our radio stations, networks, advertising firms and radio station websites, including banner and digital advertisementsare reported as broadcast revenue in our consolidated financial statements included in Item 8 of this annual report on Form 10-K. Our broadcasting revenueincludes radio advertising or spot revenue, programming revenue, event revenue, digital revenue from station websites or email blasts, and networkadvertising revenue. The principal source of our network revenue is from the sale of advertising time. Advertising Revenue. We recognize advertising and commission revenue from radio stations as the spots air. For the year ended December 31, 2015, wederived 32.3% of our net broadcast revenue, or $63.4 million, from the sale of local spot advertising and 7.1% of our net broadcast revenue, or $13.9 million,from the sale of national spot advertising. Programming Revenue. We recognize programming revenue as the programs air. For the year ended December 31, 2015, we derived 23.7% and 18.4% ofour net broadcast revenue, or $46.4 million and $36.2 million, respectively, from the sale of national and local block programming time, respectively. Wederive national program revenue primarily from geographically diverse, well-established non-profit religious and educational organizations that purchasetime on our stations in a large number of markets in the United States. National program producers typically purchase 121/2, 25 or 50-minute blocks of timeon a Monday through Friday basis and may offer supplemental programming for weekend release. We obtain local program revenue from communityorganizations and churches that typically purchase blocks for weekend releases and from local speakers who purchase daily releases. We believe that ourmanagement team is successful in identifying and assisting quality local programs expand into national syndication. Network Revenue. SRN’s net revenue, including commission revenue for SMR, for the year ended December 31, 2015 was $15.0 million, or 7.7% of netbroadcast revenue. The following table sets forth information about each of Salem’s stations, in order of market size: MSA Station Year Market(1) Rank(2) Call Letters Acquired FormatNew York, NY 1, 19 (3) WMCA-AM 1989 Christian Teaching and Talk WNYM-AM 1994 News TalkLos Angeles, CA 2 KKLA-FM 1985 Christian Teaching and Talk KRLA-AM 1998 News Talk KFSH-FM 2000 Contemporary Christian MusicChicago, IL 3 WYLL-AM 2001 Christian Teaching and Talk WIND-AM 2005 News TalkSan Francisco, CA 4, 35 (4) KFAX-AM 1984 Christian Teaching and Talk KDOW-AM 2001 BusinessDallas-Fort Worth, TX 5 KLTY-FM 1996 Contemporary Christian Music KWRD-FM 2000 Christian Teaching and Talk KSKY-AM 2000 News Talk KTNO-AM 2012 Spanish Language Christian Teaching and Talk KEXB-AM 2015 BusinessHouston-Galveston, TX 6 KNTH-AM 1995 News Talk KKHT-FM 2005 Christian Teaching and Talk KTEK-AM 2011 BusinessWashington, D.C. 7 WAVA-FM 1992 Christian Teaching and Talk WAVA-AM 2000 Christian Teaching and Talk WWRC-AM 2010 News TalkAtlanta, GA 8 WNIV-AM 2000 Christian Teaching and Talk WLTA-AM 2000 Christian Teaching and Talk WAFS-AM 2000 Business WFSH-FM 2000 Contemporary Christian Music WGKA-AM 2004 News Talk WDWD-AM 2015 Christian Teaching and Talk 9 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Philadelphia, PA 9 WFIL-AM 1993 Christian Teaching and Talk WNTP-AM 1994 News TalkBoston, MA 10 WEZE-AM 1997 Christian Teaching and Talk WROL-AM 2001 Christian Teaching and Talk WWDJ-AM 2003 Spanish Language Christian Teaching and Talk WBIX-AM 2015 BusinessMiami, FL 11 WKAT-AM 2005 Spanish Language Christian Teaching and Talk WHIM-AM 2008 Christian Teaching and Talk WZAB-AM 2009 Business WOCN-AM 2014 EthnicDetroit, MI 12 WDTK-AM 2004 News Talk WLQV-AM 2006 Christian Teaching and TalkSeattle-Tacoma, WA 13 KGNW-AM 1986 Christian Teaching and Talk KLFE-AM (5) 1994 News Talk KNTS-AM (5) 1997 Spanish Language Christian Teaching and Talk KKOL-AM 1997 BusinessPhoenix, AZ 14 KKNT-AM 1996 News Talk KPXQ-AM 1999 Christian Teaching and Talk KXXT-AM 2014 Christian Teaching and TalkMinneapolis-St. Paul, MN 15 KKMS-AM 1996 Christian Teaching and Talk KDIZ-AM (formerlyKYCR-AM) 1998 Other WWTC-AM 2001 News Talk KYCR-AM (formerlyKDIZ-AM) 2015 BusinessSan Diego, CA 16 KPRZ-AM 1987 Christian Teaching and Talk KCBQ-AM 2000 News TalkDenver-Boulder, CO 17 KRKS-FM 1993 Christian Teaching and Talk KRKS-AM (6) 1994 Christian Teaching and Talk KNUS-AM 1996 News Talk KBJD-AM (6) 1999 Spanish Language Christian Teaching and Talk KDMT (formerly KDDZ-AM) 2015 BusinessTampa, FL 18 WTWD-AM (7) 2000 Christian Teaching and Talk WTBN-AM (7) 2001 Christian Teaching and Talk WLCC-AM 2012 Spanish Language Christian Teaching and Talk WGUL-AM 2005 News Talk WWMI-AM 2015 BusinessSt. Louis, MO 21 WSDZ-AM 2015 News TalkPortland, OR 22 KPDQ-FM 1986 Christian Teaching and Talk KPDQ-AM 1986 Christian Teaching and Talk KFIS-FM 2002 Contemporary Christian Music KRYP-FM 2005 Regional Mexican KDZR-AM 2015 News TalkRiverside-San Bernardino, CA 24 KTIE-AM 2001 News TalkPittsburgh, PA 25 WORD-FM 1993 Christian Teaching and Talk WPIT-AM 1993 Christian Teaching and Talk WPGP-AM (formerlyWDDZ-AM) 2015 News TalkSan Antonio, TX 26 KSLR-AM 1994 Christian Teaching and Talk KLUP-AM 2000 News Talk KRDY-AM 2014 Spanish Language Christian Teaching and TalkSacramento, CA 27 KFIA-AM 1995 Christian Teaching and Talk KTKZ-AM 1997 News Talk KSAC-FM 2002 Business KKFS-FM 2006 Contemporary Christian MusicCleveland, OH 31 WHKW-AM 2000 Christian Teaching and Talk WFHM-FM 2001 Contemporary Christian Music WHK-AM 2005 News Talk 10 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Orlando, FL 32 WORL-AM 2006 News Talk WTLN-AM 2006 Christian Teaching and Talk WBZW-AM 2006 Business WDYZ-AM 2015 Spanish Christian Teaching and TalkColumbus, OH 36 WRFD-AM 1987 Christian Teaching and Talk WTOH-FM 2013 News TalkNashville, TN 43 WBOZ-FM (8) 2000 Contemporary Christian Music WFFH-FM (8) 2002 Contemporary Christian Music WFFI-FM (8) 2002 Contemporary Christian MusicLouisville, KY 54 WFIA-FM 1999 Christian Teaching and Talk WGTK-AM 2000 News Talk WFIA-AM 2001 Christian Teaching and TalkGreenville, SC 58 WGTK-FM 2013 News Talk WRTH-FM 2014 Oldies WLTE-FM 2014 Classic HitsHonolulu, HI 62 KAIM-FM 2000 Contemporary Christian Music KGU-AM 2000 Business KHCM-AM 2000 Chinese KHCM-FM 2004 Country Music KGU-FM 2004 Christian Teaching and Talk KKOL-FM 2005 Oldies KHNR-AM 2006 News TalkOmaha, NE 72 KGBI-FM 2005 Contemporary Christian Music KOTK-AM 2005 Spanish Language Christian Teaching and Talk KCRO-AM 2005 Christian Teaching and TalkSarasota-Bradenton, FL 75 WLSS-AM 2005 News TalkLittle Rock, AR 82 KDIS-FM 2014 Christian Teaching and Talk KKSP-FM 2015 Contemporary Christian Music KHTE-FM Pending News TalkColorado Springs, CO 90 KGFT-FM 1996 Christian Teaching and Talk KBIQ-FM 1996 Contemporary Christian Music KZNT-AM 2003 News TalkOxnard-Ventura, CA 118 KDAR-FM 1974 Christian Teaching and TalkYoungstown-Warren, OH 129 WHKZ-AM 2001 Christian Teaching and TalkWarrenton, Virginia WRCW-AM 2012 News Talk (1)Actual city of license may differ from metropolitan market served.(2)All metropolitan statistical area (“MSA”) rank information used in this annual report on Form 10-K, excluding information concerning TheCommonwealth of Puerto Rico, is from the Fall 2015 Radio Market Survey Schedule & Population Rankings published by Nielsen. According to theRadio Market Survey, the population estimates are based upon the 2010 U.S. Bureau Census estimates updated and projected to January 1, 2016 byNielsen Demographics.(3)This market includes the Nassau-Suffolk, NY Metro market, which independently has a MSA rank of 19.(4)This market includes the San Jose, CA market, which independently has a MSA rank of 35.(5)KNTS-AM is an expanded band AM station paired with KLFE-AM. The licenses for these stations include a condition requiring that one or the other besurrendered by July 15, 2009. However, the Federal Communications Commission (“FCC”) is currently permitting these paired expanded band stationsto continue to operate beyond the specified surrender date, pursuant to a special temporary authority (“STA”) granted by the FCC and a request forextension of that STA.(6)KBJD-AM is an expanded band AM station paired with KRKS-AM, which licenses have not been renewed by the FCC. The original license for KBJD-AM includes a condition requiring that one or the other paired license be surrendered by February 20, 2006. However, the FCC is currently permittingthese paired expanded band stations to continue to operate beyond their license expirations date pursuant to the pending license renewal applicationsfor those stations, and to continue to operate beyond the specified surrender date pursuant to an STA granted by the FCC and a request for extension ofsuch STA.(7)WTBN-AM is simulcast with WTWD-AM, Tampa, FL.(8)WBOZ-FM is trimulcast with WFFH-FM, Nashville, TN and WFFI-FM, Nashville, TN. 11 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Digital Media Salem Web Network™ (“SWN”) and our web based businesses provide Christian and conservative-themed content, audio and video streaming, and otherresources digitally through the web. Revenue generated from our digital media operating segment includes advertising arrangements based on cost-per-clickor performance-based advertising; display advertisements where revenue is dependent upon the number of page views; and lead generating advertisementswhere revenue is dependent upon users registering for, or purchasing or demonstrating interest in, advertisers' products or services. We also generate revenuefrom digital subscriptions, streaming, downloads and product sales through our e-commerce sites. Revenue is recognized upon digital delivery or page views,downloads and upon shipment of products. Revenue from this operating segment is reported as Digital Media revenue on our consolidated statements ofoperations included in Item 8 of this annual report on Form 10-K. We own and operate the numerous Christian and Conservative opinion websites including: Salem Web Network™ Christian-Content Websites: BibleStudyTools.com is a free Bible website for verse search and in-depth studies featuring commentaries, reading plans, and other helpful resourcesdesigned as aids to Bible study. OnePlace.com™ is a leading provider of on-demand, online audio streaming for nearly 200 radio programs from more than 185 popular Christianbroadcast ministries. Oneplace.com serves as both a complement to and an extension of Salem’s block programming radio business. Crosswalk.com® offers compelling, editorial-driven, biblically based, lifestyle and devotional content to Christians who take seriously theirrelationship with Christ. In addition, Crosswalk provides online devotional content. GodTube.com is a user-generated video sharing platform for Christian videos with faith-based, family-friendly content. GodVine.com is an online platform designed to share inspirational, family-friendly video through Facebook and other social media outlets. CrossCards.com™ provides faith-based, inspirational e-greeting cards for all occasions and holidays. LightSource.com provides on-demand, video streaming for nearly 85 Christian television programs from more than 70 ministry partners. Christianity.com offers engaging articles and video focused on exploring the deeper, theological issues and apologetics of the Christian faith. It isalso a leading provider of online Bible trivia. Jesus.org offers a comprehensive database of biblical answers to the most common questions about the life and work of Jesus Christ. iBelieve.com creates editorial-driven, lifestyle content, focused on helping Christian women use personal experience to examine the deeper issues oflife and faith. CCMmagazine.com is the interactive version of what once was CCM Magazine, which provides information and insight on the Christian musicscene. ChristianHeadlines.com reports the news of importance to the Christian audience with a headlines blog, persecution updates, Christian worldviewcommentary, and features on events from the worldwide Christian Church. Townhall Media - Conservative Opinion Websites: Townhall.com™ is an interactive community that brings users, conservative public policy organizations, congressional staff and political activiststogether under the broad umbrella of conservative thoughts, ideas and actions. HotAir.com is a leading news and commentary site with conservative news and opinions. Twitchy.com is a website featuring selected quotes and current events centered on US politics, global news, sports, entertainment, media, andbreaking news. RedState.com is the leading conservative, political news blog for right of center activists. 12 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Human Events.com is a conservative opinion website that provides news and commentary on issues of interest to the conservative community. Salem Church Products Websites: WorshipHouseMedia.com is an online church media resource, providing creative videos to churches to enhance worship and sermons. In addition,WorshipHouseKids.com provides children’s ministries with products to fulfill their visual needs. SermonSpice.com is an online provider of church media for local churches and ministries. ChurchStaffing.com™ is a source of job search information for churches and ministries offering a platform for personnel and staff relations. This siteallows those seeking employment to submit resumes and view job listings. ChristianJobs.com™ provides services catering to the hiring needs of Christian-based businesses, nonprofit organizations, and ministries. The siteconnects these organizations with thousands of job seekers through its online presence and partnerships with Salem’s radio stations. SermonSearch.com is a subscription-based resource for preachers and teachers with preparation materials like sermon outlines, illustrations, andpreaching ideas from many of America’s top Christian communicators. Digital Financial Websites and Publications Our digital platform includes the following financial websites and digital publications: ·Financial Publications - provide market analysis and investment strategies for individual subscribers to newsletters from financialcommentators.·EagleDailyInvestor.com – provide market analysis and investment strategies for individual subscribers to web-based content from financialcommentators.·DividendInvestor.com - a website offering stock screening tools and dividend information for individual subscribers to obtain dividendinformation and data. Digital Mobile Applications Our digital mobile applications, available in iOS and/or Android platforms, provide another means by which our content is available to our audiences.Our mobile applications include the following: ·Daily Bible·Daily Bible Devotion·Twitchy·HotAir·Townhall·OnePlace·Red State·Bible Study Tools·Bible Quotes·Bible Trivia·iBelieve·Spanish Bible E-Commerce Websites Digital media includes our e-commerce sites, Salem Consumer Products (“SCP”), Eagle Wellness and Gene Smart Wellness. SCP is our e-commercebusiness that sells books, DVD’s and editorial content developed by our on-air personalities. Eagle Wellness and Gene Smart Wellness are e-commerce sitesthat offer health advice and nutritional products. Eagle Wellness provides insightful health advice and is a trusted source of high quality nutritionalsupplements from some of the country's leading health experts. Leigh Erin Connealy MD, at NewportNaturalHealth.com, is the medical director of one of thelargest medical practices in the country where she practices integrative medicine. Ski Chilton PhD, at GeneSmart.com, is a scientist and full professor at WakeForest Medical School. He is a leading authority on the impact of diet and nutrition on health. Our e-commerce sites include: ·ConservativeStore.com·ChristianBookstore.net 13 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·SRNStore.com·NewportNaturalHealth.com·GeneSmart.com Publishing Our Publishing segment consists of Regnery Publishing, Xulon Press and Salem PublishingTM. Regnery Publishing, with a 65-year history, remains thenation's leading publisher of conservative books. Having published many of the seminal works of the early conservative movement, Regnery today continuesas a dominant publisher in the conservative space, with leading authors including Ann Coulter, Dinesh D'Souza, Newt Gingrich, David Limbaugh, Ed Kleinand Mark Steyn. Salem's book publishing business also includes Xulon Press™, a leading provider of self-publishing services for Christian and conservativeauthors. Revenue generated from our publishing operating segment includes sales of published books through Regnery Publishing, publishing fees for print-on-demand services through Xulon Press™ and print magazines through Salem Publishing™ that generate subscription and advertising revenues. Revenue fromthis operating segment is reported as Publishing revenue on our consolidated statements of operations included in Item 8 of this annual report on Form 10-K. Salem PublishingTM, our print magazine division, publishes magazines on a monthly or semi-monthly basis. Content from our print magazines is alsoavailable on branded websites designed for each publication. Our publications include the following Christian or conservative publications: ·Singing News®·Homecoming The Magazine·YouthWorker Journal™·Preaching Magazine™·FaithTalk Magazine™ Xulon Press™ is a print-on-demand self-publishing service for Christian authors. COMPETITION We operate in a highly competitive broadcast and media business. We compete for listeners, advertisers and customers with other radio broadcasters, aswell as with other forms of media including broadcast and cable television, newspapers and magazines, book publishers, national and local digital services,outdoor advertising, direct mail, online marketing and media companies, social media platforms, web-based blogs, and mobile devices. BROADCASTING. Our broadcast audience ratings and market shares are subject to change, and any change in a particular market could have a materialadverse effect on the revenue of our stations located in that market. While we already compete in some of our markets with stations that offer similar formats,if another radio station were to convert its programming to a format similar to one of ours, or if an existing competitor were to strengthen its operations, ourstations could suffer reduced ratings and/or reduced revenues. In these circumstances, we could also incur significantly higher promotional and other relatedexpenses. We cannot assure that our stations will maintain or increase their current audience ratings and revenues. Christian and Family-Themed Radio. The segment of this industry that focuses on Christian and family themes is also a highly competitive business.The financial success of each of our radio stations that focuses on Christian Teaching and Talk is dependent, to a significant degree, upon its ability togenerate revenue from the sale of block program time to national and local religious and educational organizations. We compete for this program revenuewith a number of different commercial and non-commercial radio station licensees. While we believe that no commercial group owner in the United Statesspecializing in Christian and family-themed programming approaches Salem in size of potential listening audience and presence in major markets, otherreligious radio stations exist and enjoy varying degrees of prominence and success in each of our markets. We also compete for advertising revenue with other commercial religious and general format radio stations. Our competition for advertising dollarsincludes other radio stations as well as broadcast television, cable television, newspapers, magazines, direct mail, online and billboard advertising, some ofwhich may be controlled by horizontally integrated companies. Several factors can materially affect competitive advantage, including, but not limited toaudience ratings, program content, management talent and expertise, sales talent and experience, audience characteristics, signal strength, and the numberand characteristics of other radio stations in the same market. 14 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. New Methods of Content Delivery. Competition also comes from new media technologies and services. These include delivery of audio programming bycable television and satellite systems, digital audio radio services, mobile devices including smart phone applications for iPhone® and Android®, personalcommunications services and the service of low powered, limited coverage FM radio stations authorized by the FCC. The delivery of live and stored audioprogramming through the Internet has also created new competition. In addition, satellite delivered digital audio radio, which deliver multiple audioprogramming formats to national audiences, has created competition. We have attempted to address these existing and potential competitive threats througha more active strategy to acquire and integrate new electronic communications formats including Internet acquisitions made by SWN and our exclusivearrangement to provide Christian and family-themed talk on SiriusXM, a satellite digital audio radio service. NETWORK. SRN competes with other commercial radio networks that offer news and talk programming to religious and general format stations andnoncommercial networks that offer Christian music formats. SRN also competes with other radio networks for the services of talk show personalities. DIGITAL MEDIA. Salem Web Network™ and Townhall Media compete for visitors and advertisers with other companies that deliver on-line audioprogramming and Christian and conservative web-based content as well as providers of general market websites. The online media and distribution businesschanges quickly and is highly competitive. We compete to attract and maintain interactions with advertisers, consumers, content creators and web publishers.Salem Church Products competes for customers with other online sites that offer resources useful in ministries, preaching, teaching and for employmentwithin the Christian community. Our wellness products compete in a large, highly fragmented industry that includes specialty retailers, supermarkets,drugstores, mass merchants, multi-level marketing organizations, mail-order companies, other online retailers and pharmaceuticals. PUBLISHING. Regnery Publishing competes with other book publishers for readers and book sales as well as competes for product quality, customerservice, suitability of format and subject matter, author reputation, price, timely availability of both new titles and revisions of existing books, digitalavailability of published products, and timely delivery of products to customers. Print magazines compete for readers and advertisers with other printpublications, including those that also address themes of interest to church leadership and the Christian audience. Xulon Press™ competes for authors withother on-demand publishers including those focused exclusively on Christian book publishers. Federal Regulation of Radio Broadcasting Introduction. The ownership, operation and sale of broadcast stations, including those licensed to Salem, are subject to the jurisdiction of the FCC,which acts under authority derived from The Communications Act of 1934, as amended, and the rules and regulations promulgated thereunder (the“Communications Act”). Among other things, the FCC assigns frequency bands for broadcasting; determines whether to approve certain changes inownership or control of station licenses; regulates transmission facilities, including power employed, antenna and tower heights, and location of transmissionfacilities; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations;and has the power to impose penalties for violations of its rules under the Communications Act. The following is a brief summary of certain provisions of the Communications Act and of specific FCC regulations and policies. Failure to observe theseor other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of “short” (less than the maximum)license renewal terms or, for particularly egregious violations, the denial of a license renewal application, the revocation of a license or the denial of FCCconsent to acquire additional broadcast properties. For further information concerning the nature and extent of federal regulation of broadcast stations youshould refer to the Communications Act, FCC rules and the public notices and rulings of the FCC. License Grant and Renewal. Radio broadcast licenses are granted for maximum terms of eight years. Licenses must be renewed through an application tothe FCC. Under the Communications Act, the FCC will renew a broadcast license if it finds that the station has served the public interest, convenience andnecessity, that there have been no serious violations by the licensee of the Communications Act or the rules and regulations of the FCC, and that there havebeen no other violations by the licensee of the Communications Act or the rules and regulations of the FCC that, when taken together, would constitute apattern of abuse. Petitions to deny license renewals can be filed by certain interested parties, including members of the public in a station’s market. Such petitions mayraise various issues before the FCC. The FCC is required to hold hearings on renewal applications if the FCC is unable to determine that renewal of a licensewould serve the public interest, convenience and necessity, or if a petition to deny raises a “substantial and material question of fact” as to whether the grantof the renewal application would be prima facie inconsistent with the public interest, convenience and necessity. In addition, during certain periods when arenewal application is pending, the transferability of the applicant’s license is restricted. 15 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following table sets forth information with respect to each of our radio stations for which we own the license. Stations operated under a LocalMarketing Agreement (“LMA”) or a TBA are not reflected on this table. A broadcast station’s market may be different from its community of license. Thecoverage of an AM radio station is chiefly a function of the power of the radio station’s transmitter, less dissipative power losses and any directional antennaadjustments. For FM radio stations, signal coverage area is chiefly a function of the Effective Radiated Power (“ERP”) of the radio station’s antenna and theHeight Above Average Terrain (“HAAT”) of the radio station’s antenna. Market Station Call Letters Frequency ExpirationDate of License FCCClass HeightAboveAverageTerrain (infeet) Power (inKilowatts)Day / NightNew York, NY WMCA AM June 2022 B N/A 5 / 5 WNYM AM June 2022 B N/A 50 / 5Los Angeles, CA KKLA FM December 2021 B 2,959 10 KRLA AM December 2021 B N/A 50 / 3 KFSH FM December 2021 A 328 6Chicago, IL WYLL AM December 2020 B N/A 50 / 50 WIND AM December 2020 B N/A 5 / 5San Francisco, CA KFAX AM December 2021 B N/A 50 / 50 KDOW AM December 2021 D N/A 5 / 0.145Dallas-Fort Worth, TX KLTY FM August 2021 C 1,667 100 KWRD FM August 2021 C 1,988 98 KSKY AM August 2021 B N/A 20 / 0.7 KTNO AM August 2021 B N/A 50 / 0.35 KEXB AM August 2021 B N/A 5 / 4.5Houston-Galveston, TX KNTH AM August 2021 B N/A 10/ 5 KKHT FM August 2021 C 1,952 100 KTEK AM August 2021 D N/A 2.5Washington, D.C. WAVA FM October 2019 B 604 33 WAVA AM October 2019 D N/A 12 WWRC AM October 2019 B N/A 35 / 5Atlanta, GA WNIV AM April 2020 D N/A 5 / 0.039 WLTA AM April 2020 C N/A 1 / 1 WAFS AM April 2020 D N/A 25 WFSH FM April 2020 C1 1,657 24 WGKA AM April 2020 B N/A 14 / 049 WDWD AM April 2020 B N/A 12 / 4.5Philadelphia, PA WFIL AM August 2022 B N/A 5 / 5 WNTP AM August 2022 B N/A 50 / 10Boston, MA WEZE AM April 2022 B N/A 5 / 5 WROL AM April 2022 B N/A 5 / 0.09 WWDJ AM April 2022 B N/A 5 / 5 WBIX AM April 2022 B N/A 5 / 5Miami, FL WKAT AM February 2020 B N/A 5 / 1 WHIM AM February 2020 B N/A 50 / 10 WZAB AM February 2020 B N/A 4 / 5 WOCN AM February 2020 B N/A 1 / 1Detroit, MI WDTK AM October 2020 C N/A 1 / 1 WLQV AM October 2020 B N/A 50 / 10Seattle-Tacoma, WA KGNW AM February 2022 B N/A 50 / 5 KLFE AM February 2022 B N/A 5 / 5 KNTS AM February 2022 B N/A 10 / 1 KKOL AM February 2022 B N/A 50 / 47Phoenix, AZ KKNT AM October 2021 B N/A 5 / 5 KPXQ AM October 2021 B N/A 50 / 1 KXXT AM October 2021 B N/A 15 / 0.25Minneapolis-St. Paul, MN KKMS AM April 2021 B N/A 5 / 5 KDIZ AM April 2021 B N/A 3.8 / 0.26 WWTC AM April 2021 B N/A 5 / 5 KYCR AM April 2021 B N/A 5 / 0.5 16 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. San Diego, CA KPRZ AM December 2021 B N/A 20 / 10 KCBQ AM December 2021 B N/A 50 / 2.9Denver-Boulder, CO KRKS FM April 2021 C 984 100 KRKS AM April 2021 B N/A 6.5 / 0.36 KNUS AM April 2021 B N/A 5 / 5 KBJD AM April 2021 B N/A 10 / 1 KDMT AM April 2021 B N/A 10 / 1Tampa, FL WTWD AM February 2020 B N/A 5 / 5 WTBN AM February 2020 B N/A 5 / 5 WLCC AM February 2020 B N/A 10 / 1 WGUL AM February 2020 B N/A 5 / 1.5 WWMI AM February 2020 B N/A 9.8 / 6.5St. Louis, MO WSDZ AM December 2020 B N/A 20 / 5Portland, OR KPDQ FM February 2020 C 1,270 52 KPDQ AM February 2020 B N/A 1 / 0.5 KFIS FM February 2020 C1 1,266 7 KRYP FM February 2020 C1 1,270 1.6 KDZR AM February 2020 B N/A 10 / 1Riverside-San Bernardino, CA KTIE AM December 2021 B N/A 2.5 / 0.96Pittsburgh, PA WORD FM August 2022 B 528 43 WPIT AM August 2022 D N/A 5 / 0.024 WPGP AM April 2022 B N/A 5 / 5San Antonio, TX KSLR AM August 2021 B N/A 5 / 4.3 KLUP AM August 2021 B N/A 5 / 1 KRDY AM August 2021 B N/A 10 / 1Sacramento, CA KFIA AM December 2021 B N/A 25 / 1 KTKZ AM December 2021 B N/A 5 / 5 KSAC FM December 2021 B1 1,010 2.55 KKFS FM December 2021 A 328 6Cleveland, OH WHKW AM October 2020 B N/A 50 / 50 WFHM FM October 2020 B 620 31 WHK AM October 2020 B N/A 5 / 5Orlando, FL WORL AM February 2020 B N/A 1 / 1 WTLN AM February 2020 B N/A 12 / 5 WBZW AM February 2020 B N/A 5 / 0.35 WDYZ AM February 2020 B N/A 50 / 14Columbus, OH WRFD AM October 2020 D N/A 23 WTOH FM October 2020 A 505 2.6Nashville, TN WBOZ FM August 2020 A 328 6 WFFH FM August 2020 A 453 3.2 WFFI FM August 2020 A 755 1.15Louisville, KY WFIA FM August 2020 A 394 3.3 WGTK AM August 2020 B N/A 5 / 5 WFIA AM August 2020 D N/A 0.93 / 0.162Greenville, SC WGTK FM December 2019 0 14,895 100 WRTH FM December 2019 0 495 2.7 WLTE FM July 2017 A 397 4.1Honolulu, HI KHNR AM February 2022 B N/A 10 / 10 KAIM FM February 2022 C 328 100 KGU AM February 2022 B N/A 10 / 10 KHCM FM February 2022 C1 46 80 KHCM AM February 2022 B N/A 2 / 2 KGU FM February 2022 C 1,965 100 KKOL FM February 2022 C 1,965 100Omaha, NE KGBI FM June 2021 C 1,014 100 KOTK AM June 2021 B N/A 1 / 0.33 KCRO AM June 2021 D N/A 1 / 0.054 17 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Sarasota-Bradenton, FL WLSS AM February 2020 B N/A 5 / 3Little Rock, AR KDIS FM April 2017 0 312 3 KKSP FM June 2020 0 698 5.6Colorado Springs, CO KGFT FM April 2021 C 2,218 78 KBIQ FM April 2021 C 256 72 KZNT AM April 2021 B N/A 5 / 0.54Oxnard-Ventura, CA KDAR FM December 2021 B1 1,289 1.5Youngstown-Warren, OH WHKZ AM October 2020 B N/A 5 / 5Warrenton, Virginia WRCW AM April 2012 D N/A 3 / 0.125 Radio station KNTS-AM is an expanded band station paired with station KLFE-AM in the Seattle, WA market, and station KBJD-AM is an expandedband station paired with KRKS-AM in the Denver, CO market. We are operating these four stations pursuant to FCC licenses or other FCC authority pendingresolution by the FCC of the issue of AM expanded band dual operating authority. Depending upon how the FCC resolves that issue, it is possible that wewill be required to surrender one station license in each station pair. Except for these stations, we are not currently aware of any facts that would prevent thetimely renewal of our licenses to operate our radio stations, although there can be no assurance that our licenses will be renewed. Ownership Matters. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast license without theprior approval of the FCC. In determining whether to assign, transfer, grant or renew a broadcast license, the FCC considers a number of factors pertaining tothe licensee, including compliance with various rules limiting common ownership of media properties, the “character” of the licensee and those personsholding “attributable” interests therein, and compliance with the Communications Act’s limitation on alien ownership, as well as compliance with other FCCpolicies, including equal employment opportunity requirements. Under the Communications Act, a broadcast license may not be granted to or held by a corporation that has more than one-fifth of its capital stock ownedor voted by aliens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations. Under the Communications Act, abroadcast license also may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by aliens or their representatives, by foreign governments or their representatives, or by non-U.S.corporations. These restrictions apply in modified form to other forms of business organizations, including partnerships. We therefore may be restricted fromhaving more than one-fourth of our stock owned or voted by aliens, foreign governments or non-U.S. corporations. Multiple Ownership: The Communications Act and FCC rules also generally restrict the common ownership, operation or control of radio broadcaststations serving the same local market, of a radio broadcast station and a television broadcast station serving the same local market, and of a radio broadcaststation and a daily newspaper serving the same local market. The FCC also restricts the number of television stations an entity may own both in local marketsand nationwide. Our current ownership of radio broadcast stations complies with the FCC’s multiple ownership rules; however, these rules may limit the number ofadditional stations that we may acquire in the future in certain of our markets and could limit the potential buyers of any stations we may attempt to sell. TheFCC is also required by the Communications Act to review its broadcast ownership rules every four years. During 2009, the FCC held a series of hearingsdesigned to evaluate possible changes to its rules. In May 2010, the FCC formally initiated its 2010 quadrennial review of its media ownership rules with theissuance of a Notice of Inquiry (“NOI”). The NOI was intended to assist the Commission in establishing a framework within which to analyze whether itsmedia ownership rules remain “necessary in the public interest as a result of competition,” due to the dramatic changes occurring in the media marketplace.Numerous parties have filed comments and reply comments in response to the NOI. In June and July 2011, the FCC released to the public eleven economicstudies related to its media ownership rules. In December 2011, the FCC issued a Notice of Proposed Rulemaking (“NPRM”) seeking comment on proposedrule changes in connection with the 2010 quadrennial review. In March 2014, the FCC issued a Further Notice of Proposed Rulemaking (“FNPRM”) seekingcomment on specific proposed changes to its ownership rules in connection with the 2010 and 2014 quadrennial reviews of the broadcast ownership rulesand has now consolidated its 2010 quadrennial review with the 2014 quadrennial review of the ownership rules. The FCC has instructed its Media Bureau tocomplete the combined 2010 and 2014 reviews by June 30, 2016. We can make no determination as to what effect, if any, the combined 2010 and 2014quadrennial reviews will have on Salem. Attribution: Because of these multiple and cross-ownership rules, a purchaser of voting stock of the company that acquires an “attributable” interest inthe company may violate the FCC’s rule if it also has an attributable interest in other television or radio stations, or in daily newspapers, depending on thenumber and location of those radio or television stations or daily newspapers. Such a purchaser also may be restricted in the other companies in which it mayinvest, to the extent that these investments give rise to an attributable interest. If an attributable stockholder of the company violates any of these ownershiprules, the company may be unable to obtain from the FCC one or more authorizations needed to conduct its radio station business and may be unable toobtain FCC consents for certain future acquisitions. 18 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The FCC generally applies its television/radio/newspaper cross-ownership rules and its broadcast multiple ownership rules by considering the“attributable,” or cognizable, interests held by a person or entity. A person or entity can have an interest in a radio station, television station or dailynewspaper by being an officer, director, partner, member, or stockholder of a company that owns that station or newspaper. Whether that interest is cognizableunder the FCC’s ownership rules is determined by the FCC’s attribution rules. If an interest is attributable, the FCC treats the person or entity who holds thatinterest as an “owner” of the radio station, television station or daily newspaper in question, and therefore subject to the FCC’s ownership rules. On December22, 2011, the FCC issued a Notice of Proposed Rulemaking (“NPRM”) to seek comment on specific proposed changes to its ownership rules. In the NPRM,the FCC tentatively concluded to maintain its local radio ownership rules largely intact. Comments and Reply Comments have been received by the FCC inconnection with the NPRM (2010 quadrennial review). In March 2014, the FCC issued a Further Notice of Proposed Rulemaking (“FNPRM”) seekingcomment on specific proposed changes to its ownership rules in connection with the 2010 and 2014 quadrennial reviews of the broadcast ownership rules.Since, as of this date, no Report and Order has been adopted by the FCC in connection with the local radio ownership rules proposals in the 2010 quadrennialreview and is again reviewing those rules in connection with the 2014 quadrennial review, consolidating its 2010 quadrennial review with its 2014quadrennial review, we can make no determination as to what effect, if any, the combined 2010 and 2014 quadrennial reviews will have on Salem, sinceaction is not anticipated until 2016. Any officers and directors of a broadcast licensee, cable system owner, or daily newspaper owner are deemed to hold attributable interests in that entity.Generally, the officers and directors of any parent company that holds an attributable interest are themselves also deemed to hold the same attributableinterests as that company. In certain situations where a parent company is involved in businesses other than broadcasting, cable system operation, ornewspaper publishing, and an individual officer or director has duties and responsibilities wholly unrelated to the company’s broadcast, cable, or newspaperactivities, that officer or director may avoid attribution, but will need to submit a statement to the FCC documenting their lack of involvement in the relevantbusinesses. Generally, debt interests held in a broadcast licensee, cable system owner, daily newspaper publisher, or parent company are not deemed attributable.Debt holders will be subject to attribution, however, where the aggregate value of the equity and debt held in the broadcast, cable, or newspaper companyexceeds 33% of that company’s total asset value and the debt holder also holds another attributable interest in the relevant market or the debt holder suppliesover 15% of the programming, on a weekly basis, for the station in which the interest is held. Programming and Operation. The Communications Act requires broadcasters to serve the “public interest.” The FCC has gradually relaxed oreliminated many of the more formalized procedures it had developed in the past to promote the broadcast of certain types of programming responsive to theneeds of a station’s community of license. Although in recent years proposals have been put forth by the FCC to reinstitute certain formal procedures, none ofthese proposals have yet been adopted for radio stations. Licenses continue to be required, however, to present programming that is responsive to communityproblems, needs and interests and to maintain certain records demonstrating such responsiveness. The FCC will consider complaints from listenersconcerning a station’s programming when it evaluates the licensee’s renewal application, but such complaints may be filed and considered at any time. Stations also must pay annual regulatory fees and fees associated with the filing of most applications. Stations also must follow various FCC rules thatregulate, among other things, political advertising, advertising for certain products or services (e.g. tobacco advertising), the broadcast of obscene or indecentprogramming, closed captioning, emergency programming, sponsorship identification and technical operations (including limits on radio frequencyradiation) and equal employment opportunity requirements. The broadcast of contests and lotteries is also regulated by FCC rules. Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of “short”(less than the maximum) renewal terms or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. Proposed Changes. As noted above, in May 2010, the FCC formally initiated its 2010 quadrennial review of its media ownership rules with the issuanceof a Notice of Inquiry (NOI). The NOI is intended to assist the Commission in establishing a framework within which to analyze whether its media ownershiprules remain “necessary in the public interest as a result of competition,” due to the dramatic changes occurring in the media marketplace. Numerous partieshave filed comments and reply comments in response to the NOI. In June and July 2011, the FCC released to the public eleven economic studies related to itsmedia ownership rules. On December 22, 2011, the FCC issued a Notice of Proposed Rulemaking (NPRM) in the 2010 quadrennial review to seek commenton specific proposed changes to its ownership rules. In the 2010 quadrennial review NPRM, the FCC tentatively concluded to maintain its local radioownership rules largely intact. Comments and Reply Comments were received by the FCC in connection with the NPRM. In March 2014, the FCC issued aFurther Notice of Proposed Rulemaking (“FNPRM”) seeking comment on specific proposed changes to its ownership rules in connection with the 2010 and2014 quadrennial reviews of the broadcast ownership rules and has now consolidated its 2010 quadrennial review with the 2014 quadrennial review of theownership rules. Since, as of this date, no Report and Order has been adopted by the FCC in connection with the local radio ownership rules proposals in the2010 quadrennial review NPRM, and the FCC has directed its Media Bureau to complete the combined 2010 and 2014 reviews we can make nodetermination as to what effect, if any, this FNPRM will have on Salem. 19 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Congress and the FCC from time to time have under consideration, and may in the future consider and adopt, new laws, regulations and policiesregarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership and profitability of the company’s radio stations, result inthe loss of audience share and revenue for the company’s radio stations, and affect the ability of the company to acquire additional radio stations or financesuch acquisitions. Such matters under consideration include, or may come to include: • proposals to require broadcast licenses to broadcast specific types and amounts of local programming;• proposals restricting the location of broadcast studios;• technical and frequency allocation matters, including potential reallocation of broadcast spectrum to other uses;• changes in multiple ownership and cross-ownership rules;• changes to broadcast technical requirements; and• proposals to require broadcasters to pay copyright royalties for over-the-air performance of sound recordings. The foregoing summary of certain provisions of the Communications Act and of specific FCC rules and policies does not purport to be comprehensive.For further information concerning the nature and extent of federal regulation of radio broadcast stations you should refer to the Communications Act, theFCC’s rules and the public notices and rulings of the FCC. Federal Antitrust Considerations. The Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”), which evaluate transactions todetermine whether those transactions should be challenged under the federal antitrust laws, are also active in their review of radio station acquisitions,particularly where an operator proposes to acquire additional stations in its existing markets. For an acquisition meeting certain size thresholds, the Hart-Scott-Rodino Improvements Act (“HSR Act”) and the rules promulgated thereunder requirethe parties to file Notification and Report Forms with the FTC and the DOJ and to observe specified waiting period requirements before consummating theacquisition. At any time before or after the consummation of a proposed acquisition, the FTC or the DOJ could take such action under the antitrust laws, as itdeems necessary or desirable in the public interest, including seeking to enjoin the acquisition or seeking divestiture of the business acquired or other assetsof the company. The FTC or the DOJ may investigate acquisitions that are not required to be reported under the HSR Act under the antitrust laws before orafter consummation. In addition, private parties may under certain circumstances bring legal action to challenge an acquisition under the antitrust laws. TheDOJ also has stated publicly that it believes that LMAs and other similar agreements customarily entered into in connection with radio station transfers priorto the expiration of the waiting period under the HSR Act could violate the HSR Act. We can provide no assurances that our acquisition strategy will be adversely affected in any material respect by antitrust reviews. GEOGRAPHIC FINANCIAL INFORMATION Our advertisers and programmers are based in various locations throughout the United States. While no one customer or programmer accounts for 10% ormore of our revenues, individual or in the aggregate, our broadcast operating segment is particularly dependent on advertising revenue generated from ourLos Angeles and Dallas broadcast markets. Our Los Angeles radio stations generated 14.7% of our total net broadcasting advertising revenue for the yearended December 31, 2015, 14.3% for the year ended December 31, 2014, and 15.2% for the year ended December 31, 2013. Our Dallas radio stationsgenerated 24.5% of our total net broadcasting advertising revenue for the year ended December 31, 2015, 24.0% for the year ended December 31, 2014, and25.5% for the year ended December 31, 2013. Because substantial portions of our broadcast advertising revenues are derived from our Los Angeles and Dallas markets, our ability to generate revenuesin those markets could be adversely affected by local or regional economic downturns in these areas. 20 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EMPLOYEES As of February 21, 2016, we employed 1,198 employees in radio broadcasting, 181 employees in digital media entities, 130 employees in publishing,and 115 employees in corporate functions. Of these employees, 1,238 are full-time and 386 are part-time employees. We consider our relations with ouremployees to be good and none of our employees are covered by collective bargaining agreements. We employ on-air personalities and we may enter into employment agreements with these on-air personalities in order to protect our interests in theserelationships. However, on-air talent may be lost to competitors for a variety of reasons. While we do not believe that the loss of any one of our on-airpersonalities would have a material and adverse effect on our consolidated financial condition and results of operations, the loss of several key on-airpersonalities combined could have a material and adverse effect on our business. AVAILABLE INFORMATION Our Internet address is www.salemmedia.com. We make available free of charge on our investor relations website under the heading “SEC Filings” ourAnnual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnishedpursuant to Section 13(a) or 15(d) of the Exchange Act. These reports are available as soon as reasonably practical after we electronically file them or furnishthem to the SEC. Any information found on our website is not a part of or incorporated by reference into, this or any other report of the company filed with,or furnished to, the SEC. ITEM 1A. RISK FACTORS You should carefully consider the risks described below before investing in our securities. Our business is subject to risks associated with generaleconomic conditions, geopolitical events, competition, technological obsolescence and employee relations. The risks described below, along with risks notcurrently known to us or that we currently believe are immaterial, may impair our business operations and liquidity in unfavorable ways. We operate in acontinually changing business environment in which new risk factors emerge from time to time. We can neither predict new risk factors, nor can we assess theimpact, if any, these new risk factors may have on our business. The extent to which any risk factor, or combination of risk factors, may affect our business,financial condition and results of operations could seriously and materially influence the trading price of our common stock. CERTAIN FACTORS AFFECTING SALEM We may choose not to pursue potentially more profitable business opportunities outside of our Christian, conservative news talk and family-themedformats, or not to broadcast programming that violates our programming standards, either of which may have a material and adverse effect on ourbusiness. We are fundamentally committed to broadcasting, digital and publishing formats and programming emphasizing Christian values, conservative familythemes and news. We may choose not to switch to other formats or pursue potentially more profitable business opportunities due to this commitment, whichcould result in lower operating revenues and profits than we might otherwise achieve. We also do not intend to pursue business opportunities or broadcastprogramming that would conflict with our core commitment to Christian and family-themed formats or that would violate our programming standards, even ifsuch opportunities or programming would be more profitable. Our decision not to pursue other formats, business opportunities and/or broadcast programmingthat is inconsistent with our programming standards may have a material and adverse effect on our business. We are controlled by a few controlling stockholders who exercise control over most matters submitted to a shareholder vote and may have interests thatdiffer from other security holders. Therefore, they may take actions that are not in the interests of other security holders. As of December 31, 2015, Edward G. Atsinger III (Chief Executive Officer), Stuart W. Epperson (Chairman), Nancy A. Epperson (wife of Chairman) andEdward C. Atsinger (son of Chief Executive Officer) controlled approximately 81.7% in aggregate of the voting power of our capital stock. Thus, these fourstockholders have the ability to control fundamental corporate transactions requiring stockholder approval, including but not limited to, the election of all ofour directors, approval of merger transactions involving Salem and the sale of all or substantially all of Salem’s assets. The interests of any of thesecontrolling stockholders may differ from the interests of other stockholders in a material manner. The controlling stockholders hold all of the Class BCommon Stock, which have ten votes per share. Circumstances may occur in which the interests of the controlling stockholders could be in conflict with theinterests of other security holders and the controlling stockholders would have the ability to cause us to take actions in their interest. 21 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. RISKS ASSOCIATED WITH BUSINESS OPERATIONS ECONOMIC CONDITIONS We may be adversely affected by deteriorating economic conditions including the economic climate failing to improve. The risks associated with our businesses become more acute in periods of a slowing economy or recession, which are often accompanied by a decrease inadvertising. A decline in the level of business activity of our advertisers could have an adverse effect on our revenues and profit margins. During economicslowdowns in the United States, many advertisers have reduced their advertising expenditures. While the precise impact of economic slowdowns on ourbusiness is difficult to predict, our exposure to several risks increases with a slowing economy or a recession, including but not limited to: •Increasing pressure to sell advertising and block programming time at discounted rates;•Increases in the length of time to collect receivables and higher risks that accounts become uncollectible as our customers face tight creditmarkets;•Ministries are experiencing lower levels of donations that could negatively impact their ability to purchase and pay for block programming time;•We may not be able to find suitable replacements for ministries that can no longer purchase and pay for block programming;•Limitations on our ability to obtain additional financing to fund working capital, capital expenditures, acquisitions and other corporaterequirements;•Limitations on our ability to pursue projects that could have been economically beneficial; and•Impairment losses on the value of our indefinite-lived intangible assets including FCC broadcast licenses, goodwill, and mastheads andimpairment losses on other long-lived assets. Our results of operations could be negatively impacted by weak economic conditions of an individual business sector. A recession or downturn in the economy of any individual business sector could have a significant effect on us. Even with the recovery seen from the2008 economic recession, an individual business sector (such as the automotive industry) that tends to spend more on advertising than other sectors, mightbe forced to maintain a reduced level of advertising expenditures for several years after economic recovery has been in progress. If that sector experiences aslower recovery than the economy in general, that sector may reduce its advertising expenditures further if additional downturns occur. If that sector’sspending represents a significant portion of our advertising revenues, any reduction in its advertising expenditures may negatively impact our results ofoperations. General economic conditions, including a prolonged weakness in the economy, may affect consumer purchases, which could adversely affect our wellnessproduct sales. Our wellness product operating results are dependent on a number of factors impacting consumer spending, including general economic and businessconditions; consumer confidence; wages and employment levels; the housing market; consumer debt levels; availability of consumer credit; credit andinterest rates; fuel and energy costs; energy shortages; taxes; general political conditions, both domestic and abroad; and the level of customer traffic withindepartment stores, malls and other shopping and selling environments. Consumer product purchases, including purchases of our wellness products, maydecline during recessionary periods. A prolonged downturn or an uncertain outlook in the economy may materially and adversely affect our wellness productbusiness, revenues and profits. REPUTATION Damage to our reputation could damage our businesses. Maintaining a positive reputation is critical to our ability to attract and maintain relationships with advertisers and our listeners. Damage to ourreputation could therefore cause significant harm to our business and prospects. Harm to our reputation can arise from numerous sources, including, amongothers, employee misconduct, litigation or regulatory action, failure to deliver minimum standards of service and quality, compliance failures and unethicalbehavior. Negative publicity regarding us, whether or not true, may also result in harm to our prospects. Poor perception of our brand, business or industry could harm our reputation and materially and adversely affect our business, financial condition andresults of operations. Our business is dependent upon attracting a large audience to our radio stations, websites and publications. Our brand, business and reputation arevulnerable to poor perception. Any damage to our reputation could harm our ability to attract and retain advertisers, customers and content creators, whichcould materially and adversely affect our financial condition and results of operations. 22 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Unfavorable publicity or consumer perception of our wellness products, the ingredients they contain and any similar products distributed by othercompanies could cause fluctuations in our operating results and could have a material adverse effect on our reputation, the demand for our wellnessproducts and our ability to generate revenue. We are highly dependent upon consumer perception of the safety and quality of our wellness products and the ingredients they contain. Consumerperception of our wellness products and the ingredients they contain, as well as consumer perception of similar wellness products, can be significantlyinfluenced by scientific research or findings, national media attention and other publicity about wellness product use. A wellness product may be receivedfavorably, resulting in high sales associated with that product that may not be sustainable as consumer preferences change. Future scientific research orpublicity could be unfavorable to the wellness product industry or any of our particular wellness products or the ingredients they contain and may not beconsistent with earlier favorable research or publicity. A future research report or publicity that is perceived by our wellness product consumers as lessfavorable or that questions earlier research or publicity could have a material adverse effect on our ability to generate wellness product revenues. Unfavorablemarket perception of our wellness products could have a material adverse effect on our reputation, the demand for our wellness products, and our ability togenerate wellness product revenues. KEY EMPLOYEES Our business is dependent upon the performance of key employees, on-air talent and program hosts. Our business is dependent upon the performance and continued efforts of certain key individuals, including Edward G. Atsinger III, our Chief ExecutiveOfficer, and Stuart W. Epperson, our Chairman of the Board. The loss of the services of such key individuals could have a material adverse effect upon us. Wehave entered into employment agreements with such key individuals. Mr. Epperson has radio interests unrelated to Salem’s operations that will continue toimpose demands on his time. Mr. Atsinger has an interest in an aviation business unrelated to Salem’s operations that will continue to impose demands on histime. Our success is highly dependent upon the retention of these and other key employees throughout our organization. In addition, we are dependent uponour ability to continue to attract new employees with key skills to support continued business growth. We also employ or independently contract with several on-air personalities and hosts of syndicated radio programs with significant loyal audiences onboth a national level and in their respective local markets. Several of our on-air personalities have a presence that extends beyond our radio platforms intoother strategic areas. Although we have entered into long-term agreements with some of our executive officers, key on-air talent and program hosts to protectour interests in those relationships, we can give no assurance that all or any of these key employees will remain with us or will retain their audiences.Competition for these individuals is intense and many of our key employees are at-will employees who are under no legal obligation to remain with us. Ourcompetitors may choose to extend offers to any of these individuals on terms that we may be unable or unwilling to meet. In addition, any or all of our keyemployees may decide to leave for a variety of personal or other reasons beyond our control. Furthermore, the popularity and audience loyalty of our key on-air talent and program hosts is highly sensitive to rapidly changing public tastes. A loss of such popularity or audience loyalty is beyond our control andcould limit our ability to generate revenues. If we fail to maintain the continuance of strong relationships with our authors and other creative talent, as well as to develop relationships with newcreative talent, our business and financial performance could be materially and adversely affected. Our business, in particular book publishing and financial publications, is highly dependent on maintaining strong relationships with the authors andother creative talent who produce the products and services sold to our customers. Any overall weakening of these relationships, or the failure to developsuccessful new relationships, could have a material adverse impact on our business and financial performance. FACTORS AFFECTING REVENUE AND AUDIENCE GROWTH If we are unable to maintain or grow our advertising revenues, our business, financial condition and operating results may be materially and adverselyaffected. Our radio stations, digital media and publishing entities are to varying degrees dependent upon advertising for their respective revenues. We compete foradvertising revenue with other commercial broadcasters, including faith-based and general format radio stations, as well as with other media outlets such asbroadcast and cable television, newspapers, print magazines, direct mail, digital and billboard advertising. Due to this significant competition, we may not beable to maintain or increase our current advertising revenue. Any sustained economic downturn could negatively impact our ability to generate revenues. Ifwe are unable to maintain and grow our advertising revenues, our business, financial condition and results of operations may be materially and adverselyaffected. 23 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. After the economic recession of 2008 and 2009, we experienced a stabilization of advertising revenue. In 2012, we recorded record levels of politicaladvertising that is not recurring and can vary with the type and nature of elections. There can be no assurance that our advertising revenue will not be volatilein the future or that such volatility will not have an adverse impact on our business, financial condition or results of operations. Our business generates revenue from the sale of advertising, and the reduction in spending by or loss of advertisers could seriously harm our business. We derive a substantial part of our total revenues from the sale of advertising. For the years ended December 31, 2015, 2014 and 2013, 39.4%, 40.2%,and 40.8% of our total revenues, respectively, were generated from the sale of broadcast advertising. We are particularly dependent on revenue from our LosAngeles and Dallas markets which generated 14.7% and 24.5%, respectively of our total net broadcasting advertising revenue for the year ended December31, 2015, 14.3% and 24.0% respectively, for the year ended December 31, 2014, and 15.2% and 25.5%, respectively, for the year ended December 31, 2013. Our revenues and net operating income may not be sufficient to utilize deferred tax assets that could offset future taxable income. As of December 31, 2015, we had deferred tax assets, net of valuation allowances, of $2.8 million on our consolidated balance sheet included in thisannual report on Form 10-K. We expect to utilize these deferred tax assets to reduce consolidated income tax liabilities over future periods not to exceed fiveyears. However, we may not be able to fully utilize these deferred tax assets if future taxable income and related income tax liabilities are insufficient to allowtheir use. We may be required to record a larger valuation allowance against these deferred tax assets if we believe that we are unable to utilize them, whichwould have a material adverse effect on our results of operations and financial position. As of December 31, 2015, we had deferred tax assets, net of valuation allowances, of $2.8 million on our consolidated balance sheet included in thisannual report on Form 10-K. We expect to utilize these deferred tax assets to reduce consolidated income tax liabilities over future periods not to exceed fiveyears. However, we may not be able to fully utilize these deferred tax assets if future taxable income and related income tax liabilities are insufficient to allowtheir use. We may be required to record a larger valuation allowance against these deferred tax assets if we believe that we are unable to utilize them, whichwould have an adverse material effect on our results of operations and financial position. Concentration of book publication sales may make it difficult for us to compete effectively in the publication market. The sale of printed book publications is concentrated in national, regional, and online bookstore chains. These bookstore chains account for a vastmajority of book publishing revenues. Due to this concentration of book publication sales, it may be difficult for us to compete effectively in the market,which could adversely affect our publishing revenues and growth prospects of our publishing business. Our advertising revenues in certain markets are ratings-sensitive and subject to decline based on ratings agency projections. Nielsen uses its own technology to collect data for its ratings service. The Portable People Meter TM (“PPM”) is a small device that does not requireactive manipulation by the end user and is capable of automatically measuring radio, television, Internet, satellite radio and satellite television signals thatare encoded for the service by the broadcaster. The PPM offers a number of advantages over the traditional diary ratings collection system including ease ofuse, more reliable ratings data and shorter time periods between when advertising runs and when audience listening or viewing habits can be reported. Inmarkets where we subscribe to Nielsen under the PPM, our ratings tend to fluctuate even when there are no significant programming or competitive changesin the market. PPM data can fluctuate when changes are made to the “panel” (a group of individuals holding PPM devices). This makes all stationssusceptible to inconsistencies in ratings that may or may not accurately reflect the actual number of listeners at any given time. If we cannot attract the anticipated listener, programmer and advertiser base for our newly-acquired radio stations, we may not recoup associatedoperating costs or achieve profitability for these radio stations. We frequently acquire selected assets of radio stations that previously broadcasted in formats other than our primary formats. We continue to programsome of these stations in non-primary formats and we re-program others to one of our primary formats. During, and for a period after, the conversion of a radiostation’s format, the radio station typically generates operating losses. The magnitude and duration of these losses depends on a number of factors, includingthe promotional and marketing costs associated with attracting listeners and advertisers to our radio station’s new format and the success of these efforts.There is no guarantee that the operation of these newly-acquired stations or our operations in new formats will attract a sufficient listener and advertiser base.If we are not successful in attracting the listener and advertiser base we anticipate, we may not recoup associated operating costs or achieve profitability forthese newly-acquired radio stations. If we do not maintain or increase our block programming revenues, our business, financial condition and operating results may be materially andadversely affected. The financial success of each of our radio stations that feature Christian Teaching and Talk programming is significantly dependent upon our ability togenerate revenue from the sale of block programming time to national and local religious and educational organizations. Block programming accounted for42.1% of our net broadcast revenue for the year ending December 31, 2015, 41.2% of our net broadcast revenue for the year ended December 21, 2014, and40.9% of our net broadcasting revenue for the year ending December 31, 2013. We compete for this program revenue with a number of commercial and non-commercial radio stations. Due to the significant competition for this block programming, we may not be able to maintain or increase our current blockprogramming revenue, in which case, our business, financial condition and results of operations may be materially and adversely affected. 24 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We face significant competition, which we expect will continue to intensify, and we may not be able to maintain or improve our competitive position ormarket share. We operate in a highly competitive broadcast and media business. We compete for advertisers and customers with other radio broadcasters, as well aswith other media sources including broadcast and cable television, newspapers and magazines, national and local digital services, outdoor advertising, directmail, online marketing and media companies, social media platforms, web-based blogs, and mobile devices. We face intense competition from a wide rangeof competitors, including online marketing and media companies, integrated social media platforms and other specialist and enthusiast websites. Our broadcast audience ratings and market shares are subject to change, and any change in a particular market could have a material adverse effect on therevenue of our stations located in that market. Salem Web Network competes for visitors and advertisers with other companies that deliver on-line audioprogramming and Christian and conservative Internet content as well as providers of general market Internet sites. Our book publishing business competes forreaders with other book publishers, including those targeted specifically at Christian and conservative audiences. Our print magazines compete for readersand advertisers with other print publications including those that follow the Christian music industry and those that address themes of interest to churchleadership and the Christian audience. Xulon Press™ competes for authors with other on-demand publishers including those focused exclusively onChristian book publishers. The level of competition that we face could make it more difficult for us to provide value to our consumers, our advertisers and our content creators. Theperceived level of value could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses, decreased website trafficand failure to increase, or the loss of, market share, any of which would likely seriously harm our business, revenue, financial condition and results ofoperations. There can be no assurance that we will be able to compete successfully against current or future competitors. If we are unable to continue to drive and increase visitors to our owned and operated websites and to our customer websites and convert these visitors intorepeat users and customers cost-effectively, our business, financial condition and results of operations could be adversely affected. We attract traffic to our owned and operated websites by offering content that is highly specific and that we believe to be relevant to our audiences. Howsuccessful we are in these efforts depends, in part, upon our continued ability to create and distribute high-quality, commercially valuable content in a cost-effective manner at scale that connects consumers with content that meets their specific interests and effectively enables them to share and interact with thecontent and supporting communities. We may not be able to create content in a cost-effective manner or that meets rapidly changing consumer demand in atimely manner, if at all. Any such failure to do so may adversely affect user and customer experiences and reduce traffic driven to our websites that couldadversely affect our business, revenue, financial condition and results of operations. Even if we succeed in driving traffic to our owned and operated websites and to our customer websites, neither we nor our advertisers and customers maybe able to monetize this traffic or otherwise retain consumers. Our failure to do so could result in decreases in customers and related advertising revenue,which could have a material adverse effect on our business, financial condition and results of operations. Concentration of book publication sales may make it difficult for us to compete effectively in the publication market. The sale of printed book publications is concentrated in national, regional, and online bookstore chains. These bookstore chains account for a vastmajority of book publishing revenues. Due to this concentration of book publication sales, it may be difficult for us to compete effectively in the market,which could adversely affect our publishing revenues and growth prospects of our publishing business. Our financial results would suffer if we fail to successfully meet market needs with our publishing business. The sale of books represents a substantial part of revenues for Regnery Publishing. We are subject to the risk that we will not successfully develop andexecute promotional strategies for new books that respond to customer trends, including trends related to demand for eBooks, or other technological changesthat will not meet market needs, which would have a material adverse effect on the financial results of Regnery Publishing and Salem as a whole. 25 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We may be unable to increase or maintain our digital advertising revenues, which could have a material adverse effect on our business, financial conditionand results of operations. We generate advertising revenue from the sale of digital display advertisements on our websites. Our ability to increase or maintain this advertisingrevenue is largely dependent upon the number of users actively visiting our websites. We also must increase user engagement with our advertisers in order toincrease our advertising revenues. Additionally, digital advertising techniques are evolving, and if our technology and advertisement serving techniques donot evolve to meet the needs of advertisers, our advertising revenue could decline. Changes in our business model, advertising inventory or initiatives couldalso cause a decrease in our advertising revenue. Because digital media is a concentrated growth area for us, any decrease in revenues in these areas couldaffect our business, financial condition and results of operations. Digital advertisements are reportedly becoming a means to distribute viruses over the Internet. If this practice becomes prevalent, it could result inconsumers becoming less inclined to click through digital advertisements, which could adversely affect the demand for digital advertising. Additionally, wedo not have long-term agreements with most of our digital advertisers. Any termination, change or decrease in our advertising relationships could have amaterial adverse effect on our revenues and profitability. If we do not maintain or increase our advertising revenues, our business, results of operations andfinancial condition could be materially and adversely affected. If Internet search engines' methodologies are modified, traffic to our websites and corresponding consumer origination volumes could decline. We depend in part on various Internet search engines, including Google®, Bing®, and Yahoo!®, to direct a significant amount of traffic to our websites.Our ability to maintain the number of visitors directed to our websites through which we distribute our content by search engines is not entirely within ourcontrol. Changes in the methodologies used by search engines to display results could cause our websites to receive less favorable placements, which couldreduce the number of unique visitors who link to our websites. Any reduction in the number of users directed to our websites could negatively affect ourability to earn revenue. If traffic on our websites declines, we may need to employ more costly resources to replace lost traffic, and such increased expensecould adversely affect our business, financial condition and results of operations. Wireless devices and mobile phones are used to access the Internet, and our online marketing services may not be as effective when accessed through thesedevices, which could cause harm to our business, financial condition and results of operations. The number of people who access the Internet through devices other than personal computers has increased substantially in the last few years. Ourwebsites were originally designed for persons accessing the Internet on a desktop or laptop computer. The smaller screens, lower resolution graphics and lessconvenient typing capabilities of wireless devices and mobile phones may make it more difficult for visitors to respond to our offerings. In addition, the costof mobile advertising is relatively high and may not be cost-effective for our services. We must also ensure that our licensing arrangements with third-partycontent providers allow us to make this content available on these devices. If we cannot effectively make our content, products and services available onthese devices, fewer consumers may access and use our content, products and services. In addition, if our services continue to be less effective or lesseconomically attractive for customers seeking to engage in advertising through these devices and this segment of Internet traffic grows at the expense oftraditional computer Internet access, we will experience difficulty attracting website visitors and attracting and retaining customers and our business,financial condition and results of operations will be harmed. 26 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. LEGAL LIABILITIES As a creator and a distributor of multi-media content, we face potential liability and expenses for legal claims based on the nature and content of thematerials that we create and/or distribute, or that are accessible via our owned and operated websites and our network of customer websites. If we arerequired to pay damages or expenses in connection with these legal claims, our business, financial condition and results of operations may be harmed. We rely on the work product of various content creators to produce original programs, articles and content for our radio programs, websites and printpublications. We face potential liability based on a variety of theories, including defamation, negligence, unlawful practice of a licensed profession,copyright, trademark infringement, or other legal theories based on the nature, creation or distribution of this information, and under various laws, includingthe Lanham Act and the Copyright Act. We may also be exposed to similar liability in connection with content that we do not create but that is posted to ourowned and operated websites and to our network of customer websites by users and other third parties through forums, comments, personas and other socialmedia features. In addition, it is also possible that visitors to our owned and operated websites and to our network of customer websites could make claimsagainst us for losses incurred in reliance upon information provided on our owned and operated websites or our network of customer websites. These claims,whether brought in the United States or abroad, could divert management time and attention away from our business and result in significant costs toinvestigate and defend, regardless of the merit of these claims. If we become subject to these or similar types of claims and are not successful in our defense,we may be forced to pay substantial damages. While we run our content through a rigorous quality control process, including an automated plagiarismprogram, there is no guarantee that we will avoid future liability and potential expenses for legal claims based on the content of the materials that we create ordistribute. Should the content distributed through our owned and operated websites and our network of customer websites violate the intellectual propertyrights of others or otherwise give rise to claims against us, we could be subject to substantial liability, which could have a negative impact on our business,financial condition and results of operations. We could face liability for the information we publish in our financial newsletters, including information based on data we obtain from other parties. We may be subject to claims for securities law violations, defamation (including libel and slander), negligence, or other claims relating to theinformation we publish in our financial newsletters. While we strive to minimize such risks, it is possible that we could be subject to investigations andpotential enforcement actions by the Securities and Exchange Commission (“SEC”) or civil liability for securities fraud to subscribers who invest on the basisof information provided in our financial newsletters and related materials or by the independent financial commentators who provide newsletter content. Forexample, subscribers may take legal action against us if they rely on published information or market analysis that contains an error or on market strategiesthat do not perform as described. Additionally, a company may claim that we have made a defamatory statement about it, its employees or its financialposition. The authors of our newsletters also rely on a variety of outside parties as sources for some of the information we use in our published data. Thesesources include securities exchanges, fund companies, hedge funds, transfer agents, and other data providers. Accordingly, in addition to possible exposurefor publishing incorrect information that results directly from our own errors, we could face liability based on inaccurate data provided to us by others orbased upon the actions of the authors. Defending civil claims or being subject to SEC investigations or enforcement actions based on the information wepublish in our financial newsletters could be expensive and time-consuming and could adversely impact our business, operating results, and financialcondition. The sale of our wellness products involves product liability and related risks that could expose us to significant insurance and loss expenses. We face an inherent risk of exposure to wellness product liability claims if the use of our wellness products results in, or is believed to have resulted in,illness or injury. Most of our wellness products contain combinations of ingredients, and there is little long-term experience with the effect of thesecombinations. In addition, interactions of these wellness products with other products, prescription medicines and over-the-counter drugs have not been fullyexplored or understood and may have unintended consequences. While our third party manufacturers perform tests in connection with the formulations of ourwellness products, these tests are not designed to evaluate the inherent safety of our wellness products. Although we maintain product liability insurance, it may not be sufficient to cover all product liability claims and such claims that may arise could havea material adverse effect on our business and financial condition. We carry product liability insurance coverage that requires us to pay deductibles/retentionswith primary and excess liability coverage above the deductible/retention amount. Because of our deductibles and self-insured retention amounts, we havesignificant exposure to fluctuations in the number and severity of claims. The successful assertion or settlement of an uninsured claim, a significant numberof insured claims or a claim exceeding the limits of our insurance coverage would harm us by adding further costs to our business and by diverting theattention of our senior management from the operation of our business. Even if we successfully defend a liability claim, the uninsured litigation costs andadverse publicity may be harmful to our business. Any product liability claim may increase our costs and adversely affect our revenues and operating income. Moreover, liability claims arising from aserious adverse event may increase our costs through higher insurance premiums and deductibles, and may make it more difficult to secure adequateinsurance coverage in the future. In addition, our product liability insurance may fail to cover future product liability claims, which, if adversely determined,could subject us to substantial monetary damages. 27 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. TECHNOLOGICAL ADVANCES We must respond to the rapid changes in technology, services and standards of our industry in order to remain competitive. The media industry is subject to rapid technological change, evolving industry standards and the emergence of competition from new mediatechnologies and services. We cannot make assurances that we will have the resources to acquire new technologies or to introduce new services that couldcompete with these new technologies. Various new media technologies and services are currently being developed or introduced, including but not limitedto: •Satellite-delivered digital audio radio service, which has resulted in the introduction of new subscriber-based satellite radio services withnumerous niche formats;•Audio programming by cable systems, direct-broadcast satellite systems, personal communications systems, content available over the Internetand other digital audio broadcast formats;•In-band on-channel digital radio, which provides multi-channel, multi-format digital radio services in the same bandwidth currently occupied bytraditional AM and FM radio services;•Low-power FM radio, which could result in additional FM radio broadcast outlets including additional low-power FM radio signals authorized inDecember 2010 under the Local Community Radio Act;•High Definition (“HD”) radio;•Internet radio and other audio content offerings such as Pandora and iHeart Radio; and•Personal digital audio devices (e.g. audio via WiFi, mobile phones, WiMAX, etc.) or other emerging next-generation networks and technologies. We currently program one channel on SiriusXM. We also offer pod-casts and downloads of portions of our programming; however, we cannot assure youthat this arrangement will be successful or enable us to adapt effectively to these new media technologies. We cannot predict the effect, if any, thatcompetition arising from new technologies or regulatory change(s) may have on the radio broadcast industry or on our financial condition and results ofoperations. New technologies may increase competition with our broadcasting and printing operations. Our broadcasting and printing business face increasing competition from new technologies, such as broadband wireless, satellite radio and audiobroadcasting by cable television systems, as well as new customer products, such as portable digital audio players and smart mobile phones. These newtechnologies and alternative media platforms compete with our radio stations for audience share and advertising revenues. The FCC also has approved newtechnologies for use in the radio broadcasting industry, including the terrestrial delivery of digital audio broadcasting, which significantly enhances thesound quality of radio broadcasts. We are unable to predict the effect that such technologies and related services and products will have on our broadcastingoperations, but the capital expenditures necessary to implement such technologies could be substantial. We cannot assure that we will continue to have theresources to acquire new technologies or to introduce new services to compete with other new technologies or services, and other companies employing suchnew technologies or services could increase competition with our businesses. Our printing business also faces increasing competition from new technologies, such as the Internet, eBook reader devices, and tablets. These newtechnologies and alternative media platforms compete with our printed books and magazines for audience share and advertising revenues. We must continueto expand our publishing businesses from traditional publishers to new digital technologies. We may make significant investments in new products andservices that may not be profitable, or whose profitability may be significantly lower than we have experienced. Success and continued growth dependsgreatly on developing new products and the means to deliver them in an environment of rapid technological change. 28 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We must respond to changes in consumer behavior as a result of new technologies in order to remain competitive. Technology, particularly digital technology used in the entertainment industry, continues to evolve rapidly, leading to alternative methods for thedelivery and storage of digital content. These technological advancements have driven changes in consumer behavior and have empowered consumers toseek more control over when, where and how they consume digital content. Content owners are increasingly delivering their content directly to consumersover the Internet, often without charge, and innovations in distribution platforms have enabled consumers to view such Internet-delivered content ontelevisions and portable devices. There is a risk that our responses to these changes and strategies to remain competitive, including distribution of ourcontent on a “pay” basis, may not be adopted by consumers. In publishing, the trend toward digital media may drive down the price consumers are willing tospend on our products disproportionately to the costs associated with generating literary content. Our failure to protect and exploit the value of our content,while responding to and developing new technology and business models to take advantage of advancements in technology and the latest consumerpreferences, could have a material adverse effect on our business, financial condition and results of operations. INFORMATION TECHNOLOGY, CYBERSECURITY AND OTHER EVENTS The interruption or failure of our information technology and communications systems, or those of third parties that we rely upon, may materially andadversely affect our business, financial condition, and results of operations. The availability of our products and services depends on the continuing operation of our information technology and communications systems. Anydamage to or failure of our systems, or those of third parties that we rely upon (co-location providers for data servers, storage devices, and network access)could result in interruptions in our service, which could reduce our revenue and profits. Our systems are also vulnerable to damage or interruption fromearthquakes, terrorist attacks, floods, fires, power loss, telecommunications failures, computer viruses or other attempts to harm our systems. Furthermore, third-party service providers may experience an interruption in operations or cease operations for any reason. If we are unable to agree onsatisfactory terms for continued data center hosting relationships, we would be forced to enter into a relationship with other service providers or assumehosting responsibilities ourselves. If we are forced to switch hosting facilities, we may not be successful in finding an alternative service provider onacceptable terms or in hosting the computer servers ourselves. We may also be limited in our remedies against these providers in the event of a failure ofservice. We also rely on third-party providers for components of our technology platform, such as hardware and software providers. A failure or limitation ofservice or available capacity by any of these third-party providers may materially and adversely affect our business, financial condition and results ofoperations. We rely on third parties to provide software and related services necessary for the operation of our business. We incorporate and include third-party software into and with our applications and service offerings and expect to continue to do so. The operation ofour applications and service offerings could be impaired if errors occur in the third-party software that we use. It may be more difficult for us to correct anydefects in third-party software because the development and maintenance of the software is not within our control. Accordingly, our business could beadversely affected in the event of any errors in this software. There can be no assurance that any third-party licensors will continue to make their softwareavailable to us on acceptable terms, to invest the appropriate levels of resources in their software to maintain and enhance its capabilities, or to remain inbusiness. Any impairment in our relationship with these third-party licensors could harm our ability to maintain and expand the reach of our service, increaselistener hours and sell advertising, each of which could harm our business, financial conditions and results of operations. Our broadcasts often rely on content owned by third parties; obtaining such content could be costly and require us to enter into disadvantageous license orroyalty arrangements. We rely heavily upon content and software owned by third parties in order to provide programming for our broadcasts. The cost of obtaining allnecessary licenses and permission to use this third-party content and software continues to increase. Although we attempt to avoid infringing knownproprietary rights of third parties in our broadcasting efforts, we expect that we may be subject to legal proceedings and claims for alleged infringement fromtime to time in the ordinary course of business. Any claims relating to the infringement of third-party proprietary rights, even if not meritorious, could resultin costly litigation, divert management’s attention and resources, or require us to enter into royalty or license agreements which are not advantageous to us.In addition, parties making claims may be able to obtain an injunction, which could prevent us from broadcasting all or certain portions of individual radiobroadcasts containing content owned by third parties. We also rely on software that we license from third parties, including software that is integrated withinternally developed software and used to perform key broadcasting and accounting functions. We could lose the right to use this software or it could bemade available to us only on commercially unreasonable terms. Although we believe that alternative software is available from other third-party suppliers orinternal developments, the loss of or inability to maintain any of these software licenses or the inability of the third parties to enhance in a timely and cost-effective manner their products in response to changing customer needs, industry standards or technological developments could result in limitations ordelays in broadcasting or accounting for programming by us until equivalent software can be developed internally or identified, licensed and integrated,which would harm our business. 29 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We may have difficulty scaling and adapting our existing technology and network infrastructure to accommodate increased traffic and technologyadvances or changing business requirements, which could lead to the loss of current and potential customers and advertisers, and cause us to incurexpenses to make architectural changes. To be successful, our network infrastructure has to perform well and be reliable. The greater the user traffic and the greater the complexity of our productsand services, the more computing power we will need. In the future, we may spend substantial amounts to purchase or lease data centers and equipment,upgrade our technology and network infrastructure to handle increased traffic on our owned and operated websites and roll out new products and services.This expansion could be expensive and complex and could result in inefficiencies or operational failures. If we do not implement this expansionsuccessfully, or if we experience inefficiencies and operational failures during its implementation, the quality of our products and services and our users'experience could decline. This could damage our reputation and lead us to lose current and potential customers and advertisers. The costs associated withthese adjustments to our architecture could harm our operating results. Cost increases, loss of traffic or failure to accommodate new technologies or changingbusiness requirements could harm our business, financial condition and results of operations. Cyber security and privacy breaches may hurt the company’s business, damage its reputation, increase its costs, and cause losses. Our information technology systems could be subject to invasion, cyber-attack, or data privacy breaches by employees, others with authorized access,and unauthorized persons. Such attacks could result in disruption to our operations, loss or disclosure of, or damage to, our or any of our customer’s orvendor’s data or confidential information. Security measures may also be breached due to employee error, malfeasance, or otherwise. Additionally, outsideparties may attempt to fraudulently induce employees, customers or vendor’s to disclose sensitive information in order to gain access to our data andinformation technology systems. Any such breach could result in significant legal and financial exposure, damage to our reputation, loss of competitiveadvantage, and a loss of confidence in the security of our information technology systems that could potentially have an impact on our operations. Becausethe techniques used to obtain unauthorized access, disable or degrade, or sabotage our information technology systems change frequently and often are notrecognized until launched, we may be unable to anticipate these techniques or to implement adequate preventive measures. Third parties that provide services for our operations could also be a source of security risk in the event of a failure of their own security systems andinfrastructure. In addition, sophisticated hardware and operating system software and applications that are procured from third parties may contain defects indesign or manufacture, including "bugs" and other problems that could unexpectedly interfere with the operation of our information technology systems. Although we have developed systems and processes designed to protect information and prevent data loss and other security breaches, including systemsand processes designed to reduce the impact of a security breach, such measures cannot provide absolute security. Such breaches, whether successful orunsuccessful, could result in the incurrence of costs related to rebuilding internal systems, defending against litigation, responding to regulatory inquiries oractions, paying damages, or taking other remedial steps. Global privacy legislation, enforcement, and policy activity are rapidly expanding and creating a complex compliance environment. Our failure tocomply with federal, state, or international privacy related or data protection laws and regulations could result in proceedings against us by governmentalentities or others. Although we have insurance coverage for protecting against cyber security risks, it may not be sufficient to cover all possible claims andlosses that could have a material adverse effect on our business. We have not experienced significant disruptions in running our business due to invasion, cyber-attack, or data privacy breaches. Our business may be adversely affected by malicious applications that interfere with, or exploit security flaws in, our Internet websites and online services. Our business may be adversely affected by malicious applications that make changes to our users’ computers and interfere with their experience with ourwebsites. These applications may attempt to change our users’ Internet experience, including hijacking queries to our website, altering or replacing searchresults or otherwise interfering with our ability to connect with our users. The interference often occurs without disclosure or consent, resulting in a negativeexperience that users may associate with us. These applications may be difficult or impossible to uninstall or disable, may reinstall themselves and maycircumvent other applications’ efforts to block or remove them. The ability to reach users and provide them with a superior experience is critical to oursuccess. If our efforts to combat these malicious applications are unsuccessful, our reputation may be harmed and user traffic could decline, which woulddamage our business. We have not experienced significant interference with our websites or digital content. 30 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Privacy protection is increasingly demanding, and we may be exposed to risks and costs associated with security breaches, data loss, credit card fraud andidentity theft that could cause us to incur unexpected expenses and loss of revenue as well as other risks. The protection of customer, employee, vendor, and other business data is critical to us. Federal, state, provincial and international laws and regulationsgovern the collection, retention, sharing and security of data that we receive from and about our employees, customers, vendors and franchisees. Theregulatory environment surrounding information security and privacy has been increasingly demanding in recent years, and may see the imposition of newand additional requirements by states and the federal government as well as foreign jurisdictions in which we do business. Compliance with theserequirements may result in cost increases due to necessary systems changes and the development of new processes to meet these requirements. In addition,customers have a high expectation that we will adequately protect their personal information. If we or our service provider fail to comply with these laws andregulations or experience a significant breach of customer, employee, vendor, franchisee or other company data, our reputation could be damaged and resultin an increase in service charges, suspension of service, lost sales, fines or lawsuits. The use of credit payment systems makes us more susceptible to a risk of loss in connection with these issues, particularly with respect to an externalsecurity breach of customer information that we or third parties (including those with whom we have strategic alliances) under arrangements with us control.Significant portions of our sales require the collection of certain customer data, such as credit card information. In order for our sales channel to function, weand other parties involved in processing customer transactions must be able to transmit confidential information, including credit card information, securelyover public networks. In the event of a security breach, theft, leakage, accidental release or other illegal activity with respect to employee, customer, orvendor with whom we have strategic alliances or other company data, we could become subject to various claims, including those arising out of thefts andfraudulent transactions, and may also result in the suspension of credit card services. This could cause consumers to lose confidence in our security measures,harm our reputation as well as divert management attention and expose us to potentially unreserved claims and litigation. Any loss in connection with thesetypes of claims could be substantial. In addition, if our electronic payment systems are damaged or cease to function properly, we may have to makesignificant investments to fix or replace them, and we may suffer interruptions in our operations in the interim. In addition, we are reliant on these systems,not only to protect the security of the information stored, but also to appropriately track and record data. Any failures or inadequacies in these systems couldexpose us to significant unreserved losses, which could materially and adversely affect our business, financial condition and results of operations. Our brandreputation would likely be damaged as well. Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made problems such ascomputer viruses or terrorism. Our systems and operations are vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terroristattacks, acts of war, human errors, break-ins or similar events. A significant natural disaster, such as an earthquake, fire or flood, could have a material adverseimpact on our business, financial condition and results of operations. Our insurance coverage may be insufficient to compensate us for losses that may occur.Our principal executive offices are located in Southern California, a region known for seismic activity. In addition, acts of terrorism could also causedisruptions in our business or the economy as a whole. We rely heavily on servers, computers, communications systems and the Internet to conduct ourbusiness and provide high quality service to our listeners. Our servers may be vulnerable to cyber-security risks such as computer viruses and break-in’s.Disruptions in these services could negatively impact our ability to run our business, result in the loss of existing or potential listeners, the loss of existing orpotential advertisers and increase maintenance costs, each of which could materially and adversely affect our business, financial condition and results ofoperations. To date, we have not experienced significant disruptions in running our business due to catastrophic events, earthquakes, computer viruses orterrorism. ACQUISITIONS AND CAPITAL INVESTMENTS We may be unable to integrate the operations and management of acquired stations or businesses, which could have a material and adverse effect on ourbusiness and operating results. Acquisitions may have a substantial impact on our revenues, costs, cash flows, and financial position. During 2015 and 2014, we spent $17.3 and $18.7million, respectively, on acquisitions. With our 2014 acquisition of Eagle Publishing, we acquired several new businesses including a traditional bookpublishing business, a financial newsletter business and a wellness business, and while we anticipate that we will continue to effectively integrate thesebusinesses into our current operations, there can be no assurance of this. We expect to make additional acquisitions of radio stations, FM transmitters, digitalbusinesses and publishing businesses. Acquisitions involve risks and uncertainties, including difficulties in integrating acquired operations and in realizingexpected opportunities; diversions of management resources and loss of key employees; challenges with respect to operating new businesses; debt incurredin financing such acquisitions; and other unanticipated problems and liabilities. There can be no assurance that we will be able to successfully integrate theoperations or management of acquired radio stations and businesses and realize anticipated revenue synergies, or the operations or management of stationsand businesses that may be acquired in the future. 31 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Continued acquisitions will require us to manage a larger and likely more geographically diverse region of radio stations, digital portfolios andpublishing portfolios than historically has been the case. Our inability to integrate and manage newly-acquired radio stations, digital businesses orpublishing entities successfully could have a material and adverse effect on our business and operating results. If we are unable to execute our acquisition strategy successfully, our business may not continue to grow. We intend to continue to selectively acquire radio stations, FM translators, digital media entities and publishing businesses. With respect to theacquisition of radio stations, our acquisition strategy has been, and will continue to focus primarily on, the acquisition of stations in the top fifty (50)markets. However, we may not be able to identify and consummate future acquisitions successfully, and stations that we do acquire may not increase ourstation operating income or yield other anticipated benefits. Acquisitions in markets in which we already own stations may not increase our station operatingincome due to saturation of audience demand. Acquisitions in smaller markets may have less potential to increase operating revenues. With respect to ouracquisition strategy of digital and publishing businesses, we may not be able to identify and consummate the acquisition of future businesses successfully.Additionally, we may not be able to effectively integrate the operation of newly-acquired businesses with our existing businesses, which could result inreduced operating income from our businesses. Our failure to execute our acquisition strategy successfully in the future could limit our ability to continue togrow in terms of number of stations or profitability. Some of our acquisition agreements contain contingent earn-out consideration, the value of which may impact future operating results. Some of our acquisition agreements include contingent earn-out consideration, the fair value of which is estimated as of the acquisition date based onthe present value of the expected contingent payments as determined using weighted probabilities of possible future payments. These fair value estimatescontain unobservable inputs and estimates that could materially differ from the actual future results. The fair value of the contingent earn out considerationcould increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of contingent earn-outs will be reflected in our results ofoperations in the period in which they are recognized, the amount of which may be material and cause volatility in our operating results. If we are unable to implement our market cluster strategy, we may not realize anticipated operating efficiencies. As part of our operating strategy, we attempt to realize efficiencies in operating costs and cross-selling of advertising by clustering the operations of twoor more radio stations in a single market. However, there can be no assurance that this operating strategy will be successful. Furthermore, we cannot make anyassurance that the clustering of radio stations in one market will not result in downward pressure on advertising rates at one or more of the existing or newradio stations within the cluster. Furthermore, there can be no assurance that any of our stations will be able to maintain or increase its current listeningaudiences and operating revenue in circumstances where we implement our clustering strategy. Additionally, FCC rules and policies allow a broadcaster to own a number of radio stations in a given market and permit, within limits, jointarrangements with other stations in a market relating to programming, advertising sales and station operations. We believe that radio stations that elect totake advantage of these clustering opportunities may have lower operating costs and may be able to offer advertisers more attractive rates and services. Thefuture development of our business in new markets, as well as the maintenance of our business growth in those markets in which we do not currently haveradio station clusters, may be negatively impacted by competitors who are taking or may take advantage of these clustering opportunities by operatingmultiple radio stations within markets. We base capital allocation decisions primarily on our analysis of the predicted internal rate of return. If the estimates and assumptions we use incalculating the internal rate of return are inaccurate, our capital may be inefficiently allocated. If we fail to appropriately allocate our capital, our growthrate and financial results will be adversely affected. We continually seek opportunities for growth by increasing the strength and number of our broadcast signals, increasing the number of page views onour web platform and increasing the subscriber base of our publications. In order to realize these growth opportunities, we must rely on continued technicalimprovements to expand our broadcasting, digital and publication footprint. When deciding which opportunities to pursue, we must predict the internal rateof return associated with each project. Our calculations are based on certain estimates and assumptions that may not be realized. Accordingly, the calculationof internal rate of return may not be reflective of our actual returns, and our capital may be inefficiently allocated. If we fail to appropriately allocate ourcapital, our growth rate and financial results will be adversely affected. 32 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our syndicated programming is dependent upon maintenance of our transponder equipment, which is located at various customer sites. Delivery of our national programs is dependent upon transponder equipment that is located at various customer locations. The quality and durability ofthis equipment, as well as our ability to protect the equipment from damage, destruction or theft, directly impacts our ability to transmit programming. Lossesto this equipment and any business interruption may not be fully insurable. If we are unable to protect our domain names, our reputation and brands could be adversely affected. We currently hold various domain name registrations relating to our brands. The registration and maintenance of domain names generally are regulatedby governmental agencies and their designees. Governing bodies may establish additional top-level domains, appoint additional domain name registrars ormodify the requirements for holding domain names. As a result, we may be unable to register or maintain relevant domain names. We may be unable, withoutsignificant cost or at all, to prevent third parties from registering domain names that are similar to, infringe upon or otherwise decrease the value of, ourtrademarks and other proprietary rights. Failure to protect our domain names could adversely affect our reputation and brands, and make it more difficult forusers to find our websites and our services. Impairment of FCC Licenses, goodwill and other intangible assets deemed to have indefinite useful lives could cause future losses due to asset impairment. A majority of the purchase price for our broadcast stations is allocated to FCC licenses. We may also record goodwill based on our acquisition activity.Approximately 70% of our total assets at December 31, 2015 consist of indefinite-lived intangible assets including broadcast licenses, goodwill andmastheads. The value of these indefinite-lived intangible assets depends significantly upon the operating results of our businesses. We do not amortizegoodwill or other indefinite-lived intangible assets, but rather test for impairment at least annually or more frequently if events or circumstances indicate thatan asset may be impaired. We perform our annual impairment testing during the fourth quarter of each year, which coincides with our budget and planning process for theupcoming year. We have incurred significant impairment losses in prior years with regard to our indefinite-lived intangible assets. The valuation of intangible assets is subjective and based on estimates rather than precise calculations. The fair value measurements of our indefinite-lived intangible assets use significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use inmeasuring fair value including assumptions about risk. If actual future results are less favorable than the assumptions and estimates we used, we are subject tofuture impairment charges, the amount of which may be material. Given the current economic environment and uncertainties that can negatively impact ourbusiness, there can be no assurance that our estimates and assumptions made for the purpose of our indefinite-lived intangible fair value estimates will proveto be accurate. During our annual testing in the fourth quarter of 2015, we recognized an impairment charge of $0.4 million associated with the value of goodwill in ourSinging News Network (formerly Solid Gospel Network.) The impairment charge of $0.4 million recognized in the fourth quarter of 2015 resulted from areduction of the projected net revenues for the Singing News Network. During our annual testing in the fourth quarter of 2014, we recognized impairmentcharges of $79,000 associated with mastheads and goodwill within our magazine publishing segment. The impairment of $79,000 during the fourth quarterof 2015 resulted from continual declines in revenues from our print magazines that were not offset with cost reductions from the decrease in the number ofpublications printed. The growth of digital-only publications, which are often free or significantly less than a print magazine has hindered the ability of thepublishing industry to recover from the economic recession that began in 2008. We believe that the impairments are indicative of trends in the industry as awhole and are not unique to our company or operations. While the impairment charges we have recognized are non-cash in nature and do not violate covenants relating to our senior secured credit facility, theyare indicative of declining expectations for future economic conditions and performance. The potential for future impairment charges can be viewed as anegative factor with regard to forecasted future performance and cash flows. We believe that we have adequately considered the economic downturn in ourvaluation models and do not believe that the non-cash impairments in and of themselves are a liquidity risk. 33 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. FINANCIAL REPORTING The requirements of being a public company may strain our resources and divert management's attention. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the listing requirements of the NASDAQ Global SelectMarket, and other applicable securities rules and regulations. Compliance with these rules and regulations results in a higher level of legal and financialcompliance costs. Compliance can divert the time and attention of management from revenue-generating activities. Moreover, because these laws,regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. Thisevolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure andgovernance practices. If we fail to address and comply with these regulations and any subsequent changes, our business and operating results may be harmed. In addition, complying with public disclosure rules makes our business more visible, which we believe may result in threatened or actual litigation,including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims donot result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of ourmanagement and harm our business and operating results. If we are unable to maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy andcompleteness of our financial reports and the trading price of our Class A common stock may be negatively affected. We are subject to Section 404 of the Sarbanes-Oxley Act (SOX), which requires us to maintain internal control over financial reporting and to report anymaterial weaknesses in such internal controls. We have consumed and will continue to consume management resources and incur expenses for SOXcompliance on an ongoing basis. If we identify material weaknesses in our internal control over financial reporting, or if we are unable to comply with therequirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, investors may lose confidence in theaccuracy and completeness of our financial reports and the trading price of our Class A common stock could be negatively affected. Additionally, we couldbecome subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could requireadditional financial and management resources. WELLNESS PRODUCTS The efficacy of wellness products is supported by limited conclusive clinical studies, which could result in claims that our Wellness products are ineffectiveor harmful to consumers. Our wellness products are made from various ingredients including vitamins, minerals, amino acids, herbs, botanicals, fruits, berries and other substancesfor which there is a long history of human consumption. However, there is little long-term experience with human consumption of certain product ingredientsor combinations of ingredients in concentrated form. Although we believe all of our wellness products fall within the generally known safe limits for dailydoses of each ingredient contained within them, nutrition science is imperfect. Moreover, some people have peculiar sensitivities or reactions to nutrientscommonly found in foods, and may have similar sensitivities or reactions to nutrients contained in our wellness products. Furthermore, nutrition science issubject to change based on new research. New scientific evidence may disprove the efficacy of our wellness products or prove our wellness products to haveeffects not previously known. We could be adversely affected by studies that may assert that our wellness products are ineffective or harmful to consumers, orif adverse effects are associated with a competitor’s similar products. We are currently dependent on a limited number of independent suppliers and manufacturers of our wellness products, which may affect our ability todeliver our wellness products in a timely manner. If we are not able to ensure timely product deliveries, potential distributors and customers may not orderour wellness products, and our revenues may decrease. We rely entirely on a limited number of third parties to supply and manufacture our wellness products. These third parties are subject to FDA regulationand must operate in accordance with strict manufacturing requirements referred to as Current Good Manufacturing Practices (“CGMP’s”) for dietarysupplements. Our wellness products are manufactured on a purchase order basis only and manufacturers can terminate their relationships with us at any time.These third party manufacturers may be unable to satisfy our supply requirements, manufacture our wellness products on a timely basis and in compliancewith CGMP’s, fill and ship our orders promptly, provide services at competitive costs or offer reliable products and services. The failure to meet any of thesecritical needs and legal requirements would delay or reduce wellness product shipments and adversely affect our revenues, as well as jeopardize ourrelationships with our customers. In the event any of our third party manufacturers were to become unable or unwilling to continue to provide us withproducts in required volumes and at suitable quality levels, we would be required to identify and obtain acceptable replacement manufacturing sources.There is no assurance that we would be able to obtain alternative manufacturing sources on a timely basis. Additionally, all of our third party manufacturerssource the raw materials for our products, and if we were to use alternative manufacturers, we may not be able to duplicate the exact taste and consistencyprofile of the product from the original manufacturer. An extended interruption in the supply of our products would result in decreased product sales and ourrevenues would likely decline. We believe that we can meet our current supply and manufacturing requirements with our current suppliers and manufacturersor with available substitute suppliers and manufacturers. Historically, we have not experienced any delays or disruptions to our wellness product businesscaused by difficulties in obtaining supplies. 34 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We are dependent on our third party manufacturers to supply our wellness products in the compositions we require, and we do not independently analyzeour wellness products. Any errors in our wellness product manufacturing could result in wellness product recalls, contamination, significant legalexposure, reduced revenues and the loss of distributors. While we require that our manufacturers verify the accuracy of the contents of our wellness products, we do not have the expertise or personnel tomonitor the production of products by these third parties. We rely exclusively, without independent verification; on certificates of analysis regardingwellness product content provided by our third party suppliers and limited safety testing they perform. We cannot be assured that all of the third partiesinvolved in the manufacturing of our products are complying with government health and safety standards, and even if our wellness products meet thesestandards, they could otherwise become contaminated. Errors in the manufacture of our wellness products and the occurrence of contamination could result inproduct recalls, significant legal exposure, adverse publicity, decreased revenues and loss of distributors and endorsers. We also cannot be assured that theseoutside manufacturers will continue to supply wellness products to us reliably in the compositions we require. Any of these failures or occurrences couldnegatively affect our wellness products business and financial performance. If the wellness products we sell do not have the healthful effects intended, our wellness products business may suffer. In general, our wellness products sold consist of nutritional supplements, which are classified in the United States as “dietary supplements” which do notcurrently require approval from the FDA or other regulatory agencies prior to sale. Although many of the ingredients in such wellness products are vitamins,minerals, herbs and other substances for which there is a long history of human consumption, they contain innovative ingredients or combinations ofingredients. Although we believe all of such wellness products and the combinations of ingredients in them are safe when taken as directed, there is littlelong-term experience with human or other animal consumption of certain of these ingredients or combinations thereof in concentrated form. The wellnessproducts could have certain side effects if not taken as directed or if taken by a consumer that has certain medical conditions. Furthermore, there can be noassurance that any of the wellness products, even when used as directed, will have the effects intended or will not have harmful side effects. RISKS ASSOCIATED WITH REGULATIONS The restrictions on ownership of multiple radio stations in each market may prevent us from implementing our broadcasting market cluster strategy. We seek to acquire additional radio stations in markets in which we already have existing stations. Our ability to acquire, operate and integrate any suchfuture acquisitions as part of a cluster is limited by antitrust laws, the Communications Act, FCC regulations and other applicable laws and regulations.Changes to any of these laws or regulations may affect our ability to acquire additional stations in radio markets where we already own one (1) or more radiostation(s). In 1996, Congress passed legislation that requires the FCC to periodically conduct reviews of its regulations, including those which govern themaximum number of radio stations an entity may own or have joint arrangements with relating to programming, advertising sales and station operations (the“Ownership Limits”). The FCC has adopted radio multiple ownership rules that depend upon the total number of radio stations located in the market indetermining the applicable Ownership Limits. In 2003, the FCC modified its definition of the term “market” and its method of determining the number ofradio stations located in a “market.” Specifically, in larger markets, the FCC replaced its “signal contour method” of defining a market and determining thenumber of radio stations located in the market with the use of “geographic markets” delineated by Nielsen, which is a commercial ratings service, as reportedin the BIA database, as issued by BIA/Kelsey, a research and advisory company focused on the local advertising marketplace. For smaller radio markets forwhich Nielsen has not delineated a geographic market, the “signal contour method” continues to be the method of defining the market and determining thenumber of radio stations in the market. The methods the FCC uses to define markets affect the number of radio stations an entity may own or have jointarrangements with relating to programming, advertising sales and station operations in areas adjacent to a delineated Nielsen market. 35 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In 2010, the FCC opened a new phase of rulemaking concerning its broadcast ownership rules. The FCC sought public comments on the existing rules,including arguments and factual data on their impact on competition, localism, and diversity and held public meetings around the country on the issue ofmedia ownership rules. The FCC 2010 quadrennial review of broadcast ownership rules is ongoing and has been consolidated into the FCC’s 2014quadrennial review of broadcast ownership rules, which commenced in spring of 2014. The local radio ownership rule, the radio/television cross-ownershiprule and newspaper/broadcast cross-ownership rule are among the broadcast ownership rules being considered in the 2010 and 2014 quadrennial reviews. TheFCC has instructed its Media Bureau to complete the combined 2010 and 2014 reviews by June 30, 2016. We cannot predict the impact of possible modifications to the FCC’s local radio multiple ownership rules on our business operations. Likewise, wecannot predict whether there will be a change in the antitrust laws, Communications Act or other laws governing the ownership or operation of radio stations,or whether the FCC, DOJ or FTC will modify their regulations and policies governing or affecting the acquisition of additional radio stations in a market. Inaddition, we cannot predict whether a private party will challenge acquisitions we propose in the future. These events could adversely affect our ability toimplement our cluster acquisition strategy. Government regulation of the broadcasting industry by the FTC, DOJ and FCC may limit our ability to acquire or dispose of radio stations and enter intocertain agreements. The Communications Act and FCC rules and policies require prior FCC approval for transfers of control of, and assignments of, FCC broadcast licenses.The FTC and the DOJ evaluate transactions to determine whether those transactions should be challenged under federal antitrust laws. As we have gained apresence in a greater number of markets and percentage of the top 50 markets, our future proposed transactions may be subject to more frequent andaggressive review by the FTC and/or the DOJ due to market concentration concerns. This increased level of review may be accentuated in instances where wepropose to engage in a transaction with parties who themselves have multiple stations in the relevant market. The FCC might not approve a proposed radiostation acquisition or disposition when the DOJ has expressed market concentration concerns with respect to the buy or sell side of a given transaction, evenif the proposed transaction would otherwise comply with the FCC’s numerical limits on in-market ownership. We cannot be sure that the DOJ or the FTC willnot seek to prohibit or require the restructuring of our future acquisitions or dispositions on these or other bases. If a complaint was filed against us or other FCC licensees involved in a transaction with us, or an objection to the transaction itself, the FCC could delaythe grant of, or refuse to grant, its consent to an assignment or transfer of control of licenses and effectively prohibit a proposed acquisition or disposition. As noted in the immediately preceding risk factor, the FCC’s local radio multiple ownership rules limit the maximum number of stations we may own oroperate in a market. This may limit our ability to make future radio station acquisitions in certain markets. Additionally, this may limit our ability, in certainmarkets, to enter into agreements whereby we provide programming to or sell advertising on radio stations that we do not own. It could also limit our abilityto sell stations to other entities that already own stations in some markets. We may be adversely affected by statutes dealing with indecency. The Broadcast Decency Enforcement Act of 2005 enhances the FCC’s enforcement of its rules concerning the broadcast of obscene, indecent, or profanematerial became law in 2006. This legislation increased the FCC’s authority in this area to impose substantially higher monetary forfeiture penalties, up to$325,000 per violation and a total of $3,000,000 for any one (1) incident. While we do not anticipate these increased penalties to impact us as significantlyas some of our competitors given the nature of our programming, we could face increased costs in the form of fines as a result of this legislation. We may be subject to fines and other penalties related to violations of FCC indecency rules and other FCC rules and policies, the enforcement of whichhas increased in recent years, and complaints related to such violations may delay our renewal applications with the FCC. We provide live news reporting that is controlled by our on-air news talent. Although our on-air talent have been professional and careful in what theysay, there is always the possibility that information may be reported that is inaccurate or even in violation of certain indecency rules promulgated by theFCC. If we fail to maintain our broadcast licenses with the FCC, we would be prevented from operating affected radio stations. We operate each of our radio stations pursuant to one or more FCC broadcast licenses, generally of eight years’ duration. As each license expires, weapply for renewal of the license. However, we cannot be sure that any of our licenses will be renewed, and renewal is subject to challenge by third parties or todenial by the FCC. In evaluating a broadcast license renewal application, the FCC must grant the renewal if: (1) the station has served the public interest,convenience and necessity; (2) there have been no serious violations of the Communications Act or the FCC’s rules; and (3) there have been no otherviolations which, taken together, constitute a pattern of abuse. If, however, the station fails to meet these standards, the FCC may deny the application, afternotice and an opportunity for a hearing, or grant the application on terms and conditions that are appropriate, including renewal for less than the maximumterm otherwise allowed. The failure to renew any of our licenses would prevent us from operating the affected station and generating revenue from it. If theFCC decides to include conditions or qualifications in any of our licenses, we may be limited in the manner in which we may operate the affected station. 36 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Proposed legislation requires radio broadcasters to pay higher royalties to record labels and recording artists. We must maintain music programming royalty arrangements with, and pay license fees to, Broadcast Music, Inc. (“BMI”), American Society ofComposers, Authors and Publishers (“ASCAP”), and SESAC, Inc. These organizations negotiate with copyright users, collect royalties and distribute them tosongwriters and music publishers. Currently, we pay royalties to song composers and publishers through BMI, ASCAP and SESAC. On April 15, 2015, legislation was introduced to Congress under the Fair Pay Act that would require terrestrial radio broadcasters to pay a royalty torecord labels and performing artists for use of their recorded songs. The proposed legislation would add an additional layer of royalties to be paid directly tothe record labels and artists. As of the date of this filing, this bill has not been passed. It is currently unknown what proposed legislation, if any, will becomelaw, and what significance this royalty would have on our results from operations, cash flows or financial position. Changes in regulations or user concerns regarding privacy and protection of user data, or any failure to comply with such laws, could diminish the valueof our services and cause us to lose customers and revenue. When a user visits our websites or certain pages of our customers' websites, we use technologies, including "cookies," to collect information related to theuser, such as the user's Internet Protocol, or IP, address, demographic information, and history of the user's interactions with advertisements previouslydelivered by us. The information that we collect about users helps us deliver appropriate content and targeted advertising to the user. A variety of federal,state and international laws and regulations govern the collection, use, retention, sharing and security of data that we receive from and about our users. Theexisting privacy-related laws and regulations are evolving and subject to potentially differing interpretations. We post privacy policies on all of our ownedand operated websites that set forth our policies and practices related to the collection and use of customer data. Any failure, or perceived failure, by us tocomply with our posted privacy policies or with industry standards or laws or regulations could result in a loss of customer confidence in us, or result inactions against us by governmental entities or others, all of which could potentially cause us to lose customers and revenues. In addition, various federal, state and foreign legislative and regulatory bodies may expand current or enact new laws regarding privacy matters. Newlaws may be enacted, or existing laws may be amended or re-interpreted, in a manner that limits our ability to analyze user data. If our access to user data islimited through legislation or any industry development, we may be unable to provide effective technologies and services to customers and we may losecustomers and revenue. Certain U.S. and foreign laws could subject us to claims or otherwise harm our business. We are subject to a variety of laws in the U.S. and abroad that may subject us to claims or other remedies. Our failure to comply with applicable laws maysubject us to additional liabilities, which could adversely affect our business, financial condition and results of operations. In addition to laws andregulations that are described elsewhere in the risk factors, laws and regulations that are particularly relevant to our business address (a) privacy; (b) freedomof expression; (c) information security; (d) content and distribution of content, including liability for user reliance on such content; (e) intellectual propertyrights, including secondary liability for infringement by others; (f) domain name registration; and (g) online advertising and marketing, including emailmarketing and unsolicited commercial email. Many applicable laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues of the Internet. Moreover, theapplicability and scope of the laws that do address the Internet remain uncertain. For example, the laws relating to the liability of providers of online servicesare evolving. Claims have been either threatened or filed against us under both U.S. and foreign laws for defamation, copyright infringement and trademarkinfringement. In the future, claims may also be alleged against us based on tort claims and other theories based on our content, products and services orcontent generated by our users. We receive, process and store large amounts of personal user data on our owned and operated websites and from our freelance content creators. Ourprivacy and data security policies govern the collection, use, sharing, disclosure and protection of this data. The storing, sharing, use, disclosure andprotection of personal information and user data are subject to federal, state and international privacy laws, the purpose of which is to protect the privacy ofpersonal information that is collected, processed and transmitted in or from the governing jurisdiction. If requirements regarding the manner in which certainpersonal information and other user data are processed and stored change significantly, our business may be adversely affected, impacting our financialcondition and results of operations. In addition, we may be exposed to potential liabilities as a result of differing views on the level of privacy required forcustomer and other user data we collect. Our failure or the failure of various third-party vendors and service providers to comply with applicable privacypolicies or applicable laws and regulations or any compromise of security that results in the unauthorized release of personal information or other user datacould adversely affect our business, financial condition and results of operations. 37 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Government regulation of the Internet is evolving, and unfavorable developments could have a material and adverse affect on our operating results. We are subject to general business regulations and laws, as well as regulations and laws specific to the Internet. Such laws and regulations cover taxation,user privacy, data collection and protection, copyrights, electronic contracts, sales procedures, automatic subscription renewals, credit card processingprocedures, customer protections, broadband Internet access and content restrictions. We cannot guarantee that we have been or will be fully compliant inevery jurisdiction, as it is not entirely clear how existing laws and regulations governing issues such as privacy, taxation and consumer protection apply tothe Internet. Moreover, as Internet commerce continues to evolve, increasing regulation by federal, state and foreign agencies becomes more likely. Theadoption of any laws or regulations that adversely affect the popularity or growth in use of the Internet, including laws limiting Internet neutrality, coulddecrease listener demand for our service offerings and increase our cost of doing business. Future regulations, or changes in laws and regulations or theirexisting interpretations or applications, could also hinder our operational flexibility, raise compliance costs and result in additional historical or futureliabilities for us, resulting in material and adverse impacts on our business and our operating results. Environmental, health, safety and land use laws and regulations may limit or restrict some of our operations. We must comply with various federal, state and local environmental, health, safety and land use laws and regulations that have a tendency to affectbroadcast facilities differently than other uses. We are subject to such laws and regulations relating to the use, storage, disposal, emission and release ofhazardous and non-hazardous substances and employee health and safety, as well as zoning restrictions that may affect, among other things, the ability for usto improve or relocate our radio broadcasting facilities. Historically, we have not incurred significant expenditures to comply with these laws; however,existing laws, and those that may be applied in the future, or a finding of a violation of such laws or liability, could require us to make significantexpenditures and otherwise limit or restrict some of our operations. We are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints, which can makecompliance for our wellness business costly and subject us to enforcement actions by governmental agencies. The processing, formulation, safety, manufacturing, packaging, labeling, advertising and distribution of our wellness products are subject to federal lawsand regulation by one or more federal agencies, including the FDA, the FTC, the CPSC, the USDA, and the EPA. These activities are also regulated by variousstate, local and international laws and agencies of the states and localities in which our wellness products are sold. Government regulations may prevent ordelay the introduction, or require the reformulation, of our wellness products, which could result in lost revenues and increased costs to us. For instance, theFDA regulates, among other things, the composition, safety, manufacture, labeling and marketing of dietary supplements (including vitamins, minerals,herbs, and other dietary ingredients for human use). The FDA may not accept the evidence of safety for any new dietary ingredient that we may wish tomarket, may determine that a particular dietary supplement or ingredient presents an unacceptable health risk based on the required submission of seriousadverse events or other information, and may determine that a particular claim or statement of nutritional value that we use to support the marketing of adietary supplement is an impermissible drug claim, is not substantiated, or is an unauthorized version of a "health claim." Any of these actions could prevent us from marketing particular wellness products or making certain claims or statements with respect to those wellnessproducts. The FDA could also require us to remove a particular wellness product from the market. Any future recall or removal would result in additionalcosts to us, including lost revenues from any wellness product that we are required to remove from the market, any of which could be material. Any wellnessproduct recalls or removals could also lead to an increased risk of litigation and liability, substantial costs, and reduced growth prospects. Additional or more stringent laws and regulations of dietary supplements and other wellness products have been considered from time to time. Thesedevelopments could require reformulation of some wellness products to meet new standards, recalls or discontinuance of some wellness products not able tobe reformulated, additional record-keeping requirements, increased documentation of the properties of some wellness products, additional or differentlabeling, additional scientific substantiation, or other new requirements. Any of these developments could increase our costs significantly. 38 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our failure to comply with FTC regulations could result in substantial monetary penalties and could adversely affect our business, financial condition andresults of operations. The FTC exercises jurisdiction over the advertising of wellness products and has instituted numerous enforcement actions against dietary supplementcompanies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims. Our failure tocomply with FTC regulations could result in substantial monetary penalties and could adversely affect our business, financial condition and results ofoperations. RISKS ASSOCIATED WITH OUR SUBSTANTIAL INDEBTEDNESS Capital requirements necessary to implement acquisitions could pose risks. We face competition from other companies for acquisition opportunities. If the prices sought by sellers of these companies were to rise, we may findfewer acceptable acquisition opportunities. In addition, the purchase price of possible acquisitions could require additional debt or equity financing on ourpart. Since the terms and availability of this financing depend to a large degree upon general economic conditions and third parties over which we have nocontrol, we can give no assurance that we will obtain the needed financing or that we will obtain such financing on attractive terms. In addition, our ability toobtain financing depends on a number of other factors, many of which are also beyond our control, such as interest rates and national and local businessconditions. If the cost of obtaining needed financing is too high or the terms of such financing are otherwise unacceptable in relation to the acquisitionopportunity we are presented with, we may decide to forego that opportunity. Additional indebtedness could increase our leverage and make us morevulnerable to economic downturns and may limit our ability to withstand competitive pressures. If we are not able to obtain financing or generate sufficient cash flows from operations, we may be unable to fund future acquisitions. We may require significant financing to fund our acquisition strategy, which may not be available to us. The availability of funds under our existingsenior secured credit facility at any time is dependent upon, among other factors, our ability to satisfy financial covenants. Our future operating performancewill be subject to financial, economic, business, competitive, regulatory and other factors, many of which are beyond our control. Accordingly, we cannotmake any assurances that our future cash flows or borrowing capacity will be sufficient to allow us to complete future acquisitions or implement our businessplan, which could have a material negative impact on our business and results of operations. We have substantial debt and have the ability to incur additional debt. The principal and interest payment obligations of such debt may restrict our futureoperations and impair our ability to meet our obligations under such debt. At December 31, 2015, we and our subsidiary guarantors had approximately $274.0 million outstanding on our Term Loan B and $3.3 million on ourrevolving credit facility (“Revolver”) with Wells Fargo Bank. Our substantial debt may have important consequences. For instance, it could: ·make it more difficult for us to satisfy our financial obligations;·require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, whichwill reduce funds available for other business purposes, including capital expenditures, acquisitions and payment of dividends;·place us at a competitive disadvantage compared with some of our competitors that may have less debt and better access to capital resources; and·limit our ability to obtain additional financing required to fund working capital and capital expenditures and for other general corporatepurposes. Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on economic, financial, competitiveand other factors, many of which are beyond our control. Our business may not generate sufficient cash flow, and future financings may not be available toprovide sufficient net proceeds, to meet these obligations or to successfully execute our business or acquisition strategies. The agreements governing our various debt obligations impose restrictions on our business and could adversely affect our ability to undertake certaincorporate actions. The agreements governing our debt obligations, including the agreements governing our Term Loan B and Revolver, include covenants imposingsignificant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage ofpotential business opportunities as they arise. These covenants place restrictions on our ability to, among other things: ·incur additional debt; 39 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·declare or pay dividends, redeem stock or make other equity distributions to stockholders;·make investments;·create liens or use assets as security in other transactions;·merge or consolidate, or sell, transfer, lease or dispose of all or substantially all of our assets;·engage in transactions with affiliates; and·sell or transfer assets. Our Term Loan B and our Revolver also require us to comply with a number of financial ratios and covenants and restricts our ability to make certaincapital expenditures. Our ability to comply with these agreements may be affected by events beyond our control, including prevailing economic, financial and industryconditions. These covenants could have an adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition orother corporate opportunities. The breach of any of these covenants or restrictions could result in a default under the Term Loan B and Revolver. An event ofdefault under any of our debt agreements could permit some of our lenders to declare all amounts borrowed from them to be immediately due and payable,together with accrued and unpaid interest, which could, in turn, trigger defaults under other debt obligations and the commitments of the lenders to makefurther extensions of credit under our Revolver could be terminated. If we were unable to repay debt to our lenders, or are otherwise in default under anyprovision governing our outstanding secured debt obligations, our secured lenders could proceed against us and the subsidiary guarantors and against thecollateral securing that debt. To service our indebtedness, we will require a significant amount of cash. However, our ability to generate cash depends on many factors beyond ourcontrol. Our ability to make payments on, and to refinance, our indebtedness, and to fund capital expenditures, will depend on our ability to generate cash in thefuture, which, in turn, is subject to general economic, financial, competitive, regulatory and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow from operations and we may not have available to us future borrowings in an amount sufficient toenable us to pay our indebtedness. In these circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. We may not beable to refinance any of our indebtedness on commercially reasonable terms, or at all. Without this financing, we could be forced to sell assets or secureadditional financing to make up for any shortfall in our payment obligations under unfavorable circumstances. In addition, we may not be able to sell assetsquickly enough or for sufficient amounts to enable us to meet our obligations. ITEM 1B. UNRESOLVED STAFF COMMENTS. None. ITEM 2. PROPERTIES. We own or lease various properties throughout the United States from which we conduct business. No one physical property is material to our overallbusiness operations. We believe that each of our properties are in good condition and suitable for our operations; however, we continually evaluateopportunities to upgrade our properties. We believe that we will be able to renew existing leases when applicable or obtain comparable facilities, asnecessary. Corporate Our corporate headquarters are located in Camarillo, California where we own an approximately 40,000 square foot office building. Broadcasting The types of properties required to support our radio stations include offices, studios, transmitter, antenna and tower sites. A station’s studios aregenerally located in an office in a downtown or business district. Transmitter, antenna and tower sites are located in areas that provide maximum marketcoverage. We lease multiple properties throughout the United States from which we operate our radio stations and related facilities. Our SRN and SMR offices and Dallas radio stations are located in an office building in the Dallas, Texas metropolitan area, where we own anapproximately 34,000 square foot office building. We also own office buildings in Honolulu, Hawaii; Tampa, Florida; and Orlando, Florida. Our radionetwork operates from various offices and studios from which the programming originates or is relayed from a remote point of origination. Our network leasessatellite transponders used in the delivery of its programming. 40 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We lease certain property from our principal stockholders or trusts and partnerships created for the benefit of the principal stockholders and theirfamilies. These leases are described in Note 11 in the notes to our consolidated financial statements contained in Item 8 of this annual report on Form 10-K.All such leases have cost of living adjustments. Based upon our management’s assessment and analysis of local market conditions for comparable properties,we believe such leases have terms that are as favorable as, or more favorable, to the company than those that would have been available from unaffiliatedparties. The lease agreements range from one to thirty years remaining on the lease term. Digital Media The types of properties required to support our digital media operations include office buildings and data storage centers. Salem Web Network, includingTownhall, operates from leased office facilities in Richmond, Virginia; Arlington, Virginia; and Nashville, Tennessee. Eagle Financial Publications operatefrom leased offices in Washington D.C. Eagle Wellness and Gene Smart operate from leased offices in Washington D.C with inventory fulfillment handled bya third party in New Holland, Pennsylvania. Salem Consumer Products operates from our corporate office in Camarillo, California. The lease agreementsrange from one to six years remaining on the lease term. Publishing Salem Publishing and Xulon Press operate from leased office facilities in Nashville, Tennessee, Washington D.C. and Orlando, Florida. RegneryPublishing operates from leased facilities in Washington, D.C. with inventory fulfillment handled through a third party in Jackson, Tennessee. The leaseagreements range from one to four years remaining on the lease term. ITEM 3. LEGAL PROCEEDINGS. We and our subsidiaries, incident to our business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims. Suchmatters are subject to many uncertainties and outcomes that are not predictable with assurance. We maintain insurance that may provide coverage for suchmatters. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters.We believe, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon our annualconsolidated financial position, results of operations or cash flows. ITEM 4. MINE AND SAFETY DISCLOSURES. Not Applicable. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES. Our Class A common stock trades on the NASDAQ Global Market® (“NASDAQ-NGM”) under the symbol SALM. On February 26, 2016, the companyhad approximately 46 stockholders of record (not including the number of persons or entities holding stock in nominee or street name through variousbrokerage firms) and 19,928,484 outstanding shares of its Class A common stock and two stockholders of record and 5,553,696 outstanding shares of itsClass B common stock. The following table sets forth for the fiscal quarters indicated the range of high and low sale price information per share of the Class Acommon stock of the company as reported on the NASDAQ-NGM. 2014 2015 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr High (mid-day) $10.34 $10.15 $9.83 $11.00 $7.97 $6.75 $6.85 $6.50 Low (mid-day) $8.15 $7.89 $5.04 $6.72 $5.50 $4.38 $5.26 $4.53 There is no established public trading market for the company’s Class B common stock. DIVIDEND POLICY Our dividend policy is based upon our Board of Directors’ current assessment of our business and the environment in which we operate. The actualdeclaration of any future equity distributions and the establishment of the per share amount, record dates, and payment dates are subject to finaldetermination by our Board of Directors and dependent upon future earnings, cash flows, financial requirements, and other factors. The reduction orelimination of equity distributions may negatively affect the market price of our common stock. 41 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following table shows quarterly equity distributions that have been declared and paid to all stockholders of record of our Class A and Class Bcommon stock during the years ending December 31, 2015 and 2014. Announcement Date Record Date Payment Date Amount Per Share Cash Distributed(in thousands) December 1, 2015 December 15, 2015 December 29, 2015 $0.0650 $1,656 September 1, 2015 September 16, 2015 September 30, 2015 $0.0650 $1,655 June 2, 2015 June 16, 2015 June 30, 2015 $0.0650 $1,654 March 5, 2015 March 17, 2015 March 31, 2015 $0.0650 $1,647 December 2, 2014 December 15, 2014 December 29, 2014 $0.0650 $1,646 September 2, 2014 September 16, 2014 September 30, 2014 $0.0625 $1,579 May 27, 2014 June 16, 2014 June 30, 2014 $0.0600 $1,514 March 6, 2014 March 17, 2014 March 31, 2014 $0.0575 $1,444 While we intend to review equity distributions payments on a quarterly basis, the actual declaration of such future equity distributions and theestablishment of the per share amount, record dates, and payment dates are subject to final determination by our Board of Directors and dependent uponfuture earnings, cash flows, financial requirements, and other factors. The current policy of the Board of Directors is to review each of these factors on aquarterly basis to determine the appropriate amount, if any, to allocate toward a cash distribution with the general principle of using approximately 20% offree cash flow. Free cash flow is a non-GAAP financial measure defined in Item 2, Management’s Discussion and Analysis of Financial Condition and Resultsof Operations included with this annual report on Form 10-K. Based on the number of shares of Class A and Class B common stock currently outstanding, and the currently approved distribution amount, we expectto pay total annual equity distributions of approximately $6.6 million in 2016. Our sole source of cash available for making any future equity distributions is our operating cash flow subject to our Term Loan B and Revolver, whichcontain covenants that restrict the payment of dividends and equity distributions unless certain specified conditions are satisfied. STOCK PRICE PERFORMANCE GRAPH The graph below compares the cumulative total stockholder return of the our Class A common stock with the cumulative total return of the NASDAQ –NMS equity index and the Bloomberg Broadcast and Cable Radio Index for a five year period commencing December 31, 2010 and ending December 31,2015. Our Class B common stock is not publicly traded and is not registered. The graph assumes that the value of an investment in our Class A common stockand each index was $100 on December 31, 2010 and that any dividends were reinvested. Stockholder returns over the indicated period are not indicative offuture stockholder returns. The stock price performance graph above shall not be deemed incorporated by reference by any general statement incorporating by reference this reportinto any filing under the Securities Act or the Exchange Act, except to the extent that the company specifically incorporates this information by referenceand shall not otherwise be deemed filed under such Acts. 42 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. ITEM 6. SELECTED FINANCIAL DATA. The selected financial data below as of and for the years ended December 31, 2015 and December 31, 2014, is derived from our audited consolidatedfinancial statements included in Item 8 of this annual report on Form 10-K. The selected financial data as of and for the years ended December 31, 2013,December 31, 2012 and December 31, 2011 is derived from our audited financial statements not included herein. The selected financial data should be readin conjunction with, and is qualified by reference to, our consolidated financial statements, related notes, other financial information included (incorporatedby reference) herein, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including the disclosureconcerning the reconciliation for historical Non-GAAP financial measures presented in “Management’s Discussion and Analysis of Financial Condition andResults of Operations–Non-GAAP Financial Measures” included in Item 7 of this annual report on Form 10-K. Certain reclassifications have been made to prior year financial data to conform to the current year presentation. These reclassifications include: (1) theseparation of our non-broadcast operating segment into two operating segments as of the first quarter of 2011, (2) the reporting of discontinued operations,(3) the reclassification of direct broadcast, direct digital and direct publishing expenses from corporate expenses to the appropriate segment, and (4) thechange in composition of our operating segments as of December 2014 to conform to how our chief operating decision makers, which we define as acollective group of senior executives, assesses the performance of each operating segment and determines the appropriate allocations of resources to eachsegment. We have two reportable segments, radio broadcasting and digital media. Digital media (formerly “Internet and e-commerce”) became a reportablesegment as of the first quarter of 2011 upon the realization of organic and acquisition-related revenue growth. Our acquisition of Eagle Publishing on January10, 2014, including Regnery Publishing, Eagle Financial Publications, Eagle Wellness, HumanEvents.com and RedState.com, resulted in operationalchanges to our business and a realignment of our operating segments. We now have three operating segments: (1) Broadcasting, (2) Digital Media, and (3)Publishing. We changed the composition of our operating segments to reflect management’s view of the operating results for each segment. All prior periods presented are updated to reflect the new composition of our operating segments. Refer to Note 17 – Segment Data in the notes to ourconsolidated financial statements contained in Item 8 of this annual report on Form 10-K for additional information. Note that our financial results are notcomparable from year to year due to acquisitions and dispositions of radio stations and other assets, impairments and other significant events: Year Ended December 31, 2011 2012 2013 2014 2015 (Dollars in thousands, except share and per share data) Statement of Operations Data: Net broadcast revenue $182,487 $187,640 $188,544 $192,923 $196,090 Net digital media revenue 22,887 28,166 35,156 46,862 45,855 Net publishing revenue 12,792 13,373 13,234 26,751 23,842 Total revenue 218,166 229,179 236,934 266,536 265,787 Operating expenses: Broadcast operating expenses 119,602 126,514 129,857 138,564 140,230 Digital media operating expenses 19,568 22,848 25,741 36,232 35,969 Publishing operating expenses 12,344 13,339 14,280 26,143 24,774 Unallocated corporate expenses 13,835 14,396 16,081 17,092 15,146 Depreciation and amortization 14,971 14,647 15,262 18,825 17,741 Change in the estimated fair value of contingentearn-out consideration — — — 734 (1,715)Impairment of indefinite-lived long-term assetsother than goodwill — 88 1,006 34 — Impairment of goodwill — — 438 45 439 Impairment of long-lived assets — 6,808 — — — (Gain) loss on the sale or disposal of assets (4,153) 49 (264) 251 181 Total operating expenses 176,167 198,689 202,401 237,920 232,765 Operating income from continuing operations 41,999 30,490 34,533 28,616 33,022 Other income (expense): Interest income 344 106 68 45 8 Interest expense, net of capitalized interest (27,665) (24,911) (16,892) (15,993) (15,429)Change in fair value of interest rate swaps — — 3,177 (2,702) (1,273)Gain on bargain purchase — — — — 1,357 Loss on early retirement of long-term debt (2,169) (1,088) (27,795) (391) (41)Net miscellaneous income and (expenses) (40) 79 18 665 201 Total other expense, net (29,530) (25,814) (41,424) (18,376) (15,177)Income from continuing operations before incometaxes 12,469 4,676 (6,891) 10,240 17,845 Provision for (benefit from) income taxes 6,110 153 (4,192) 4,765 6,695 Income (loss) from continuing operations 6,359 4,523 (2,699) 5,475 11,150 Loss from discontinued operations, net of tax (741) (95) (37) — — Net income (loss) $5,618 $4,428 $(2,736) $5,475 11,150 Basic earnings (loss) per share data: Earnings (loss) per share from continuing operations $0.26 $0.18 $(0.11) $0.21 $0.43 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Loss per share from discontinued operations (0.03) — — — — Net earnings (loss) per share $0.23 $0.18 $(0.11) $0.21 $0.43 Diluted earnings (loss) per share data: Earnings (loss) per share from continuing operations $0.26 $0.18 $(0.11) $0.21 $0.43 Loss per share from discontinued operations (0.03) — — — — Net earnings (loss) per share $0.23 $0.18 $(0.11) $0.21 $0.43 Dividends per share $― $0.14 $0.21 $0.24 $0.26 Basic weighted average shares outstanding 24,475,102 24,577,605 24,938,075 25,336,809 25,426,732 Diluted weighted average shares outstanding 24,683,644 24,986,966 24,938,075 26,081,175 25,877,819 43 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year Ended December 31, 2011 2012 2013 2014 2015 (Dollars in thousands) Balance Sheet Data: Cash and cash equivalents $67 $380 $65 $33 $98 Broadcast licenses 371,420 373,720 381,836 385,726 393,031 Other intangible assets, net including goodwill 28,522 33,009 32,035 37,912 36,877 Total assets 561,310 562,181 575,113 583,159 597,375 Long-term debt (including current portion) 274,803 268,980 290,793 277,505 277,116 Stockholders’ equity 203,048 206,069 201,785 203,994 209,821 Cash flows related to: Operating activities $31,757 $31,077 $28,735 $41,925 $36,130 Investing activities (4,511) (19,066) (17,737) (21,734) (29,183)Financing activities (28,126) (11,697) (11,276) (20,223) (6,882)Non-GAAP Financial Measures: Station operating income (1) $62,885 $61,126 $58,687 $54,359 $55,860 Station operating income margin (2) 34.5% 32.6% 31.1% 28.2% 28.5%Digital media operating income (3) $3,319 $5,318 $9,415 $10,630 $9,886 Publishing operating income (loss) (4) $448 $34 $(1,046) $608 $(932)Adjusted EBITDA (5) $53,767 $53,450 $52,824 $50,081 $50,439 Free Cash Flow (6) $19,966 $21,233 $25,300 $25,943 $26,987 (1)We define non-GAAP station operating income as net broadcast revenue less broadcast operating expenses.(2)Non-GAAP station operating income margin is station operating income as a percentage of net broadcast revenue.(3)We define non-GAAP digital media operating income as net digital media revenue minus digital media operating expenses.(4)We define non-GAAP publishing operating income as net publishing revenue minus publishing operating expenses.(5)We define Non-GAAP Adjusted EBITDA as net income before interest, taxes, depreciation, amortization and change in fair value of interest rate swaps(“EBIDTA”) before gains or losses on the disposal of assets, changes in the estimated fair value of contingent earn-out consideration, net miscellaneousincome and expense, and non-cash compensation expense. (6)We define Non-GAAP free cash flow as Adjusted EBITDA less cash paid for capital expenditures, less cash paid for income taxes, and less cash paid forinterest. 44 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NON-GAAP FINANCIAL MEASURES Management uses certain non-GAAP financial measures defined below in communications with investors, analysts, rating agencies, banks and others toassist such parties in understanding the impact of various items on our financial statements. We use these non-GAAP financial measures to evaluate financialresults, develop budgets, manage expenditures and as a measure of performance under compensation programs. Our presentation of these non-GAAP measures should not be considered as a substitute for or superior to the most directly comparable financial measuresas reported in accordance with GAAP. Regulation G and Item 10© of Regulation S-K define and prescribe the conditions under which certain non-GAAP financial information may bepresented. We closely monitor EBITDA, Adjusted EBITDA, Station Operating Income (“SOI”), Digital media operating income, publishing operatingincome, and free cash flow, all of which are non-GAAP financial measures. We believe that these non-GAAP financial measures provide useful informationabout our core operating results, and thus, are appropriate to enhance the overall understanding of our financial performance. These non-GAAP measures areintended to provide management and investors a more complete understanding of our underlying financial results, operational results, trends andperformance. The performance of a radio broadcasting company is customarily measured by the ability of its stations to generate SOI. We define SOI as net broadcastrevenue less broadcast operating expenses. Accordingly, changes in net broadcast revenue and broadcast operating expenses, as explained above, have adirect impact on changes in SOI. SOI is not a measure of performance calculated in accordance with GAAP. SOI should be viewed as a supplement to and nota substitute for our results of operations presented on the basis of GAAP. We believe that SOI is a useful non-GAAP financial measure to investors, whenconsidered in conjunction with operating income (the most directly comparable GAAP financial measure to SOI), because it is generally recognized by theradio broadcasting industry as a tool in measuring performance and in applying valuation methodologies for companies in the media, entertainment andcommunications industries. SOI is commonly used by investors and analysts who report on the industry to provide comparisons between broadcastinggroups. We use SOI as one of the key measures of operating efficiency and profitability, including our internal reviews associated with impairment analysis ofour indefinite-lived intangible assets. SOI does not purport to represent cash provided by operating activities. Our statement of cash flows presents our cashactivity in accordance with GAAP and our income statement presents our financial performance prepared in accordance with GAAP. Our definition of SOI isnot necessarily comparable to similarly titled measures reported by other companies. Same station operating results include those stations that we own or operate in the same format on the first and last day of each quarter as well as thecorresponding quarter of the prior year. Same station results for a full calendar year are calculated as the sum of the same station-results for each of the fourquarters of that year. Same station results for our annual report are calculated as the sum of the same station-results for each of the four quarters of that year.We use same station results, a non-GAAP financial measure, both in presenting our results to stockholders and the investment community, and in our internalevaluation and management of the business. Our presentation of same station results are not intended to be considered in isolation or as a substitute for thefinancial information prepared and presented in accordance with GAAP. Our definition of same station operating results is not necessarily comparable tosimilarly titled measures reported by other companies. We apply a similar methodology to our digital media and publishing group. Digital media operating income is defined as net digital media revenueminus digital media operating expenses. Publishing operating income is defined as net publishing revenue minus publishing operating expenses. DigitalMedia Operating Income and Publishing Operating Income are not measures of performance in accordance with GAAP. Our presentations of these non-GAAPperformance measures are not to be considered a substitute for or superior to our operating results reported in accordance with GAAP. We believe that DigitalMedia Operating Income and Publishing Media Operating Income are useful non-GAAP financial measures to investors, when considered in conjunctionwith operating income (the most directly comparable GAAP financial measure), because they are comparable to those used to measure performance of ourbroadcasting entities. We use this analysis as one of the key measures of operating efficiency, profitability and in our internal review. This measurement doesnot purport to represent cash provided by operating activities. Our statement of cash flows presents our cash activity in accordance with GAAP and ourincome statement presents our financial performance in accordance with GAAP. Our definitions of digital media operating income and publishing operatingincome are not necessarily comparable to similarly titled measures reported by other companies. We define EBITDA as net income before interest, taxes, depreciation, amortization and change in fair value of interest rate swaps. We define AdjustedEBITDA as EBITDA before gains or losses on the sale or disposal of assets, changes in the estimated fair value of contingent earn-out consideration, netmiscellaneous income and expenses, and non-cash compensation expense. EBITDA and Adjusted EBITDA are commonly used by the broadcast and mediaindustry as important measures of performance and are used by investors and analysts who report on the industry to provide meaningful comparisons betweenbroadcasters. EBITDA and Adjusted EBITDA are not measures of liquidity or of performance in accordance with GAAP, and should be viewed as asupplement to and not a substitute for or superior to our results of operations and financial condition presented in accordance with GAAP. Our definitions ofEBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures reported by other companies. 45 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We define free cash flow as Adjusted EBITDA less cash paid for capital expenditures, less cash paid for income taxes, and less cash paid for interest. Weconsider free cash flow to be a performance measure that provides useful information to management and investors about the amount of cash generated by ouroperations after cash paid for capital expenditures, income taxes and interest. A limitation of free cash flow as a measure of financial performance is that itdoes not represent the total increase or decrease in our cash balance for the period. We use free cash flow, a non-GAAP financial measure, both in presentingour results to stockholders and the investment community, and in our internal evaluation and management of the business. Our presentation of free cash flowis not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Our definitionof free cash flow is not necessarily comparable to similarly titled measures reported by other companies. For all non-GAAP measures, investors should consider the limitations associated with these metrics, including the potential lack of comparability of thismeasure from one company to another. The table below shows the reconciliation of these non-GAAP performance indicators to net income (loss), the mostcomparable GAAP measure. Our presentation of these non-GAAP performance indicators are not to be considered a substitute for or superior to net income orloss as reported in accordance with GAAP. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES: Year Ended December 31, 2011 2012 2013 2014 2015 (Dollars in thousands) Calculation of Station Operating Income, DigitalMedia Operating Income and Publishing OperatingIncome (loss) Net broadcast revenue $182,847 $187,640 $188,544 $192,923 $196,090 Less broadcast operating expenses (119,602) (126,514) (129,857) (138,564) (140,230)Station operating income $62,885 $61,126 $58,687 $54,359 $55,860 Net digital media revenue $22,887 $28,166 $35,156 $46,862 $45,855 Less digital media operating expenses (19,568) (22,848) (25,741) (36,232) (35,969)Digital media operating income $3,319 $5,318 $9,415 $10,630 $9,886 Net publishing revenue $12,792 $13,373 $13,234 $26,751 $23,842 Less publishing operating expenses (12,344) (13,339) (14,280) (26,143) (24,774)Publishing operating income (loss) $448 $34 $(1,046) $608 $(932)Reconciliation of Station Operating Income, DigitalMedia Operating Income and Publishing OperatingIncome (loss) to Net Income (Loss) Station operating income $62,885 $61,126 $58,687 $54,359 $55,860 Digital media operating income $3,319 $5,318 $9,415 $10,630 $9,886 Publishing operating income (loss) $448 $34 $(1,046) $608 $(932)Less unallocated corporate expenses (13,835) (14,396) (16,081) (17,092) (15,146)Less depreciation and amortization (14,971) (14,647) (15,262) (18,825) (17,741)Less change in the estimated fair value of contingentearn-out consideration — — — (734) 1,715 Less impairment of indefinite-lived long-term assetsother than goodwill — (88) (1,006) (34) — Less impairment of goodwill — — (438) (45) (439)Less impairment of long-lived assets — (6,808) — — — Less gain (loss) on the sale or disposal of assets 4,153 (49) 264 (251) (181)Net operating income from continuing operations $41,999 $30,490 $34,533 $28,616 $33,022 Plus interest income 344 106 68 45 8 Less interest expense, net of capitalized interest (27,665) (24,911) (16,892) (15,993) (15,429)Less change in fair value of interest rate swaps ― ― 3,177 (2,702) (1,273)Less loss on early retirement of long-term debt (2,169) (1,088) (27,795) (391) (41)Less gain on bargain purchase ― ― ― ― 1,357 Less net miscellaneous income and (expenses) (40) 79 18 665 201 Less provision for (benefit from) income taxes (6,110) (153) 4,192 (4,765) (6,695)Less loss from discontinued operations (741) (95) (37) — — Net income (loss) $5,618 $4,428 $(2,736) $5,475 $11,150 Reconciliation of Adjusted EBITDA to EBITDA toNet Income (Loss) Adjusted EBITDA $53,767 $53,450 $52,824 $50,081 $50,439 Less non-cash stock-based compensation (950) (1,368) (1,849) (1,576) (771)Less net miscellaneous income and expenses (40) 79 18 665 201 Less loss on early retirement of long-term debt (2,169) (1,088) (27,795) (391) (41)Less discontinued operations, net of tax (741) (95) (37) — — Less change in the estimated fair value of contingentearn-out consideration — — — (734) 1,715 Less gain on bargain purchase — — — — 1,357 Less impairment of indefinite-lived long-term assetsother than goodwill — (88) (1,006) (34) — Less impairment of goodwill — — (438) (45) (439)Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Less impairment of long-lived assets — (6,808) — — — Less gain (loss) on the sale or disposal of assets 4,153 (49) 264 (251) (181)EBITDA $4,020 $4,033 $21,981 $47,715 $52,280 Plus interest income 344 106 68 45 8 Less depreciation and amortization (14,971) (14,647) (15,262) (18,825) (17,741)Less interest expense, net of capitalized interest (27,665) (24,911) (16,892) (15,993) (15,429)Less change in fair value of interest rate swaps ― ― 3,177 (2,702) (1,273)Less provision for (benefit from) income taxes (6,110) (153) 4,192 (4,765) (6,695)Net income (loss) $5,618 $4,428 $(2,736) $5,475 $11,150 Reconciliation of Adjusted EBITDA to Free CashFlow Adjusted EBITDA $53,767 $53,450 $52,824 $50,081 $50,439 Less cash paid for interest, net of capitalized interest (26,053) (23,448) (16,747) (14,518) (14,289)Less cash paid for taxes (226) (220) (242) (257) (330)Less net cash paid for capital expenditures (1) (7,522) (8,549) (10,535) (9,363) (8,833)Free Cash Flow $19,966 $21,233 $25,300 $25,943 $26,987 (1)Net cash paid for capital expenditures reflects actual cash payments net of amounts reimbursed for tenant improvements allowances. 46 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financialstatements and related notes included elsewhere in this annual report on Form 10-K. Our consolidated financial statements are not directly comparable fromperiod to period due to acquisitions and dispositions of selected radio station assets, Internet and publishing businesses. Refer to Note 3 of our consolidatedfinancial statements under Item 8 of this annual report on Form 10-K for details of each of these transactions. Salem Media Group, Inc. (“Salem”) is a domestic multi-media company with integrated operations including radio broadcasting, digital media, andpublishing. Effective as of February 19, 2015, we changed our name from Salem Communications Corporation to Salem Media Group, Inc. Salem was formedin 1986 as a California corporation and was reincorporated in Delaware in 1999. Our content is intended for audiences interested in Christian and family-themed programming and conservative news talk. We maintain a website at www.salemmedia.com. Our annual reports on Form 10-K, quarterly reports onForm 10-Q, current reports on Form 8-K, and any amendments to these reports are available free of charge through our website as soon as reasonablypracticable after those reports are electronically filed with or furnished to the SEC. Any information found on our website is not a part of or incorporated byreference into, this or any other report of the company filed with, or furnished to, the SEC. OVERVIEW We have two reportable segments, radio broadcasting and digital media. Digital media (formerly “Internet and e-commerce”) became a reportablesegment as of the first quarter of 2011 upon the realization of organic and acquisition-related revenue growth. Our acquisition of Eagle Publishing on January10, 2014, including Regnery Publishing, Eagle Financial Publications, Eagle Wellness, Human Events and Red State, resulted in operational changes to ourbusiness and a realignment of our operating segments. We now have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing. Wechanged the composition of our operating segments to reflect management’s view of the operating results for each segment. Our operating segments reflect how our chief operating decision makers, which we define as a collective group of senior executives, assesses theperformance of each operating segment and determines the appropriate allocations of resources to each segment. Our operating segments do not all meet thequantitative thresholds to qualify as reportable segments; however, we have elected to disclose the results of these non-reportable operating segments as webelieve this information is useful to readers of our financial statements. We continue to review our operating segment classifications to align with operationalchanges in our business and may make future changes as necessary. We measure and evaluate our operating segments based on operating income and operating expenses that do not include allocations of costs related tocorporate functions, such as accounting and finance, human resources, legal, tax and treasury; nor do they include costs such as amortization, depreciation,taxes or interest expense. Changes to our operating segments did not impact the reporting units used to test non-amortizable assets for impairment. All priorperiods presented are updated to reflect the new composition of our operating segments. Refer to Note 17 – Segment Data in the notes to our consolidatedfinancial statements contained in Item 8 of this annual report on Form 10-K for additional information. Our principal sources of broadcast revenues include: ·the sale of block program time to national and local program producers;·the sale of advertising time on our radio stations to national and local advertisers;·the sale of advertising time on our national network;·the syndication of programming on our national network;·the sale of banner advertisements on our station websites;·the sale of digital streaming on our station websites; and·revenue derived from station events, including ticket sales and sponsorships. The rates we are able to charge for broadcast time and advertising time are dependent upon several factors, including: ·audience share;·how well our stations perform for our clients;·the size of the market;·the number of impressions delivered;·the number of page views achieved; 47 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·the number of events held, the number of sponsorships sold, and the attendance for each event;·the general economic conditions in each market; and·supply and demand on both a local and national level. Our principal sources of digital media revenue (formerly Internet and e-commerce revenue) include: ·the sale of web-based or digital banner advertising;·the sale of digital streaming advertising;·the support and promotion to stream third-party content on our websites;·the demand for digital delivery of our newsletters and host materials;·product sales and royalties for on-air host materials;·the number of video and graphic downloads; and·the demand for our wellness products. Our principal sources of publishing revenue include: ·the sale of books and e-books;·subscription fees for our magazines;·the sale of print magazine advertising; and·publishing fees from authors. Broadcasting Our foundational business is the ownership and operation of radio stations in large metropolitan markets. We also own and operate Salem RadioNetwork® (“SRN”), SRN News Network (“SNN”), Salem Music Network (“SMN”), Today’s Christian Music (“TCM”), Singing News Network (formerly SolidGospel Network), and Salem Media RepresentativesTM (“SMR”). SRN, SNN, SMN and Singing News Network are networks that develop, produce andsyndicate a broad range of programming specifically targeted to Christian and family-themed talk stations, music stations and general News Talk stationsthroughout the United States, including Salem owned and operated stations. SMR, a national advertising sales firm with offices in 8 U.S. cities, specializes inplacing national advertising on religious and other commercial radio stations. As of December 2014, we merged Vista Media Representatives (“VMR”), ournational advertising sales firm established for non-Christian format stations, into SMR as our SMR and VMR sales teams consistently pursue advertising forall station formats. We currently program 42 of our stations with our Christian Teaching and Talk format, which is talk programming with Christian and family themes. Wealso program 31 News Talk stations, 13 Contemporary Christian Music stations, 13 Business format stations, and nine Spanish-language Christian Teachingand Talk stations. The business format features financial commentators, business talk, and nationally recognized Bloomberg programming. The businessformat operates similar to our Christian Teaching and Talk format as it features long-form block programming. Each of our radio stations has a websitespecifically designed for that station. Revenues generated from our radio stations are reported as broadcast revenue in our consolidated financial statements included in Item 8 of this annualreport on Form 10-K. Broadcast revenues are impacted by the rates radio stations can charge for programming and advertising time, the level of airtime soldto programmers and advertisers, the number of impressions delivered or downloads made, and the number of events held, including the size of the event andthe number of attendees. Block programming rates are based upon our stations’ ability to attract audiences that will support the program producers throughcontributions and purchases of their products. Advertising rates are based upon the demand for advertising time, which in turn is based on our stations andnetworks’ ability to produce results for their advertisers. We market ourselves to advertisers based on the responsiveness of our audiences. We do notsubscribe to traditional audience measuring services for most of our radio stations. In select markets, we subscribe to Nielsen Audio, which develops quarterlyreports measuring a radio station’s audience share in the demographic groups targeted by advertisers. Each of our radio stations and our networks has a pre-determined level of time available for block programming and/or advertising, which may vary at different times of the day. Nielsen Audio uses PPM technology to collect data for its ratings service. PPM is a small device that is capable of automatically measuring radio,television, Internet, satellite radio and satellite television signals encoded by the broadcaster. The PPM offers a number of advantages over traditional diaryratings collection systems, including ease of use, more reliable ratings data, shorter time periods between when advertising runs and actual listening data, andlittle manipulation of data by users. A disadvantage of the PPM includes data fluctuations from changes to the “panel” (a group of individuals holding PPMdevices). This makes all stations susceptible to some inconsistencies in ratings that may or may not accurately reflect the actual number of listeners at anygiven time. In markets where we subscribe to Nielsen Audio under the PPM, our ratings have been less consistent. 48 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. As is typical in the radio broadcasting industry, our second and fourth quarter advertising revenue generally exceeds our first and third quarteradvertising revenue. This seasonal fluctuation in advertising revenue corresponds with quarterly fluctuations in the retail advertising industry. Additionally,we experience increased demand for advertising during election years by way of political advertisements. Quarterly revenue from the sale of blockprogramming time does not tend to vary significantly because program rates are generally set annually and are recognized on a per program basis. Our cash flows from broadcasting are affected by transitional periods experienced by radio stations when, based on the nature of the radio station, ourplans for the market and other circumstances, we find it beneficial to change the station format. During this transitional period, when we develop a radiostation’s listener and customer base, the station may generate negative or insignificant cash flow. Trade or barter agreements are common in the broadcast industry. Our radio stations utilize barter agreements to exchange airtime for goods or services inlieu of cash. We enter barter agreements if the goods or services to be received can be used in our business or can be sold to our audience under ListenerPurchase Programs. We minimize the use of barter agreements with our general policy being not to preempt airtime paid for in cash for airtime sold under abarter agreement. In each of the years ending December 31, 2015, 2014 and 2013, we sold 97%, of our broadcast revenue for cash. Broadcast operating expenses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as rent andutilities, (iii) marketing and promotional expenses, (iv) production and programming expenses, and (v) music license fees. In addition to these expenses, ournetwork incurs programming costs and lease expenses for satellite communication facilities. Digital Media Web-based and digital content has been a significant growth area for Salem and continues to be a focus of future development. Salem Web Network™(“SWN”) and our other web based businesses provide Christian and conservative-themed content, audio and video streaming, and other resources digitallythrough the web. SWN’s web portals include Christian content websites: OnePlace.com, Christianity.com, Crosswalk.com®, GodVine.com, Jesus.org andBibleStudyTools.com. Our conservative opinion websites, collectively known as Townhall Media, include Townhall.com™, HotAir.com, Twitchy.com,HumanEvents.com and RedState.com. We also issue digital newsletters, including Eagle Financial Publications, that provide market analysis and investmentstrategies for individual subscribers from financial commentators. Church product websites including WorshipHouseMedia.com, SermonSpice.com, andChurchStaffing.com offer downloads and service platforms to pastors and other educators. Our web content is accessible through all of our radio stationwebsites that feature content of interest to local listeners throughout the United States. E-commerce sites include Salem Consumer Products (“SCP”), an e-commerce business that sells books, DVD’s and editorial content developed by ouron-air personalities, Eagle Wellness and Gene Smart, online sites offering complimentary health advice and sales of nutritional products. The revenues generated from this segment are reported as digital media revenue in our consolidated statements of operations included in this annualreport on Form 10-K. Digital media revenues are impacted by the rates our sites can charge for advertising time, the level of advertisements sold, the numberof impressions delivered or the number of downloads made, and the number digital subscriptions sold. Like our broadcasting segment, our second and fourthquarter advertising revenue generally exceeds our first and third quarter advertising revenue. This seasonal fluctuation in advertising revenue correspondswith quarterly fluctuations in the retail advertising industry. We also experience fluctuations in quarter over quarter comparisons based on the date in whichthe Easter holiday is observed, as this holiday generates a higher volume of video downloads from our church product sites. Additionally, we experienceincreased demand for advertising time and placement during election years for political advertisements. The primary operating expenses incurred in the ownership and operation of our Internet businesses include: (i) employee salaries, commissions andrelated employee benefits and taxes, (ii) facility expenses such as rent and utilities, (iii) marketing and promotional expenses, (iv) royalties, (v) streamingcosts, and (vi) cost of goods sold associated with SCP and Wellness products. Publishing Our acquisition of Regnery Publishing expanded our publishing operations to include book publishing in addition to print magazines and our self-publishing service. Regnery Publishing has published dozens of bestselling books by leading conservative authors and personalities, including Ann Coulter,Newt Gingrich, David Limbaugh, Ed Klein, Mark Steyn and Dinesh D'Souza. 49 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our publishing operating segment also includes Salem Publishing™ and Xulon Press. Salem Publishing™ produces and distributes numerous Christianand conservative opinion print magazines, including: Homecoming® The Magazine, YouthWorker Journal™, Singing News®, FaithTalk Magazine™, andPreaching Magazine™. Through December 2014, we also printed and produced Townhall Magazine™. Xulon Press™ is a print-on-demand self-publishingservice for Christian authors. Revenues generated from these entities are reported as publishing revenue in our consolidated financial statements included in Item 8 of this annualreport on Form 10-K. Publishing revenue is impacted by the retail price of books and e-books, the number of books sold, the number and retail price of e-books sold, the number and rate of print magazine subscriptions sold, the rate and number of pages of advertisements sold in each print magazine, and thenumber and rate at which self-published books are made. Regnery Publishing revenue has been impacted by elections as they generate higher levels ofinterest and demand for publications containing conservative and political based opinions. Operating expenses incurred by Salem Publishing™ include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facilityexpenses such as rent and utilities, (iii) marketing and promotional expenses, (iv) printing and production costs, including paper costs, (v) cost of goods sold,and (vi) inventory reserves. KNOWN TRENDS AND UNCERTAINTIES Although advertising revenues have stabilized following the decline that began in 2008, broadcast advertising revenue growth remains challenged. Weare particularly dependent on broadcast revenue from our Los Angeles and Dallas markets, which generated 12.0% and 12.8%, respectively, of our netbroadcasting revenue for the year ending December 31, 2015. Revenues from print magazines, including advertising revenue and subscription revenues, arechallenged both economically and by the increase in use of other mediums to deliver the information. Book sales are contingent upon overall economicconditions and our ability to attract and retain authors. Because digital media is a concentrated growth area for us, decreases in revenue streams from theseareas could affect our operating results, financial condition and results of operations. To address these issues, we continue to explore opportunities in whichwe can cross-promote our brand and our content, including our broadcast markets, digital media, Internet sites, mobile applications, and our printing andpublication media. KEY FINANCIAL PERFORMANCE INDICATORS – SAME STATION DEFINITION In the discussion of our results of operations below, we compare our broadcast operating results between periods on an as-reported basis, which includesthe operating results of all radio stations and networks owned or operated at any time during either period and on a “same-station” basis. Same stationoperating results include those stations that we own or operate in the same format on the first and last day of each quarter as well as the corresponding quarterof the prior year. Same station results for a full calendar year are calculated as the sum of the same station-results for each of the four quarters of that year.Same station results for our annual report are calculated as the sum of the same station-results for each of the four quarters of that year. We use same stationresults, a non-GAAP financial measure, both in presenting our results to stockholders and the investment community, and in our internal evaluation andmanagement of the business. Our presentation of same station results are not intended to be considered in isolation or as a substitute for the financialinformation prepared and presented in accordance with GAAP. Our definition of same station operating results is not necessarily comparable to similarlytitled measures reported by other companies. RESULTS OF OPERATIONS Year Ended December 31, 2015 compared to the year ended December 31, 2014 The following factors affected our results of operations and our cash flows for the year ended December 31, 2015 as compared to the prior year: Financing Throughout the year ending December 31, 2015, we repaid $2.0 million in principal on our current senior secured credit facility, consisting of a termloan of $300.0 million (“Term Loan B”) and paid interest through each repayment date. Equity Throughout the year ending December 31, 2015, we paid total equity distributions of $6.6 million compared to total equity distributions of $6.2 millionduring the prior year. 50 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Broadcast Acquisitions We completed a number of broadcast acquisitions during the year, most notable from Disney’s divestiture of its Radio Disney properties. Of the elevenradio stations that we acquired during 2015, 10 were former Radio Disney properties. With the exception of WSDZ-AM in the St. Louis, Missouri market,each of these acquisitions were in markets in which we already have broadcast facilities and staff, or “tuck-in” acquisitions. Tuck-in acquisitions are madewhen we believe it is advantageous to increase the strength and number of our broadcast signals while minimizing costs under our market cluster-operatingconcept. The St. Louis market, being one of the top 25 radio markets in the United States, provides a unique opportunity to expand our platform in a newmarket. During the year, we paid $12.4 million of cash to acquire broadcast assets and radio stations. A summary of our broadcast acquisitions, in order ofmost recent, is as follows: ·On December 18, 2015, we acquired radio station WSDZ-AM in St. Louis, Missouri, for $0.3 million in cash. ·On December 15, 2015, we acquired radio station KDIZ-AM in Minneapolis, Minnesota, for $0.4 million in cash. ·On December 11, 2015, we acquired radio station WWMI-AM in Tampa, Florida, for $0.8 million in cash. ·On December 8, 2015, we acquired radio station KDDZ-AM in Denver, Colorado, for $0.6 million in cash. ·On December 4, 2015, we acquired radio station KDZR-AM in Portland, Oregon, for $0.3 million in cash. ·On October 1, 2015, we acquired radio station KKSP-FM in Little Rock, Arkansas for $1.5 million in cash. ·On September 15, 2015, we acquired radio station KEXB-AM (formerly KMKI-AM) in Dallas, Texas, for $3.0 million in cash. ·On September 10, 2015, we acquired radio station WBIX-AM (formerly WMKI-AM) in Boston, Massachusetts, for $0.5 million in cash. ·On May 12, 2015, we acquired radio station WPGP-AM (formerly WDDZ-AM) in Pittsburgh, Pennsylvania, for $1.0 million in cash. ·On May 7, 2015, we acquired radio station WDWD-AM in Atlanta, Georgia, for $2.8 million in cash. ·On April 7, 2015, we acquired land and real estate used in the operations of our radio stations in Greenville, South Carolina, for $0.2 million incash. ·On March 27, 2015, we acquired radio station WDYZ-AM in Orlando, Florida, for $1.3 million in cash. We began operating this station underan Asset Purchase Agreement (“APA”) as of December 10, 2014. Digital Acquisitions We continued to expand our digital platform with acquisitions of complementary businesses and assets. During the year, we paid $4.5 million of cash toacquire digital media assets and businesses. A summary of our digital acquisitions and asset purchases, in order of most recent, is as follows: ·On December 7, 2015, we acquired the Instapray mobile applications and a related website for $0.1 million in cash. ·On October 29, 2015, we acquired DividendYieldHunter.com for $42,500 in cash, with $21,250 paid at closing and $21,250 payable in January2016. ·On September 3, 2015, we acquired a Spanish Bible mobile application and its related website and Facebook properties for $0.5 million in cash. ·On September 1, 2015, we acquired the DailyBible mobile applications, including all content, code and functionality, for $1.5 million in cash. ·On July 1, 2015, we acquired DividendInvestor.com for $1.0 million in cash and the assumption of $70,000 in deferred subscription liabilities. ·On June 4, 2015, we acquired the Gene Smart Wellness e-commerce website for $0.1 million in cash. 51 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·On May 6, 2015, we acquired domain names, mobile applications and code functionality for the Daily Bible Devotion for $1.1 million in cash.We may pay up to an additional $0.3 million in contingent earn-out consideration payable over the next two years based upon on theachievement of certain benchmarks. ·On February 6, 2015, we acquired Bryan Perry Newsletters with assets valued at $0.6 million and assumed deferred subscription liabilities of$0.4 million. We paid no cash to the seller upon closing. We recorded an estimated contingent earn-out liability at the discounted present valueof $0.2 million based on amounts that we expect to pay in the future. As of September 30, 2015, we have paid $30,000 of cash toward thecontingent earn-out installments based on actual subscription revenues. Pending Transactions ·On April 1, 2015, we began programming KHTE-FM, Little Rock, Arkansas under a 36-month Time Brokerage Agreement (“TBA”) that can beextended to 48 months. We have the option to acquire the station for $1.2 million in cash during the TBA period. The accompanyingconsolidated statements of operations included in this annual report on Form 10-K reflect the operating results of this entity as of the TBA date. ·On December 15, 2015, we entered an APA to acquire an FM Translator in Columbus, Ohio for $0.4 million in cash. The transaction is expectedto close in the first half of 2016. ·On December 31, 2015, we ceased programming KVCE-AM, Dallas, Texas upon expiration of our TBA. Net Broadcast Revenue Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Net Broadcast Revenue $192,923 $196,090 $3,167 1.6% 72.4% 73.8%Same Station Net BroadcastRevenue $192,705 $193,796 $1,091 0.6% The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source. Year Ended December 31, 2014 2015 (Dollars in thousands) Block program time: National $44,921 23.3% $46,401 23.7%Local 34,600 17.9 36,156 18.4 79,521 41.2 82,557 42.1 Advertising: National 14,986 7.8 13,939 7.1 Local 62,566 32.4 63,375 32.3 77,552 40.2 77,314 39.4 Digital 5,108 2.7 5,586 2.8 Infomercials 3,906 2.0 2,545 1.3 Network 15,822 8.2 15,010 7.7 Other 11,014 5.7 13,078 6.7 Net broadcast revenue $192,923 100.0% $196,090 100.0% Block programming revenue grew by $3.0 million due to an increase in the number of national and local programmers featured on our stations and anincrease in programming airtime available from a reduction in the number of infomercials sold. Our Christian Teaching & Talk stations generated a $2.0million increase in block programming revenue based on a higher number of national and local programs featured while our News Talk stations generated a$1.2 million increase. These were partially offset by a $0.3 million decline in local programs on our Spanish Christian Teaching & Talk stations. The increasein the number of programmers featured on-air creates a higher demand for premium time slots. This increase in demand often results in realization of higherrates. Consolidated broadcast advertising revenue, net of agency commissions, declined by $0.2 million. The decline includes the impact of politicaladvertising, which was $2.0 million during the year ending December 31, 2014 based on the then upcoming local and congressional elections compared to$0.4 million for the year ending December 31, 2015. Excluding the $1.6 million impact of political advertising, net advertising revenue increased by $1.3million due to increases in demand from local advertisers on our News Talk and Contemporary Christian Music stations. The increases in demand from localadvertisers also resulted in the realization of higher rates for premium time slots. 52 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Digital revenues generated from our radio station websites increased $0.5 million based on higher sales volume consistent with our efforts to promoteadvertising value from our station websites. Declines in infomercial revenue reflect our effort to feature programming that is tailored to our listeners and consistent with our company values. Wecontinue to seek alternatives to infomercial programs that we believe are not of interest to our listeners. Network revenue declined $0.8 million, including a $0.4 million decline in political advertisements and the remainder due to declines in the number ofadvertisements associated with faith-based movies and educational institutions. Increases in other revenue includes a $0.9 million increase in event revenue generated from higher attendance and sponsorships at local events such asdistinguished speakers and concerts, a $0.4 million increase from listener purchase programs that offer our listeners access to special discounts and incentivesfrom local advertisers, and $0.3 million of revenue generated from an FM translator and HD channel agreement. On a same-station basis, net broadcast revenue increased $1.1 million, which reflects these items net of the impact of revenue generated from newly-acquired stations. Net Digital Media Revenue Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Net Digital Media Revenue $46,862 $45,855 $(1,007) (2.1)% 17.6% 17.3% The following table shows the dollar amount and percentage of net digital media for each digital media revenue source. Year Ended December 31, 2014 2015 (Dollars in thousands) Digital Advertising, Net $24,789 52.9% $24,472 53.4%Digital Streaming 4,280 9.1 4,472 9.7 Digital Subscriptions 5,825 12.4 5,189 11.3 Digital Downloads 7,982 17.0 7,661 16.7 e-commerce 3,394 7.3 3,465 7.6 Other 592 1.3 596 1.3 Net digital media revenue $46,862 100.0% $45,855 100.0% Digital advertising revenue, net of agency commissions, declined by $0.3 million on a consolidated basis. Included in this amount is a $1.9 milliondecline in digital advertising revenue generated from Townhall.com due to a reduction in the number of advertising supported email distributions to readers.The decline was offset by an increase in digital advertising revenue of $1.5 million generated from Salem Web Network, including a $1.4 million increase inremnant advertising revenue based on sales volumes. The number of page views generated directly impacts the amount of digital advertising revenuegenerated for each site. Total page views were negatively impacted by changes in the Facebook newsfeed algorithm that makes it more difficult to drivetraffic from Facebook to our websites. We are also seeing a shift in the number of desktop page views declining to an increase in mobile page views, whichcarry lower advertising inventory and rates. Total page views from desktop devices were down 6% from the prior year. Increases in digital streaming revenue of $0.2 million reflect an increase in volume of streaming content from our Christian content websites. Declines in digital subscription revenue of $0.6 million reflect lower distribution levels based on a 28% decline in the number of new digitalsubscriptions sold. During 2014, a rebranding of the newsletters generated a higher interest level and a corresponding increase in the number of newsubscriptions sold. While 2015 did not generate the same level of new subscribers, renewals increased by $0.3 million, or a 12% increase in the number ofrenewals. There were no changes in rates for our digital subscriptions. Digital download revenue decreased $0.3 million due to a reduction in the number of downloads from our Church Products division websites, includinga $0.5 million decline in video downloads on our WorshipHouseMedia.com website offset by $0.2 million increase in fees generated fromChurchStaffing.com and ChristianJobs.com. The decline in downloads of these third party produced videos are common throughout the industry as usersbecome more adept at creating their own content. We believe that our sermon content is unique and valuable and that the number of downloads of ourcontent will not be impacted as severely by user created content. We tend to see increases in the volume of our digital downloads with the approach ofChristian holidays, specifically Easter and Christmas. 53 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. E-commerce revenue increased $0.1 million, including a $0.2 million increase in the sales volume of Wellness products of which approximately $57,000was attributable to our acquisition of Gene Smart on June 4, 2015, offset by a $0.1 million decline in the number of products sold through Salem ConsumerProducts. There were no changes in the retail sales price for products sold year over year. We believe the increase in volume of Wellness products sold isdirectly attributable to our cross-promotion and marketing efforts on our integrated media platform. Other revenue reflects a $0.2 million increase in event revenue from our RedState Gathering held in August of 2015. The RedState Gathering featuredseveral 2016 GOP candidates and attended by over 750 paid attendees, 185 credentialed media and 100 representatives from 32 co-sponsoring organizations.The increase in event revenue was offset by a $0.2 million decline in the number of digital promotions used under a deferred advertising arrangement. Net Publishing Revenue Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Net Publishing Revenue $26,751 $23,842 $(2,909) (10.9)% 10.0% 9.0% The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source. Year Ended December 31, 2014 2015 (Dollars in thousands) Book Sales $19,552 73.1% $17,955 75.3%Estimated Sales Returns & Allowances (5,759) (21.5) (6,404) (26.9)e-Book Sales 2,655 9.9 1,970 8.3 Self-Publishing Fees 5,121 19.1 5,406 22.7 Print Magazine Subscriptions 2,055 7.7 1,659 7.0 Print Magazine Advertisements 1,983 7.4 1,827 7.6 Other 1,144 4.3 1,429 6.0 $26,751 100.0% $23,842 100.0% Consolidated book sale revenues include a $1.7 million decline in print book sales from Regnery Publishing. The decline is directly attributable to thecomposite mix of titles available in each of the years and the number of these titles that achieve the New York Times bestseller list. The decrease in estimatedsales returns and allowances for Regnery Publishing of $0.6 million is consistent with the lower volume of print book sales during the year ending December31, 2015 as compared to the prior year. These declines were offset by a $0.1 million increase in book sales from Xulon Press due to an increase in the numberof author submissions. E-book sales from Regnery Publishing decreased $0.7 million based on the number of units sold as compared to the prior year. The top ten titles soldduring 2015 generated e-Book revenue of $1.0 million compared to 2014 when the top 10 e-Books generated $1.9 million of revenue. Similar to sales ofprinted books, the decline is directly attributable to the composite mix of titles available in each of the years and the number of these titles that achieve theNew York Times bestseller list. Xulon Press self-publishing fees increased $0.3 million due to an increase in the number of authors utilizing the services with no changes in ratescompared to the prior year. We believe that our ability to cross-promote Xulon’s self-publishing services to authors interested in Regnery Publishingprovides us with ongoing growth potential. Print magazine revenue continues to decline with a $0.4 million drop in subscription revenue based on the number of subscribers and a corresponding$0.2 million decline in advertising revenues based on reduced demand and reduced rates due to lower distribution levels. As of December 2014, wediscontinued printing and distributing Townhall Magazine, the content of which is currently only available online. We continue to explore cost reductionsin this segment to offset the eroding revenue base. Broadcast Operating Expenses Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Broadcast Operating Expenses $138,564 $140,230 $1,666 1.2% 52.0% 52.8%Same Station Broadcast Operating Expenses $138,278 $137,785 $(493) (0.4)% 54 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Increases in broadcast operating expenses include an increase of $1.4 million in personnel-related costs including sales-based commissions, consistentwith the higher revenues generated and an increase in the number of stations owned. Included in this amount is a $0.3 million increase in group healthinsurance premiums. Facility-related costs increased by $0.9 million due to recent acquisitions and the relocation and consolidation of our facilities inWashington DC, for which we are incurring duplicative rent expense until the build out of our new facility is complete and we can vacate our existinglocations. In addition, there was a $0.3 million increase in production and programming expense and a $0.2 million increase in professional services, each ofwhich is attributable to recent acquisitions. These increases were offset by a $1.1 million decrease in bad debt expense due to an increase in collection efforts. The decline in broadcast operating expenses on a same-station basis reflects these items net of the impact of start-up costs from newly-acquired stations.Our cost containment efforts, including the elimination of certain positions that began in March 2015, contributed to the overall savings in net broadcastoperating expenses on a same-station basis. Digital Media Operating Expenses Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Digital Media OperatingExpenses $36,232 $35,969 $(263) (0.7)% 13.6% 13.5% Across all digital platforms, we incurred lower variable costs consistent with the lower revenues generated and cost reduction efforts that began in March2015 that included the elimination of certain positions. Savings in variable operating costs include a $0.2 million decline in royalties and a $0.3 milliondecline in professional services, offset by a $0.3 million increase in facility-related expenses, a $0.2 million increase in advertising expenses and a $0.1million increase in streaming and hosting expenses. Personnel-related costs decreased $0.4 million from lower sales commissions of $0.6 million offset by a$0.1 million increase in group health insurance premiums and a $0.1 million increase in travel and entertainment expense. Publishing Operating Expenses Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Publishing Operating Expenses $26,143 $24,774 $(1,369) (5.2)% 9.8% 9.3% Publishing operating expenses include cost of goods sold associated with Regnery Publishing of $1.9 million for the year ended December 31, 2015compared to $2.1 million for the prior year. The decline in the costs of goods sold of $0.2 million is consistent with the declines in revenue from a reductionin the number of books sold as compared to the prior year. There were no significant changes in our margins. Consistent with lower revenues from RegneryPublishing, we generated savings from variable costs including $0.8 million in royalties and $0.2 million in fulfillment costs. Operating expenses associated with our print magazines declined $0.7 million, including $0.2 million in printing and mailing costs, $0.3 million inpersonnel-related costs and $0.1 million in promotional costs, as well as overall declines in expenses from the discontinuation of production for TownhallMagazine as of the December 2014 issue. Operating expense for Xulon Press increased by $0.1 million, including a $0.1 million increase in the cost of sales and $0.2 million increase inadvertising costs, consistent with the increase in revenue, offset by a $0.2 million decrease in bad debt expense attributed to more successful collectionefforts. Unallocated Corporate Expenses Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Unallocated Corporate Expenses $17,092 $15,146 $(1,946) (11.4)% 6.4% 5.7% Unallocated corporate expenses include shared services, such as accounting and finance, human resources, legal, tax and treasury that are not directlyattributable to any one of our operating segments. Decreases in these costs over the prior year include a $1.0 million decline in personnel-related costs, a $0.5million decline in non-cash stock-based compensation expense, a $0.2 million decline in travel and entertainment expenses, a $0.2 million decline inacquisition-related costs and a $0.1 million decline in facility-related expenses. We continue to seek cost effective ways to reduce our overhead operatingcosts and expenses. Depreciation Expense Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Depreciation Expense $12,629 $12,417 $(212) (1.7)% 4.7% 4.7% 55 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Depreciation expenses decreased due to higher depreciation expense recognized in 2014 on capital expenditures such as computer software, dataprocessing and office equipment that have shorter estimated useful lives than tower and broadcasting assets that were acquired in 2013. There were nochanges in our depreciation methods or in the estimated useful lives of our asset groups. Amortization Expense Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Amortization Expense $6,196 $5,324 $(872) (14.1)% 2.3% 2.0% The decrease in amortization expense reflects the higher acquisition volume in early 2014 and our acquisition of WorshipHouseMedia.com in 2011 thatincluded intangibles such as advertising agreements, customer lists, domain names, and author agreements that had estimated useful lives of from one to fiveyears. These items were fully depreciated at or near the beginning of the 2015 calendar year resulting in lower amortization expense for this year. There wereno changes in our amortization methods or in the estimated useful lives of our intangible asset groups. Change in the Estimated Fair Value of Contingent Earn-Out Consideration Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Change in the estimated fairvalue of contingent earn-outconsideration $734 $(1,715) $(2,449) (333.7)% 0.3% (0.6)% Our acquisitions may include contingent earn-out consideration as part of the purchase price under which we will make future payments to the sellerupon the achievement of certain benchmarks. We review the probabilities of possible future payments to estimate the fair value of any contingent earn-outconsideration on a quarterly basis over the earn-out period. Actual results are compared to the estimates and probabilities of achievement used in ourforecasts. Should actual results of the acquired business increase or decrease as compared to our estimates and assumptions, the estimated fair value of thecontingent earn-out consideration liability will increase or decrease, up to the contracted limit, as applicable. For the year ending December 31, 2015, we recorded a net reduction in our contingent earn-out liabilities of $1.7 million compared to a net increase of$0.7 million for the prior year. The changes are based on actual results as compared to the estimates used in our probability analysis for each contingency.Refer to Note 4 of our consolidated financial statements for a detailed analysis of the changes in our assumptions and the impact for each contingency. Changes in the estimated fair value of the contingent earn-out consideration are reflected in our results of operations in the period in which they areidentified. Changes in the estimated fair value of the contingent earn-out consideration may materially impact and cause volatility in our operating results. Impairment of Indefinite-Lived Long-Term Assets Other than Goodwill Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Impairment of indefinite-livedlong-term assets otherthan goodwill $34 $— $(34) (100.0)% —% —% During our annual testing for 2014, which coincided with our budget and financial forecasts process for the following year, we decided to ceasepublishing Townhall Magazine as of December 2014. We reduced our projected net revenues for the following year and considered ceasing additional printmagazines in the future. Although we expect to realize cost savings from the reduction in the number of print magazines produced, we do not expect the costsavings to increase operating margins. Based on the reduction of projected net revenues and the potential to further reduce the number of magazinepublished, we recorded an impairment charge of $34,000 associated with magazine mastheads. The impairment was driven by a reduction in the projected net revenues and a reduction in the number of print magazines published. The growth ofdigital-only publications, which are often free to readers or at a significantly reduced cost to readers, has hindered the ability of the publishing industry torecover from the economic recession that began in 2008. We believe that the impairments are indicative of trends in the publishing industry as a whole andare not unique to our company or operations. 56 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Impairment of Goodwill Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Impairment of goodwill $45 $439 $394 875.6% —% 0.2% For our annual testing as of the fourth quarter of 2015, we identified operating losses within our Singing News Network that indicated that the value ofgoodwill may be impaired. We engaged an independent third-party appraisal and valuation firm to assist us with determining the enterprise value. Based onthis review and analysis, we recorded an impairment charge of $0.4 million associated with the value of goodwill for the Singing News Network. For our annual testing as of the fourth quarter of 2014, based on the impairment charges previously recognized to the value of our mastheads, we couldnot conclude that the value of goodwill associated with our magazine publishing unit was not impaired. We obtained an independent fair value of ourmagazine publishing unit. Based on this review and analysis, we recorded an impairment charge of $45,000 associated with the value of goodwill for ourprint magazines. Loss on the Sale or Disposal of Assets Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Loss on the sale or disposal ofassets $251 $181 $(70) (27.9)% 0.1% 0.1% The net loss on the sale or disposal of assets for the year ended December 31, 2015 includes a $0.2 million charge associated with the relocation of ouroffice and studio in our Seattle, Washington market offset by proceeds from various fixed asset and equipment disposals. The net loss on the sale or disposal of assets for the year ended December 31, 2014 includes a $0.2 million loss associated with the write-off of areceivable from a prior station sale, a $0.2 million loss associated with the sale of land in our Miami, Florida station offset by a $0.2 million note receivablesettlement and $0.1 million of insurance proceeds from a claim associated with one of our markets as well as other insignificant fixed asset and equipmentdisposals. Other Income (Expense) Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Interest income $45 $8 $(37) (82.2)% —% —%Interest expense, net ofcapitalized interest (15,993) (15,429) 564 (3.5)% (6.0)% (5.8)%Change in the fair value ofinterest rate swap (2,702) (1,273) 1,429 (52.9)% (1.0)% (0.5)%Gain on bargain purchase — 1,357 1,357 100.0% —% 0.5%Loss on early retirement of long-term debt (391) (41) 350 (89.5)% (0.1)% —%Net miscellaneous income and(expenses) 665 201 (464) (69.8)% 0.2% 0.1% Interest income represents earnings on excess cash and interest due under promissory notes. The $37,000 decline is due to a decrease in the balancesoutstanding on promissory notes during the year ended December 31, 2015 as compared to the prior year. The decrease in interest expense of $0.6 million reflects a $0.6 million decrease in interest on the remaining principal balance outstanding on our TermLoan B, a $0.1 million decrease in the interest accretion from a deferred advertising credit, and a $0.1 million decrease in the interest accretion of ourcontingent earn-out consideration offset by a $0.3 million increase in interest payments on our interest rate swap agreement. The change in the fair value of interest rate swap reflects the mark-to-market fair value adjustment of the interest rate swap agreement that was enteredinto on March 28, 2013. In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 “BusinessCombinations,” effective as of January 1, 2009, any excess of fair value of the acquired net assets over the acquisition consideration shall be recognized as again on a bargain purchase. Prior to recording a gain, the acquiring entity must reassess whether all acquired assets and assumed liabilities have beenidentified and recognized and perform re-measurements to verify that the consideration paid, assets acquired, and liabilities assumed have been properlyvalued. We underwent such a reassessment, and as a result, have recorded a gain on the bargain purchase for WSDZ-AM in St. Louis, Missouri, of $0.8million, for KDIZ-AM in Minneapolis, Minnesota, of $0.3 million and for WWMI-AM in Tampa, Florida, of $0.3 million. If new information is obtainedduring the measurement period about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement ofthe amounts recognized for assets acquired and liabilities assumed, we will retrospectively adjust the amounts recognized as of the acquisition date. Webelieve that the gain on bargain purchase resulted from various factors that may have impacted the acquisition price, including, without limitation, Disney’splan to exit the broadcasting business and divest its Radio Disney properties. 57 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The loss on early retirement of long-term debt reflects the unamortized discount and bank loan fees on principal redemptions of our Term Loan B. Net miscellaneous income and expenses includes royalty income, usage fees for our real estate properties, and insurance proceeds. The net miscellaneousincome and expenses for the prior year includes $0.2 million of royalty income and fees for our real estate properties, $0.3 million of insurance proceeds, and$0.2 million received in an eminent domain settlement. Provision for Income Taxes Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Provision for (benefit from)income taxes $4,765 $6,695 $1,930 40.5% 1.8% 2.5% In accordance with FASB ASC Topic 740 “Income Taxes,” our tax provision for income taxes was $6.7 million for the year ended December 31, 2015compared to $4.8 million for the prior year. The increase in our provision results from $17.8 million of pre-tax income from continuing operations for thecurrent period compared to a pre-tax loss from continuing operations of $10.2 for the prior year, net of expirations of certain state statute of limitations forprior year deductions and carryovers. Provision for income taxes as a percentage of income before income taxes, or the effective tax rate, was 37.5% for theyear ended December 31, 2015 compared to 46.5% for the prior year. The effective tax rate for each period differs from the federal statutory income rate of35.0% due to the effect of state income taxes, certain expenses that are not deductible for tax purposes and changes in the valuation allowance related to theutilization of certain state net operating loss carryforwards. Net Income Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Net Income $5,475 $11,150 $5,675 103.7% 2.1% 4.2% We recognized net income of $11.2 million for the year ended December 31, 2015 compared to $5.5 million in the prior year. During this period, our netoperating income increased $4.4 million due to a $5.2 million reduction in operating expenses offset by a $0.7 million decline in net revenue. We recorded again on bargain purchase of $1.4 million from our acquisition of three Radio Disney properties partially offset by a reduction in other income due to non-recurring royalties and insurance proceeds recognized in the prior year. Year Ended December 31, 2014 compared to the year ended December 31, 2013 The following factors affected our results of operations and our cash flows for the year ended December 31, 2014 as compared to the prior year: Financing Throughout the year ending December 31, 2014, we repaid $15.3 million in principal on our current senior secured credit facility, consisting of the TermLoan B and paid interest through each repayment date compared to $8.8 million in principal plus interest through each repayment date in the prior year. Equity Throughout the year ending December 31, 2014, we paid total equity distributions of $6.2 million over four quarters compared to total equitydistributions of $5.2 million over four quarters of the prior year. 58 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Acquisitions ·On December 23, 2014, we completed the acquisition of the construction permit for WLTE-FM in Pendleton, South Carolina for $0.5 million incash. The station is operated in our Greenville, South Carolina market. ·On December 23, 2014, we completed the acquisition of an FM translator in Pickens, South Carolina for $0.2 million in cash. The FM Translatoris operated in our Greenville, South Carolina market. ·On December 22, 2014, we completed the acquisition of an FM translator in Bayshore Gardens, Florida for $0.1 million in cash. The FMTranslator is operated in our Tampa, Florida market. ·On November 24, 2014, we completed the acquisition of an FM translator in Travelers Rest, South Carolina for $0.2 million in cash. The FMTranslator will operate in our Greenville, South Carolina market. ·On October 1, 2014, we completed the acquisition of radio station KXXT-AM in Phoenix, Arizona for $0.6 million in cash. ·On June 6, 2014, we made an early payment of $1.5 million in cash against the $2.5 million deferred payment liability due January 2015 for ouracquisition of entities of Eagle Publishing. ·On May 22, 2014, we completed the acquisition of radio station WOCN-AM, Miami, Florida and the related transmitter site for $2.5 million incash. ·On May 6, 2014, we completed the acquisition of WRTH-FM (formerly WOLT-FM) in Greenville, South Carolina for $1.1 million in cash. ·On April 14, 2014, we completed the acquisition of three FM translators for $0.4 million in cash. The FM translators will serve our Orlando,Florida, Tampa, Florida and Omaha, Nebraska markets. ·On February 7, 2014, we completed the acquisition of radio stations KDIS-FM, Little Rock, Arkansas and KRDY-AM, San Antonio, Texas for$2.0 million in cash. ·We recorded an increase of $0.3 million in the fair value of the contingent earn-out consideration associated with our December 2013acquisition of Twitchy.com, which is reflected as an expense in our operating results for the year ending December 31, 2014. ·As of December 31, 2014, we paid $0.3 million in cash, the maximum amount earned for the first payment of the Twitchy contingent-earnconsideration and paid an additional $0.3 million in cash, the maximum amount earned for the second payment of the Twitchy contingent-earnconsideration in January 2015. ·On January 10, 2014, we acquired the entities of Eagle Publishing, including Regnery Publishing, HumanEvents.com, RedState.com, EagleFinancial Publications and Eagle Wellness. We began operating these entities as of the closing date. The base purchase price was $8.5 million,with $3.5 million paid in cash upon closing, and deferred payments of $2.5 million each due January 2015 and January 2016. We paid anadditional $0.4 million of costs upon closing associated with liabilities incurred by the seller. The deferred payments due January 2015 andJanuary 2016 were recorded at their present value of $2.4 million and $2.3 million, respectively, with the discount being amortized to non-cashinterest expense over the payment term using the effective interest method. oOn June 6, 2014, we paid $1.5 million of the $2.5 million deferred installment due January 2015. Based on this early payment, thepresent value of the deferred payment due January 2015 was reduced to $0.9 million.oAs part of our purchase agreement, we may pay up to an additional $8.5 million of contingent earn-out consideration over the nextthree years based on the achievement of certain revenue benchmarks. We estimated the fair value of the contingent earn-outconsideration using a probability-weighted discounted cash flow model. We recorded the estimated fair value of the $8.5 million totalcontingent earn-out consideration at the present value of $2.0 million as of the closing date. Net Broadcast Revenue Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Net Broadcast Revenue $188,544 $192,923 $4,379 2.3% 79.6% 72.4%Same Station Net Broadcast Revenue $188,479 $191,372 $2,893 1.5% 59 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source. Year Ended December 31, 2013 2014 (Dollars in thousands) Block program time: National $44,486 23.6% $44,921 23.3%Local 32,608 17.3 34,600 17.9 77,094 40.9 79,521 41.2 Advertising: National 13,840 7.3 14,986 7.8 Local 63,007 33.4 62,566 32.4 76,847 40.7 77,552 40.2 Digital 4,847 2.7 5,108 2.7 Infomercials 4,970 2.6 3,906 2.0 Network 15,364 8.1 15,822 8.2 Other 9,422 5.0 11,014 5.7 Net broadcast revenue $188,544 100.0% $192,923 100.0% Block programming revenue increased $2.4 million, including a $0.9 million increase from national ministry programs on our Christian Teaching &Talk format stations, a $0.8 million increase from our News Talk format stations, a $0.4 million increase in local programs on our Spanish Christian Teaching& Talk format stations, and a $0.2 million increase from our business stations. Increases in our programming revenue reflect a higher number of programmersfeatured on-air that in turn creates a higher demand for premium time slots. The increase in demand results in realization of higher rates. Advertising revenue, net of agency commissions, reflects a net increase of $0.7 million overall that includes a $1.5 million increase in political-basedadvertisements associated with local and congressional elections during 2014. Excluding political-based advertisements, advertising revenues declined $0.8million, or 1.1%, due to a reduction in the number of advertisements placed during 2014. The declines include approximately $1.2 million from financialservices and $0.2 million from the automotive industry partially offset by an increase of $0.4 million from the medical and healthcare industry. Digital revenues generated from our broadcast division increased $0.3 million based on a volume of sales consistent with our efforts to promoteadvertising value from our station websites. Declines in infomercial revenue reflect our ongoing efforts to develop programming that is tailored to our listening audience and consistent with ourcompany values. We have reduced the use of infomercial programs that we believe are not of interest to our listeners. Political-based advertisements increased network revenues by $0.5 million. Increases in other revenue of $1.6 million include $0.9 million from listener purchase programs, a popular on-air promotion that offers our listenersaccess to special discounts and incentives from local advertisers and $0.5 million of event revenue based on higher attendance and sponsorships at our localevents including distinguished speakers and concerts. On a same-station basis, net broadcast revenue increased $2.9 million, which reflects these items net of the impact of revenue generated from newly-acquired stations. Net Digital Media Revenue Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Net Digital Media Revenue $35,156 $46,862 $11,706 33.3% 14.8% 17.6% The following table shows the dollar amount and percentage of net digital media for each digital media revenue source. Year Ended December 31, 2013 2014 (Dollars in thousands) Digital Advertising $21,523 61.2% $24,789 52.9%Digital Streaming 3,862 11.0 4,280 9.1 Digital Subscriptions — — 5,825 12.4 Digital Downloads 7,963 22.7 7,982 17.0 e-commerce 1,348 3.8 3,394 7.3 Other 460 1.3 592 1.3 Net digital media revenue $35,156 100.0% $46,862 100.0% 60 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We continue to acquire and build websites to deliver relevant content to our audience. On January 10, 2014, we acquired and began operatingHumanEvents.com, RedState.com, Eagle Financial Publications and Eagle Wellness. During 2013, we acquired Christnotes.org, Godupdates.org as well asTwitchy.com on December 10, 2013. Digital advertising revenue, net of agency commissions, increased $3.3 million, of which $3.0 million was related to our acquisitions that includeHumanEvents.com and Redstate.com as well as our December 10, 2013 acquisition of Twitchy.com. The remaining $0.3 million increase was based on highersales volumes. Increases in digital streaming revenue of $0.4 million reflect an increase in volume of streaming content from our Christian content websites. Digital subscription revenue is a new revenue stream from our acquisitions of Eagle Financial Publications. We issue digital newsletters that providemarket analysis and investment strategies for individual subscribers from financial commentators. Increases in digital download revenues reflect a $0.2 million increase in the use of services on our websites, including ChurchStaffing.com andChristianJobs.com within our Church Product division offset by a $0.3 million decline in the number of downloads from our SermonSpice.com website dueto an increase in competition from other providers that offer subscription options. Our e-commerce revenue reflects a $2.2 million increase from sales generated by Eagle Wellness products offset by a $0.2 million decline in the numberof books and DVD’s sold through our station websites. Net Publishing Revenue Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Net Publishing Revenue $13,234 $26,751 $13,517 102.1% 5.6% 10.0% The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source. Year Ended December 31, 2013 2014 (Dollars in thousands) Book Sales $3,664 27.7% $19,552 73.1%Estimated Sales Returns & Allowances — — (5,759) (21.5)e-Book Sales — — 2,655 9.9 Self-Publishing Fees 4,297 32.5 5,121 19.1 Print Magazine Subscriptions 2,308 17.4 2,055 7.7 Print Magazine Advertisements 2,172 16.4 1,983 7.4 Other 793 6.0 1,144 4.3 $13,234 100.0% $26,751 100.0% Revenue from book sales increased $10.1 million with $10.0 million from Regnery Publishing, which we acquired on January 10, 2014. RegneryPublishing generated $15.8 million in gross sales reported net of estimated sales returns and allowances of $5.8 million. Xulon Press book sales were $3.7million for the year ending December 31, 2013 compared to $3.6 million for the prior year. e-Book sales of $2.7 million for the year ending December 31, 2014, were generated from Regnery Publishing. Self-publishing fees from Xulon Press increased $0.8 million due to an increase in the number of authors utilizing these services. We believe that ourability to cross-promote Xulon’s self-publishing services to authors interested in Regnery Publishing provides us with ongoing growth potential. Print magazine revenue remains challenged with a $0.2 million decline in subscription revenue and a $0.2 million decline in advertising revenues basedon lower distribution levels. As of December 2014, we have discontinued printing and distributing Townhall Magazine, the content of which will only beavailable in the future in an online version. We continue to explore cost reductions in this segment to offset the eroding revenue base. Broadcast Operating Expenses Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Broadcast Operating Expenses $129,857 $138,564 $8,707 6.7% 54.8% 52.0%Same Station Broadcast Operating Expenses $129,721 $136,716 $6,995 5.4% 61 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Broadcast operating expenses reflect higher variable costs associated with the increase in broadcast revenues. Increases include $3.5 million inpersonnel-related costs including sales-based commissions, $2.5 million in advertising and event costs, $1.0 million in professional services, $0.8 million infacility-related costs, $0.4 million of travel costs, $0.2 million in music license fees, and $0.2 million in production and programing expenses. The increase in broadcast operating expenses on a same-station basis reflects these items net of the impact of start-up from newly-acquired stations. Digital Media Operating Expenses Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Digital Media Operating Expenses $25,741 $36,232 $10,491 40.8% 10.9% 13.6% Increases in digital media operating expenses include $7.4 million of operating costs incurred by the Eagle entities acquired on January 10, 2014. Whilethese increases in operating expenses are consistent with our strategic acquisitions, we continue to seek cost effective ways to reduce our overhead costs andexpenses. Across all other digital platforms, we incurred higher variable costs consistent with the higher revenue generated from this segment. Increasesinclude $2.3 million in personnel-related costs including sales-based commissions, $0.8 million in streaming and hosting expenses, $0.2 million inprofessional services and $0.1 million in advertising expenses that were partially offset by a $0.2 million decline in bad debt expenses due to increase incollections and a $0.2 million decline in royalties in line with the decrease in digital downloads from our SermonSpice.com website. Publishing Operating Expenses Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Publishing Operating Expenses $14,280 $26,143 $11,863 83.1% 6.0% 9.8% Regnery Publishing, which we acquired on January 10, 2014, generated $12.1 million of operating expenses including royalties of $3.9 million and costof sales of $3.7 million. The remaining operating expenses of Regnery Publishing included personnel and facility-related costs. While these increases inoperating expenses are consistent with our strategic acquisitions, we continue to seek cost effective ways to reduce our overhead costs and expenses. Xulon Press incurred higher variable costs associated with its revenue growth, including an increase of $0.4 million in personnel-related costs from anincreases in the number of employees and in the number of hours worked to meet production demands and a $0.1 million increase in advertising expensesthat were offset by a $0.2 million decline in bad debt expenses due to an increase in collection activity. Our print magazines, which remain challenged with generating revenue, saw a decline in operating expenses of $0.3 million including $0.2 million inprinting and mailing costs and $0.1 million in personnel related costs. Unallocated Corporate Expenses Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Unallocated Corporate Expenses $16,081 $17,092 $1,011 6.3% 6.8% 6.4% Unallocated corporate expenses include shared services, such as accounting and finance, human resources, legal, tax and treasury that are not specific toany one of our operating segments. Increases in these costs over the prior year include $1.0 million in personnel-related costs that includes $0.2 million ofseverance and $0.2 million in acquisition-related costs partially offset by a $0.2 million decline in non-cash stock-based compensation expense. While theseincreases in shared general and administrative services are consistent with our acquisition related growth and development, we continue to seek cost effectiveways to reduce our overhead costs and expenses. Depreciation Expense Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Depreciation Expense $12,448 $12,629 $181 1.5% 5.3% 4.7% 62 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Depreciation expense increased due to recent acquisitions of property and equipment, including assets of Eagle entities acquired on January 10, 2014.There were no changes in our depreciation methods or in the estimated useful lives of our asset groups. Amortization Expense Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Amortization Expense $2,814 $6,196 $3,382 120.2% 1.2% 2.3% The increase in amortization expense reflects our acquisitions of Christnotes.org, Godupdates.org and Twitchy.com in 2013 and Eagle entities in January2014, which included intangible assets such as advertising agreements, customer lists and domain names. The estimated useful lives of these assets rangefrom one to five years, with the one-year assets amortized over the first twelve months from the acquisition date. There were no changes in our amortizationmethods or in the estimated useful lives of our intangible asset groups. Change in the Estimated Fair Value of Contingent Earn-Out Consideration Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Change in the estimated fair value of contingent earn-outconsideration $— $734 $734 100.0% —% 0.3% We recorded an increase of $0.3 million in the fair value of the contingent earn-out consideration associated with our December 2013 acquisition ofTwitchy.com. The increase reflects actual page views in excess of those estimated at the time of our projections. As of December 31, 2014, we paid $0.3million of cash to Twitchy for contingent earn-out consideration earned. The estimated fair value of the contingent earn-out consideration was recorded at thepresent value of $0.4 million at December 31, 2014. We recorded a net increase of $0.4 million in the fair value of the contingent earn-out consideration associated with Eagle entities. The net increasereflects actual revenues earned by Eagle entities in excess of those estimated at the time of our projections. We will continue to review our estimates quarterlyover the remaining earn-out period of two years. As of December 31, 2014, a $0.9 million payment due is recorded in current liabilities with payment made inJanuary 2015 toward the contingent earn-out consideration earned. The estimated fair value of the contingent earn-out consideration was recorded at thepresent value of $1.7 million at December 31, 2014. Any changes in the estimated fair value of the contingent earn-out consideration, up to the contracted amount, will be reflected in our results ofoperations in future periods as they are identified. Changes in the fair value of the contingent earn-out consideration may materially impact and causevolatility in our future operating results. Impairment of Indefinite-Lived Long-Term Assets Other than Goodwill Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Impairment of indefinite-lived long-term assets otherthan goodwill $1,006 $34 $(972) (96.6)% 0.4% —% Due to actual operating results that did not meet or exceed the expectations and assumptions used in our prior estimates of fair value, we performed aninterim valuation of our mastheads as of June 30, 2013. Based on our reductions in projected revenue growth and an increase in the discount rate from 8.5%to 9.0%, we determined that the carrying value of the mastheads were less than their estimated fair value. We recorded an impairment charge of $0.3 millionassociated with the mastheads. During our annual testing for 2013 performed in the fourth quarter, we recorded an additional $0.7 million impairment chargebased on further reductions in the projected revenue growth and an increase in the discount rate from 9.0% to 9.5%. During our annual testing for 2014, which coincided with our budget and financial forecasts process for the following year, we decided to ceasepublishing Townhall Magazine as of December 2014. We reduced our projected net revenues for the following year and considered ceasing additional printmagazines in the future. Although we expect to realize cost savings from the reduction in the number of print magazines produced, we do not expect the costsavings to increase operating margins. Based on the reduction of projected net revenues and the potential to further reduce the number of magazinepublished, we recorded an impairment charge of $34,000 associated with magazine mastheads. 63 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. These impairments were driven by reductions in the projected net revenues and a reduction in the number of print magazines produced. The growth ofdigital-only publications, which are often free to readers or at a significantly reduced cost to readers, has hindered the ability of the publishing industry torecover from the economic recession that began in 2008. We believe that the impairments are indicative of trends in the publishing industry as a whole andare not unique to our company or operations. Impairment of Goodwill Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Impairment of goodwill $438 $45 $(393) (89.7)% 0.2% —% Based on the impairments recognized to the value of our mastheads in 2013, we could not conclude that it was more likely than not that goodwillassociated with our magazine publishing unit was not impaired. We obtained an independent fair value of our magazine publishing unit as of June 2013.Based on this valuation, we determined that the carrying value of the goodwill was less than the implied value of goodwill as of that date and we recorded animpairment charge of $0.4 million. Based on the subsequent impairment of the fair value of mastheads, the carrying value of goodwill associated with ourmagazine publishing unit was not at risk of impairment as of our annual testing period. There were no indications of impairment present during the annualtesting period ending December 31, 2013. Based on the impairment recognized to the value of our mastheads in 2014, we could not conclude that it was more likely than not that goodwillassociated with our magazine publishing unit was not impaired. We obtained an independent fair value of our magazine publishing unit as of December2014. Based on this valuation, we determined that the carrying value of the goodwill was less than the implied value of goodwill as of that date and werecorded an impairment charge of $45,000. (Gain) loss on the Sale or Disposal of Assets Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue (Gain) loss on the sale or disposal of assets $(264) $251 $515 (195.1)% (0.1)% 0.1% The net loss on the sale or disposal of assets for the year ended December 31, 2014 includes a $0.2 million loss associated with the write-off of areceivable from a prior station sale, a $0.2 million loss associated with the sale of land in our Miami, Florida station offset by a $0.2 million note receivablesettlement and $0.1 million of insurance proceeds from a claim associated with one of our market as well as other insignificant fixed asset and equipmentdisposals. The net gain on disposal of assets for the prior year includes a $0.4 million pre-tax gain on the partial sale of land in our Cleveland market and a $0.1million of insurance proceeds for damages at one of our stations offset by various fixed asset and equipment disposals. Other Income (Expense) Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Interest income $68 $45 $(23) (33.8)% —% —%Interest expense, net of capitalized interest (16,892) (15,993) 899 (5.3)% (7.1)% (6.0)%Change in the fair value of interest rate swap 3,177 (2,702) (5,879) (185.0)% 1.3% (1.0)%Loss on early retirement of long-term debt (27,795) (391) 27,404 (98.6)% (11.7)% (0.1)%Net miscellaneous income and (expenses) 18 665 647 3,594.4% —% 0.2% Interest income represents earnings on excess cash. Interest expense reflects a decrease of $0.9 million due to the lower cost of capital under our TermLoan B as compared to our Terminated 95/8% Notes Senior Secured Second Lien Notes due 2016 which were repurchased in March 2013 in a cash tenderoffer (“Tender Offer”). The change in the fair value of interest rate swap reflects the mark-to-market fair value adjustment of the interest rate swap agreementthat we entered into on March 28, 2013. Net miscellaneous income and expenses includes $0.2 million of royalty income and fees for our real estate properties, $0.3 million of insuranceproceeds, and $0.2 million received in an eminent domain settlement. 64 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The loss on early retirement of long-term debt of $27.8 million includes the unamortized discount associated with the two $4.0 million repayments ofour Term Loan B, $26.9 million from the repurchase of $212.6 million of the outstanding 95/8% Notes and $0.9 million associated with the termination ofour then existing credit facilities in conjunction with the Term Loan B and revolving credit facility of $25.0 million entered into on March 14, 2013(“Revolver”). Provision for (Benefit from) Income Taxes Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Provision for (benefit from) income taxes $(4,192) $4,765 $8,957 (213.7)% (1.8)% 1.8% In accordance with FASB ASC Topic 740 “Income Taxes,” our tax provision for income taxes was $4.8 million for the year ended December 31, 2014compared to a tax benefit of $4.2 million for the prior year. The increase in our provision results from $10.2 million of pre-tax income from continuingoperations for the current period compared to a pre-tax loss from continuing operations of $6.9 for the prior year, net of expirations of certain state statute oflimitations for prior year deductions and carryovers. Provision for income taxes as a percentage of income before income taxes, or the effective tax rate, was46.5% for the year ended December 31, 2014 compared to 60.8% for the prior year. The effective tax rate for each period differs from the federal statutoryincome rate of 35.0% due to the effect of state income taxes, certain expenses that are not deductible for tax purposes and changes in the valuation allowancerelated to the utilization of certain state net operating loss carryforwards. Loss from Discontinued Operations, Net of Tax Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Loss from discontinued operations, net of tax $(37) $— $37 (100.0)% —% —% The loss from discontinued operations for the year ending December 31, 2013 relates to expenses associated with facilities previously occupied bySamaritan Fundraising, which ceased operations in December 2011. Net Income (Loss) Year Ended December 31, 2013 2014 Change $ Change % 2013 2014 (Dollars in thousands) % of Total Net Revenue Net Income (loss) $(2,736) $5,475 $8,211 (300.1)% (1.2)% 2.1% We recognized net income of $5.5 million for the year ended December 31, 2014 compared to a loss of $2.7 million in the prior year. The favorablechange of $8.2 million reflects the non-recurrence of the prior year $27.8 million loss from the early retirement of long-term debt and a $0.9 million reductionin interest expense based on our new credit agreement entered in March 2013 offset by a $5.9 million decline in income from continuing operations due to anincrease in operating expenses of $35.5 million, a $9.0 million increase in our tax provision, and a $5.9 million increase in the charge associated with thechange in fair value of our swap agreement, NON-GAAP FINANCIAL MEASURES Management uses certain non-GAAP financial measures defined below in communications with investors, analysts, rating agencies, banks and others toassist such parties in understanding the impact of various items on our financial statements. We use these non-GAAP financial measures to evaluate financialresults, develop budgets, manage expenditures and as a measure of performance under compensation programs. Our presentation of these non-GAAP measures should not be considered as a substitute for or superior to the most directly comparable financial measuresas reported in accordance with GAAP. Regulation G and Item 10(e) of Regulation S-K define and prescribe the conditions under which certain non-GAAP financial information may bepresented. We closely monitor EBITDA, Adjusted EBITDA, Station Operating Income (“SOI”), Digital media operating income, publishing operatingincome, and free cash flow, all of which are non-GAAP financial measures. We believe that these non-GAAP financial measures provide useful informationabout our core operating results, and thus, are appropriate to enhance the overall understanding of our financial performance. These non-GAAP measures areintended to provide management and investors a more complete understanding of our underlying operational results, trends and performance. 65 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The performance of a radio broadcasting company is customarily measured by the ability of its stations to generate SOI. We define SOI as net broadcastrevenue less broadcast operating expenses. Accordingly, changes in net broadcast revenue and broadcast operating expenses, as explained above, have adirect impact on changes in SOI. SOI is not a measure of performance calculated in accordance with GAAP. SOI should be viewed as a supplement to and nota substitute for our results of operations presented on the basis of GAAP. We believe that SOI is a useful non-GAAP financial measure to investors, whenconsidered in conjunction with operating income (the most directly comparable GAAP financial measure to SOI), because it is generally recognized by theradio broadcasting industry as a tool in measuring performance and in applying valuation methodologies for companies in the media, entertainment andcommunications industries. SOI is commonly used by investors and analysts who report on the industry to provide comparisons between broadcastinggroups. We use SOI as one of the key measures of operating efficiency and profitability, including our internal reviews associated with impairment analysis ofour indefinite-lived intangible assets. SOI does not purport to represent cash provided by operating activities. Our statement of cash flows presents our cashactivity in accordance with GAAP and our income statement presents our financial performance prepared in accordance with GAAP. Our definition of SOI isnot necessarily comparable to similarly titled measures reported by other companies. Same station operating results include those stations that we own or operate in the same format on the first and last day of each quarter as well as thecorresponding quarter of the prior year. Same station results for a full calendar year are calculated as the sum of the same station-results for each of the fourquarters of that year. Same station results for our annual report are calculated as the sum of the same station-results for each of the four quarters of that year.We use same station results, a non-GAAP financial measure, both in presenting our results to stockholders and the investment community, and in our internalevaluation and management of the business. Our presentation of same station results are not intended to be considered in isolation or as a substitute for thefinancial information prepared and presented in accordance with GAAP. Our definition of same station operating results is not necessarily comparable tosimilarly titled measures reported by other companies. We apply a similar methodology to our digital media and publishing group. Digital media operating income is defined as net digital media revenueminus digital media operating expenses. Publishing operating income is defined as net publishing revenue minus publishing operating expenses. DigitalMedia Operating Income and Publishing Operating Income are not measures of performance in accordance with GAAP. Our presentations of these non-GAAPperformance measures are not to be considered a substitute for or superior to our operating results reported in accordance with GAAP. We believe that DigitalMedia Operating Income and Publishing Media Operating Income are useful non-GAAP financial measures to investors, when considered in conjunctionwith operating income (the most directly comparable GAAP financial measure), because they are comparable to those used to measure performance of ourbroadcasting entities. We use this analysis as one of the key measures of operating efficiency, profitability and in our internal review. This measurement doesnot purport to represent cash provided by operating activities. Our statement of cash flows presents our cash activity in accordance with GAAP and ourincome statement presents our financial performance in accordance with GAAP. Our definitions of digital media operating income and publishing operatingincome are not necessarily comparable to similarly titled measures reported by other companies. We define EBITDA as net income before interest, taxes, depreciation, amortization and change in fair value of interest rate swaps. We define AdjustedEBITDA as EBITDA before gains or losses on the sale or disposal of assets, changes in the estimated fair value of contingent earn-out consideration, netmiscellaneous income and expenses, and non-cash compensation expense. EBITDA and Adjusted EBITDA are commonly used by the broadcast and mediaindustry as important measures of performance and are used by investors and analysts who report on the industry to provide meaningful comparisons betweenbroadcasters. EBITDA and Adjusted EBITDA are not measures of liquidity or of performance in accordance with GAAP, and should be viewed as asupplement to and not a substitute for or superior to our results of operations and financial condition presented in accordance with GAAP. Our definitions ofEBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures reported by other companies. We define free cash flow as Adjusted EBITDA less cash paid for capital expenditures, less cash paid for income taxes, and less cash paid for interest. Weconsider free cash flow to be a performance measure that provides useful information to management and investors about the amount of cash generated by ouroperations after cash paid for capital expenditures, income taxes and interest. A limitation of free cash flow as a measure of financial performance is that itdoes not represent the total increase or decrease in our cash balance for the period. We use free cash flow, a non-GAAP financial measure, both in presentingour results to stockholders and the investment community, and in our internal evaluation and management of the business. Our presentation of free cash flowis not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Our definitionof free cash flow is not necessarily comparable to similarly titled measures reported by other companies. For all non-GAAP measures, investors should consider the limitations associated with these metrics, including the potential lack of comparability of thismeasure from one company to another. 66 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The table below shows the non-GAAP performance indicators that we believe provide useful information to our management and investors. We use thesenon-GAAP measures to evaluate financial performance, develop budgets, manage expenditures, and determine employee compensation. Our presentation ofthis additional information is not to be considered as a substitute for or superior to net income or loss as reported in accordance with GAAP. Year Ended December 31, Non-GAAP Financial Measures 2013 2014 2015 (Dollars in thousands) Station Operating Income $58,687 $54,359 $55,860 Digital Media Operating Income 9,415 10,630 9,886 Publishing Operating Income (loss) (1,046) 608 (932)EBITDA 21,981 47,715 52,280 Adjusted EBITDA 52,824 50,081 50,439 Free Cash Flow 25,300 25,943 26,987 In Item 6 of this 10-K, we present a reconciliation of these non-GAAP performance indicators to net income (loss), the most comparable GAAP measure.In the table below, we present a reconciliation of same station net broadcast revenue to net broadcast revenue, the most comparable GAAP measure and samestation broadcast operating expenses to broadcast operating expense, the most comparable GAAP measure. Our presentation of these non-GAAP performanceindicators are not to be considered a substitute for or superior to net income or loss as reported in accordance with GAAP. Year Ending December 31, 2014 2015 (Dollars in thousands) Reconciliation of Same Station Net Broadcast Revenue to Total Net Broadcast RevenueNet broadcast revenue – same station $192,705 $193,796 Net broadcast revenue – acquisitions 218 2,294 Total net broadcast revenue $192,923 $196,090 Reconciliation of Same Station Net Broadcast Operating Expenses to Total Net Broadcast Operating Expenses Net broadcast operating expenses – same station $138,278 $137,785 Net broadcast operating expenses – acquisitions 286 2,445 Total net broadcast operating expenses $138,564 $140,230 Reconciliation of Same Station Net Broadcast Operating Income (Loss) to Total Net Broadcast OperatingIncome Net broadcast operating income – same station $54,427 $56,011 Net broadcast operating income (loss) – acquisitions (68) (151)Total net broadcast operating income $54,359 $55,860 Year Ending December 31, 2013 2014 (Dollars in thousands) Reconciliation of Same Station Net Broadcast Revenue to Total Net Broadcast RevenueNet broadcast revenue – same station $188,479 $191,372 Net broadcast revenue – acquisitions 65 1,551 Total net broadcast revenue $188,544 $192,923 Reconciliation of Same Station Net Broadcast Operating Expenses to Total Net Broadcast Operating Expenses Net broadcast operating expenses – same station $129,721 $136,716 Net broadcast operating expenses – acquisitions 136 1,848 Total net broadcast operating expenses $129,857 $136,564 Reconciliation of Same Station Net Broadcast Operating Income (Loss) to Total Net Broadcast OperatingIncome Net broadcast operating income – same station $58,758 $54,656 Net broadcast operating income (loss) – acquisitions (71) (297)Total net broadcast operating income $58,687 $54,539 67 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have beenprepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect thereported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on anongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.Actual results may differ from these estimates under different assumptions or conditions. Significant areas for which management uses estimates include: ·asset impairments, including goodwill, broadcasting licenses 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; ·income tax valuation allowances; and ·uncertain tax positions. These estimates require the use of judgment as future events and the effect of these events cannot be predicted with certainty. The estimates will changeas new events occur, as more experience is acquired and as more information is obtained. We evaluate and update our assumptions and estimates on anongoing basis and we may consult outside experts to assist as considered necessary. We believe the following accounting policies and the related judgments and estimates are critical accounting policies that affect the preparation of ourconsolidated financial statements. For a more comprehensive list of our accounting policies, see Note 1, Significant Accounting Policies, of theaccompanying consolidated financial statements included in this annual report on Form 10-K. Note 1 contains several other policies which are important tothe preparation of our consolidated financial statements, but do not meet the SEC’s definition of critical accounting policies because they do not involvesubjective or complex judgments. Goodwill, Broadcast Licenses and Other Indefinite-Lived Intangible Assets Approximately 70% of our total assets at December 31, 2015 consist of indefinite-lived intangible assets including broadcast licenses, goodwill andmastheads. The value of these indefinite-lived intangible assets depends significantly upon the operating results of our businesses. We do not amortizegoodwill or other indefinite-lived intangible assets, but rather test for impairment at least annually or more frequently if events or circumstances indicate thatan asset may be impaired. We believe that our estimate of the value of our broadcast licenses, mastheads, and goodwill is a critical accounting estimate as the value is significant inrelation to our total assets, and our estimates incorporate variables and assumptions that are based on past experiences and judgment about future operatingperformance of our markets and business segments. If actual future results are less favorable than the assumptions and estimates we used, we are subject tofuture impairment charges, the amount of which may be material. The fair value measurements for our indefinite-lived intangible assets use significantunobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value including assumptionsabout risk. The unobservable inputs are defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” as Level 3 inputs discussed in detailin Note 9 of the accompanying consolidated financial statements included in this annual report on Form 10-K. We perform our annual impairment testing during the fourth quarter of each year, which coincides with our budget and planning process for theupcoming year. During our annual testing in the fourth quarter of 2015, we recognized an impairment charge of $0.4 million associated with the value ofgoodwill in our Singing News Network (formerly Solid Gospel Network.) During our annual testing in the fourth quarter of 2014, we recognized impairmentcharges of $79,000 associated with mastheads and goodwill within our magazine publishing segment. The impairments were driven by reductions in theprojected net revenues of the Singing News Network and of continual declines in revenues from our print magazines that were not offset with cost reductionsfrom the decrease in the number of publications printed. The growth of digital-only publications, which are often free or significantly less than a printmagazine has hindered the ability of the publishing industry to recover from the economic recession that began in 2008. We believe that the impairments areindicative of trends in the industry as a whole and are not unique to our company or operations. 68 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of our indefinite-lived intangible assets, however,these estimates and assumptions could be materially different from actual results. If actual market conditions are less favorable than those projected by theindustry or by us, or if events occur or circumstances change that would reduce the estimated fair value of our indefinite-lived intangible assets below theamounts reflected on our balance sheet, we may recognize future impairment charges, the amount of which may be material. Impairment of Long-Lived Assets We account for property and equipment in accordance with FASB ASC Topic 360-10, “Property, Plant and Equipment.” We periodically review ourlong-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. Inaccordance with authoritative guidance for impairment of long-lived assets, we must estimate the fair value of assets when events or circumstances indicatethat they may be impaired. The fair value measurements for our long-lived assets use significant observable inputs that reflect our own assumptions about theestimates that market participants would use in measuring fair value including assumptions about risk. If actual future results are less favorable than theassumptions and estimates we used, we are subject to future impairment charges, the amount of which may be material. We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of our long-lived assets, however, these estimatesand assumptions could be materially different from actual results. If actual market conditions are less favorable than those projected by the industry or by us,or if events occur or circumstances change that would reduce the estimated fair value of long-lived assets below the amounts reflected on our balance sheet,we may recognize future impairment charges, the amount of which may be material. Accounting for Acquisitions We account for business acquisitions in accordance with the acquisition method of accounting as specified in FASB ASC Topic 805 “BusinessCombinations.” The total acquisition consideration is allocated to assets acquired and liabilities assumed based on their estimated fair values as of the date ofthe transaction. Estimates of the fair value include discounted estimated cash flows to be generated by the assets and their expected useful lives based onhistorical experience, market trends and any synergies believed to be achieved from the acquisition. The excess of consideration paid over the estimated fairvalues of the net assets acquired is recorded as goodwill and any excess of fair value of the net assets acquired over the consideration paid is recorded as again on bargain purchase. Prior to recording a gain, the acquiring entity must reassess whether all acquired assets and assumed liabilities have been identifiedand recognized and perform re-measurements to verify that the consideration paid, assets acquired, and liabilities assumed have been properly valued. Weunderwent such a reassessment, and as a result, recorded a gain on the bargain purchase of $1.4 million, including a gain on bargain purchase of $0.8 millionfor WSDZ-AM in St. Louis, Missouri, $0.3 million for KDIZ-AM in Minneapolis, Minnesota, and $0.3 million for WWMI-AM in Tampa, Florida. We believethat these gains on bargain purchase resulted from various factors that may have impacted the acquisition price, including, without limitation, that Disneywas eager to divest of their Radio Disney properties. Acquisitions may include contingent earn-out consideration, the fair value of which is estimated as of the acquisition date as the present value of theexpected contingent payments as determined using weighted probabilities of the payment amounts. A majority of our radio station acquisitions have consisted primarily of the FCC licenses to broadcast in a particular market. We often do not acquire theexisting format, or we change the format upon acquisition when we find it beneficial. As a result, a substantial portion of the purchase price for the assets of aradio station is allocated to the broadcast license. We may retain a third-party appraiser to estimate the fair value of the acquired net assets as of the acquisition date. As part of the valuation and appraisalprocess, the third-party appraiser prepares a report assigning estimated fair values to the various asset categories in our financial statements. These fair valueestimates are subjective in nature and require careful consideration and judgment. Management reviews the third party reports for reasonableness of theassigned values. We believe that the purchase price allocations represent the appropriate estimated fair value of the assets acquired and we have not had tomodify our purchase price allocations. We estimate the economic life of each tangible and intangible asset acquired to determine the period of time in which the asset should be depreciated oramortized. A considerable amount of judgment is required in assessing the economic life of each asset. We consider our own experience with similar assets,industry trends, market conditions and the age of the property at the time of our acquisition to estimate the economic life of each asset. If the financialcondition of the assets were to deteriorate, the resulting change in life or impairment of the asset could cause a material impact and volatility in our operatingresults. We have not experienced changes in the economic life established for each major category of our assets. Accounting for Contingent Earn-Out Consideration Our acquisitions often include contingent earn-out consideration as part of the purchase price. The fair value of the contingent earn-out consideration isestimated as of the acquisition date based on the present value of the contingent payments expected to be made using a weighted probability of possiblepayments. The unobservable inputs used in the determination of the fair value of the contingent earn-out consideration include our own assumptions aboutthe likelihood of payment based on the established benchmarks and discount rates based on our internal rate of return analysis. The fair value measurementincludes inputs that are Level 3 measurement as discussed in Note 9 to our consolidated financial statements. 69 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We review the probabilities of possible future payments to the estimated fair value of any contingent earn-out consideration on a quarterly basis over theearn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results increase or decreaseas compared to the assumption used in our analysis, the fair value of the contingent earn-out consideration obligations will increase or decrease, up to thecontracted limit, as applicable. Changes in the fair value of the contingent earn-out consideration could cause a material impact and volatility in ouroperating results. We recorded a net increase to our estimated contingent earn-out liabilities of $0.7 million during the year ending December 31, 2014 andwe recorded a net decrease of $1.7 million for the year ending December 31, 2015. The changes in our estimates reflect volatility from variables, such asrevenue growth, page views and session time as discussed in Note 4 – Contingent Earn-Out Consideration of the accompanying consolidated financialstatements included in this annual report on Form 10-K. We believe that we have used reasonable estimates and assumptions to calculate the estimated fair value of all remaining contingent earn-outconsideration. Fair Value Measurements FASB ASC Topic 820, “Fair Value Measurements and Disclosures” established a single definition of fair value in generally accepted accountingprinciples and requires expanded disclosure requirements about fair value measurements. The provision applies to other accounting pronouncements thatrequire or permit fair value measurements. This includes applying the fair value concept to (i) nonfinancial assets and liabilities initially measured at fairvalue in business combinations; (ii) reporting units or nonfinancial assets and liabilities measured at fair value in conjunction with goodwill impairmenttesting; (iii) other nonfinancial assets measured at fair value in conjunction with impairment assessments; and (iv) asset retirement obligations initiallymeasured at fair value. The fair value provisions include guidance on how to estimate the fair value of assets and liabilities in the current economic environment andreemphasizes that the objective of a fair value measurement remains an exit price. If we were to conclude that there has been a significant decrease in thevolume and level of activity of the asset or liability in relation to normal market activities, quoted market values may not be representative of fair value andwe may conclude that a change in valuation technique or the use of multiple valuation techniques may be appropriate. The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Pricingobservability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market, and thecharacteristics specific to the transaction. Financial instruments with readily available active quoted prices or for which fair value can be measured fromactively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value.Conversely, financial instruments rarely traded or not quoted will generally have less (or no) pricing observability and a higher degree of judgment utilizedin measuring fair value. FASB ASC Topic 820 established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring fair value.This framework defined three levels of inputs to the fair value measurement process and requires that each fair value measurement be assigned to a levelcorresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three broad levels of inputs defined by the FASBASC Topic 820 hierarchy are as follows: •Level 1 Inputs—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access atthe measurement date;•Level 2 Inputs—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Ifthe asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability;and•Level 3 Inputs—unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about theassumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in thecircumstances (which might include the reporting entity’s own data). We believe that we have used reasonable estimates and assumptions to calculate the estimated fair value of our financial assets as discussed in Note 9 ofthe accompanying consolidated financial statements included in this annual report on Form 10-K. Contingency Reserves 70 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In the ordinary course of business, we are involved in various legal proceedings, lawsuits, arbitration and other claims that are complex in nature andhave outcomes that are difficult to predict. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financialimpact with respect to these matters. Certain of these proceedings are discussed in Note 11, Commitments and Contingencies, contained in our consolidatedfinancial statements. We record contingency reserves to the extent we conclude that it is probable that a liability has been incurred and the amount of the related loss can bereasonably estimated. The establishment of the reserve is based on a review of all relevant factors, the advice of legal counsel, and the subjective judgment ofmanagement. The reserves we have recorded to date have not been material to our consolidated financial position, results of operations or cash flows. Webelieve that our estimates and assumptions are reasonable and that our reserves are accurately reflected. While we believe that the final resolution of any known maters, individually and in the aggregate, will not have a material adverse effect upon ourconsolidated financial position, results of operations or cash flows, it is possible that we could incur additional losses. We maintain insurance that mayprovide coverage for such matters. Future claims against us, whether meritorious or not, could have a material adverse effect upon our consolidated financialposition, results of operations or cash flows, including losses due to costly litigation and losses due to matters that require significant amounts ofmanagement time that can result in the diversion of significant operational resources. Allowance for Doubtful Accounts We evaluate the balance reserved in our allowance for doubtful accounts on a quarterly basis based on our historical collection experience, the age of thereceivables, specific customer information and current economic conditions. Past due balances are generally not written-off until all of our collection effortshave been unsuccessful, including use of a collections agency. A considerable amount of judgment is required in assessing the likelihood of ultimaterealization of these receivables, including the current creditworthiness of each customer. If the financial condition of our customers were to deteriorate,resulting in an impairment of their ability to make payments, additional allowances may be required. We have not modified our estimate methodology andwe have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and thatour reserves are accurately reflected. Sales Returns and Allowances We provide for estimated returns for products sold with the right of return, primarily book sales associated with Regnery Publishing and nutritionalproducts sold through Eagle Wellness and Gene Smart. We record an estimate of these product returns as a reduction of revenue in the period of the sale. Ourestimates are based upon historical sales returns, the amount of current period sales, economic trends and any changes in customer demand and acceptance ofour products. We regularly monitor actual performance to estimated return rates and make adjustments as necessary. Estimated return rates utilized forestablishing estimated returns reserves have approximated actual returns experience. However, actual returns may differ significantly, either favorably orunfavorably, from these estimates if factors such as the historical data we used to calculate these estimates do not properly reflect future returns or as a resultof changes in economic conditions of the customer and/or the market. We have not modified our estimate methodology and we have not historicallyrecognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accuratelyreflected. Barter Transactions We may provide broadcast time or digital advertising placement to customers in exchange for certain products, supplies or services. The terms of theseexchanges generally permit for the preemption of such broadcast time or digital placements in favor of customers who purchase these items for cash. Weinclude the value of such exchanges in net revenues and operating expenses. The value recorded for barter revenue and barter expense is based uponmanagement’s estimate of the fair value of the products, supplies or services received. We believe that our estimates and assumptions are reasonable and thatour barter revenue and barter expense are accurately reflected. Inventory Reserves Inventories consist of finished goods, including published books and wellness products. Inventory is recorded at the lower of cost or market asdetermined on a First-In First-Out (“FIFO”) cost method. We reviewed historical data associated with book and wellness product inventories held by RegneryPublishing and our e-commerce wellness entities, as well as our own experiences to estimate the fair value of inventory on hand. Our analysis includes areview of actual sales returns, our allowances, royalty reserves, overall economic conditions and product demand. We record a provision to expense thebalance of unsold inventory that we believe to be unrecoverable. We regularly monitor actual performance to our estimates and make adjustments asnecessary. Estimated inventory reserves may be adjusted, either favorably or unfavorably, if factors such as the historical data we used to calculate theseestimates do not properly reflect future returns or as a result of changes in economic conditions of the customer and/or the market. We have not modified ourestimate methodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates andassumptions are reasonable and that our reserves are accurately reflected. 71 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Reserves for Royalty Advances Royalties due to book authors are paid in advance and capitalized. Royalties are expensed as the related book revenues are earned or when we determinethat future recovery of the royalty is not likely. We reviewed historical data associated with royalty advances, earnings and recoverability based on actualresults of Regnery Publishing. Historically, the longer the unearned portion of an advance remains outstanding, the less likely it is that we will recover theadvance through the sale of the book. We apply this historical experience to outstanding royalty advances to estimate the likelihood of recovery. A provisionwas established to expense the balance of any unearned advance which we believe is not recoverable. Our analysis also considers other discrete factors, suchas death of an author, any decision to not pursue publication of a title, poor market demand or other relevant factors. We have not modified our estimatemethodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions arereasonable and that our reserves are accurately reflected. Fair Value of Equity Awards We account for stock-based compensation under the provisions of FASB ASC Topic 718, “Compensation—Stock Compensation.” We record equityawards with stock-based compensation measured at the fair value of the award as of the grant date. We determine the fair value of our options using theBlack-Scholes option-pricing model that requires the input of highly subjective assumptions, including the expected stock price volatility and expected termof the options granted. The exercise price for options is equal to the closing market price of Salem Media Group common stock as of the date of grant. We usethe straight-line attribution method to recognize share-based compensation costs over the expected service period of the award. Upon exercise, cancellation,forfeiture, or expiration of stock options, or upon vesting or forfeiture of restricted stock awards, deferred tax assets for options and restricted stock awardswith multiple vesting dates are eliminated for each vesting period on a first-in, first-out basis as if each vesting period was a separate award. We have notmodified our estimates or assumptions. We believe that our estimates and assumptions are reasonable and that our stock based compensation is accuratelyreflected in our results of operations. Partial Self-Insurance on Employee Health Plan We provide health insurance benefits to eligible employees under a self-insured plan whereby the company pays actual medical claims subject to certainstop loss limits. We record self-insurance liabilities based on actual claims filed and an estimate of those claims incurred but not reported. Our estimates arebased on historical data and probabilities. Any projection of losses concerning our liability is subject to a high degree of variability. Among the causes ofthis variability are unpredictable external factors such as future inflation rates, changes in severity, benefit level changes, medical costs and claim settlementpatterns. Should the actual amount of claims increase or decrease beyond what was anticipated, we may adjust our future reserves. Our self-insurance liabilitywas $0.7 million and $0.9 million at December 31, 2015 and 2014, respectively. We have not modified our estimate methodology and we have nothistorically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reservesare accurately reflected. Income Tax Valuation Allowances (Deferred Taxes) For financial reporting purposes, we recorded a valuation allowance of $2.8 million as of December 31, 2015 to offset a portion of the deferred tax assetsrelated to the state net operating loss carryforwards. We regularly review our financial forecasts in an effort to determine our ability to utilize the netoperating loss carryforwards for tax purposes. Accordingly, the valuation allowance is adjusted periodically based on our estimate of the benefit thecompany will receive from such carryforwards. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected. Income Taxes and Uncertain Tax Positions We account for income taxes in accordance with FASB ASC Topic 740, “Income Taxes.” Deferred income taxes are determined based on the differencebetween the consolidated financial statement and income tax bases of assets and liabilities using enacted tax rates in effect in the years in which thedifferences are expected to reverse. Our evaluation was performed for tax years that remain subject to examination by major tax jurisdictions, which rangefrom 2011 through 2014. During 2015, we recognized a net decrease of $0.4 million in liabilities and at December 31, 2015, had $0.1 million in liabilities forunrecognized tax benefits. Included in this liability amount is approximately $20,000 of accrued interest, net of federal income tax benefits, and $6,000 forthe related penalties recorded in income tax expense on our consolidated financial statements included in this annual report on Form 10-K. Recent Accounting Pronouncements Changes to accounting principles are established by the FASB in the form of accounting standards updates (“ASU’s”) to the FASB’s Codification. Weconsider the applicability and impact of all ASU’s. ASU’s that are not listed below were assessed and determined to be not applicable to our financialposition, results of operations, cash flows, or presentation thereof. 72 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires that lessees recognize a right-of-use asset and a lease liability forall leases with lease terms greater than twelve months in the balance sheet. ASU 2016-02 requires additional disclosures including the significant judgmentsmade by management to provide insight into the revenue and expense to be recognized from existing contracts and the timing and uncertainty of cash flowsarising from leases. The standard is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. We have not yetevaluated the impact of the adoption of this accounting standard on our financial position, results of operations, cash flows, or presentation thereof. In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which providesupdated guidance that enhances the reporting model for financial instruments, including amendments, to address aspects of recognition, measurement,presentation and disclosure. The standard is effective for annual reporting periods beginning after December 15, 2017. With the exception of the earlyapplication guidance, early adoption of the amendments is not permitted. We have not yet evaluated the impact of the adoption of this accounting standardon our financial position, results of operations, cash flows, or presentation thereof. In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes” to simplify the presentation of deferred taxes inthe statement of financial position. The updated guidance requires that deferred tax assets and liabilities be classified as noncurrent in a classified balancesheet. The standard is effective for annual reporting periods beginning after December 15, 2016. Early application is permitted. We have not yet evaluatedthe impact of the adoption of this accounting standard on our financial position, results of operations, cash flows, or presentation thereof. In September 2015, the FASB issued ASU 2015-16, “Business Combinations, Simplifying the Accounting for Measurement Period Adjustments.” ThisASU requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in whichthe adjustment amounts are determined. This guidance for public entities is effective for fiscal years beginning after December 15, 2015, with early adoptionpermitted. We are in the process of evaluating the adoption of this ASU, but do not expect this to have a material effect on our financial position, results ofoperations or cash flows. In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” to reduce the complexity in accounting for inventory. ThisASU requires entities to measure inventory at the lower of cost or net realizable value, replacing the market value approach that required floor and ceilingconsiderations. This guidance for public entities is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. We are in theprocess of evaluating the adoption of this ASU, but do not expect this to have a material effect on our financial position, results of operations or cash flows. In June 2015, the FASB issued ASU 2015-10, “Technical Corrections and Improvements,” which covers a wide range of Topics in the Codification. Theamendments in this ASU represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to theCodification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost on most entities. Asthe objectives of this standard are to clarify the Codification; correct unintended application of guidance, eliminate inconsistencies, and to improve theCodification’s presentation of guidance, the adoption of this standard is not expected to have a material impact our financial position, results of operations,cash flows, or presentation thereof. In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presentedin the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The new standard is effective forfiscal years beginning after December 15, 2015, and for interim reporting periods within those fiscal years, with early adoption permitted. The new guidanceis to be applied on a retrospective basis and reported as a change in accounting principle. The adoption of ASU 2015-03 will affect our balance sheetpresentation only and is not expected to have a material impact on our financial position, results of operations or cash flows. In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): “Amendments to the Consolidation Analysis,” which modifies existingconsolidation guidance related to (i) limited partnerships and similar legal entities, (ii) the evaluation of variable interests for fees paid to decision makers orservice providers, (iii) the effect of fee arrangements and related parties on the primary beneficiary determination, and (iv) certain investment funds. Thesechanges reduce the number of consolidation models from four to two and place more emphasis on the risk of loss when determining a controlling financialinterest. This guidance is effective for fiscal years beginning after December 15, 2015. We are in the process of evaluating the adoption of this ASU, but donot expect this to have a material effect on our financial position, results of operations or cash flows. In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entities Ability to Continue as a Going Concern,” which requiresmanagement to assess a company’s ability to continue as a going concern and to provide related footnote disclosures. The new standard providesmanagement with specific guidance on the assessments and related disclosures as well as provides a longer look-forward period as one year from the financialstatement issuance date. The new standard is effective for the annual period ending after December 15, 2016, with early adoption permitted. The adoption ofASU 2014-15 is not expected to have a material impact on our financial position, results of operations, cash flows, or presentation thereof. 73 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue towhich it expects to be entitled for the transfer of promised goods or services to customers. In August 2015, the FASB deferred the effective date of the newstandard by one year. The new standard is now effective as of the first interim period within annual reporting periods beginning on or after December 15,2017, and will replace most existing revenue recognition guidance in U.S. GAAP. Early adoption is not permitted. The standard permits the use of either theretrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements andrelated disclosures. We have not yet selected a transition method, nor have we determined the effect of ASU 2014-09 on our financial position, results ofoperations, cash flows, or presentation thereof. LIQUIDITY AND CAPITAL RESOURCES We have historically funded, and will continue to fund, expenditures for operations, administrative expenses, and capital expenditures from operatingcash flow, borrowings under credit facilities and, if necessary, proceeds from the sale of selected assets or businesses. We have historically financedacquisitions through borrowings, including borrowings under credit facilities and, to a lesser extent, from operating cash flow and from proceeds on selectedasset dispositions. We expect to fund future acquisitions from cash on hand, borrowings under our credit facilities, operating cash flow and possibly throughthe sale of income-producing assets or proceeds from debt and equity offerings. We believe that the borrowing capacity under our current credit facilitiesallows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve months. Our cash and cash equivalents balance increased to $0.1 million as of December 31, 2015 compared to $33,000 as of December 31, 2014. Workingcapital decreased $1.5 million to $13.1 million as of December 31, 2015 compared to $14.6 million as of December 31, 2014. Operating Cash Flows Our largest source of operating cash inflows are receipts from customers in exchange for advertising and programming. Other sources of operating cashinflows include cash receipts from customers for digital downloads and streaming, book sales, subscriptions, ticket sales, sponsorships, and vendorpromotions. A majority of our operating cash outflows consist of payments to employees, such as salaries and benefits, and vendor payments under facilityand tower leases, talent agreements, inventory purchases and recurring services such as utilities and music license fees. Net cash provided by operating activities during the year ending December 31, 2015 decreased by $5.8 million to $36.1 million compared to $41.9million during the prior year. The decrease in cash provided by operating activities includes the impact of the following items: ·Net operating income increased $5.7 million to $11.2 million compared to $5.5 million for the prior year;·Net accounts receivable decreased $1.2 million;·Our Day’s Sales Outstanding, or the average number of days to collect cash from the date of sale, increased to 68 days at December 31, 2015compared to 65 days for the prior year;·Net accounts payable and accrued expenses increased $0.8 million to $16.5 million for the year ending December 31, 2015 compared to anincrease of $3.8 million to $15.7 million for prior year; and·Net inventories on hand increased $0.3 million to $0.9 million at December 31, 2015 compared to $0.6 million for the prior year. Investing Cash Flows Our primary source of investing cash inflows includes proceeds from the sale or disposal of assets or businesses. Our investing cash outflows include cashpayments made to acquire businesses, to acquire property and equipment and to acquire intangible assets such as domain names. While our focus continuesto be on deleveraging the company, we remain committed to explore and pursue strategic acquisitions. During the year ending December 31, 2015, wecompleted a number of broadcast acquisitions, most notable from Disney’s divestiture of its Radio Disney properties. Of the eleven radio stations that weacquired during 2015, ten were former Radio Disney properties. With the exception of WSDZ-AM in the St. Louis, Missouri market, each of theseacquisitions were in markets in which we already have broadcast facilities and staff, or “tuck-in” acquisitions. Tuck-in acquisitions are made when we believeit is advantageous to increase the strength and number of our broadcast signals while minimizing costs under our market cluster-operating concept. The St.Louis market, being one of the top 25 radio markets in the United States, provides a unique opportunity to expand our platform in a new market. 74 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our acquisition agreements for Daily Bible Devotional, Bryan Perry Newsletters, Eagle Publishing and Twitchy.com, each contain contingent earn-outarrangements that are payable in the future based on the achievement of predefined operating results. We believe that these contingent earn-out arrangementsprovide some degree of protection with regard to our cash outflows should these acquisitions not meet our operational expectations. We expect to close on several transaction in the first half of 2016. We plan to fund these acquisitions from cash on hand, borrowings under our creditfacilities, and operating cash flow. On December 15, 2015, we entered an APA to acquire an FM Translator in Columbus, Ohio for $0.4 million in cash. Thetransaction is expected to close in the first half of 2016. We also have the option to acquire radio station KHTE-FM, Little Rock, Arkansas, for $1.2 million ofcash during our the 36-month Time Brokerage Agreement (“TBA”) that is extendable to 48 months. The TBA began on April 1, 2015, at which time webegan programming the station. The accompanying consolidated statements of operations included in this annual report on Form 10-K reflect the operatingresults of this entity as of the TBA date. Other acquisition agreements that we entered after our balance sheet date include (see Note 18 – Subsequent Events): ·On March 8, 2016, we acquired King James Bible mobile applications for $4.0 million, of which $2.7 million of cash was paid upon close, $0.3million is due upon finalization of banking arrangements for revenue receipts, $0.4 million is due 90 days from the closing date, and threedeferred payments of $0.2 million each are due 180, 270 and 360 days from the close, respectively. ·On February 22, 2016, we entered an APA to acquire an FM Translator in Amherst, New York for $60,000 in cash. The transaction is expected toclose in the first half of 2016. ·On January 27, 2016, we entered an APA to acquire a construction permit for an FM Translator in Charlotte, Michigan for $50,000 in cash. Thetransaction is expected to close in the first half of 2016. ·On January 27, 2016, we entered an APA to acquire a construction permit for an FM Translator in Kerrville, Texas for $50,000 in cash. Thetransaction is expected to close in the first half of 2016. ·On January 25, 2016, we entered an APA to acquire an FM Translator in Lincoln, Maine for $100,000 in cash. The transaction is expected toclose in the first half of 2016. ·On January 25, 2016, we entered an APA to acquire a construction permit for an FM Translator in Atwood, Kentucky for $88,000 in cash. Thetransaction is expected to close in the first half of 2016. ·On January 25, 2016, we entered an APA to acquire a construction permit for an FM Translator in Emporia, Kansas for $25,000 in cash. Thetransaction is expected to close in the first half of 2016. We undertake projects from time to time to upgrade our radio station technical facilities and/or FCC broadcast licenses, expand our digital and web-based offerings, improve our facilities and upgrade our computer infrastructures. The nature and timing of these upgrades and expenditures can be delayed orscaled back at the discretion of management. Based on our current plans, we expect to incur capital expenditures of approximately $10.5 million during2016. Our capital projects include leasehold improvements for a new facility to relocate and consolidate our operations in the Washington DC area. We haverecorded non-cash GAAP rent expense of $0.4 million associated with the new facility including the straight-line amortization of rent expense over the rentalabatement period and the $1.8 million tenant improvement allowance. We expect to vacate our existing facilities upon completion of the build-out andminimize any potential exposure for duplicate cash outflows for rents. Net cash used in investing activities during the year ending December 31, 2015 increased $7.5 million to $29.2 million compared to $21.7 millionduring the prior year. The increase in cash used for investing activities includes: ·Cash paid for acquisitions increased $4.2 million to $16.9 million compared to $12.7 million during the prior year;·Cash paid for capital expenditures decreased $0.5 million to $8.8 million compared to $9.4 million during the prior year; and·Capital expenditures for leasehold improvements that are reimbursable as tenant improvement allowances increased $2.3 million to $3.0million compared to $0.7 million during the prior year. Financing Cash Flows Financing cash inflows include borrowings under our credit facilities and any proceeds from the exercise of stock options issued under our stockincentive plan. Financing cash outflows include repayments of our credit facilities, the payment of equity distributions and payments of amounts due underdeferred installments and contingency earn-out consideration associated with acquisition activity. 75 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We believe that cash payments for deferred installments and earn-out contingencies that were entered contemporaneously with an acquisition areappropriately reflected as financing activities. These payments are similar to seller financing arrangements in that cash payments are typically due one tothree years after the acquisition date. We referred to guidance in FASB ASC Topic 230-10-45-13 (c) which states that only advance payments, downpayments, or other amounts paid at the time of purchase or soon before or after a purchase of property, plant, and equipment and other productive assets areinvesting cash outflows. The guidance clarifies that incurring directly related debt to the seller is a financing transaction and that subsequent payments ofthat debt are financing cash outflows. During the year ending December 31, 2015, we paid $1.2 million in cash for contingent earn-out consideration dueunder acquisition agreements and $0.9 million in cash for the remaining balance of the first deferred installment associated with our acquisition of Eagleentities. The early payment of $1.5 million on June 6, 2014, against the $2.5 million deferred installment that was due pursuant to the purchase agreementwith Eagle was recorded as an investing cash outflow due to the proximity of the payment to the closing date. During the year ending December 31, 2015, the balances outstanding under our credit facilities ranged from $274.0 million to $282.0 million. Theseoutstanding balances were ordinary and customary based on our operating and investing cash needs during this time. We have paid total cash equity distributions of $6.6 million during the year ending December 31, 2015 on our Class A and Class B common stock. Theactual declaration of dividends and equity distributions, as well as the establishment of per share amounts, dates of record, and payment dates are subject tofinal determination by our Board of Directors and dependent upon future earnings, cash flows, financial requirements, and other factors. The current policy ofthe Board of Directors is to review each of these factors on a quarterly basis to determine the appropriate amount, if any, to allocate toward a cash distributionwith the general principle of using approximately 20% of free cash flow. Free cash flow is a non-GAAP financial measure defined in Item 2, Management’sDiscussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K. Our sole source of cash available for making any future equity distributions is our operating cash flow, subject to our credit facilities, which containcovenants that restrict the payment of dividends and equity distributions unless certain specified conditions are satisfied. On March 10, 2016, we announceda quarterly equity distribution in the amount of $0.0650 per share on Class A and Class B common stock. The equity distribution will be paid on April 5,2016 to all Class A and Class B common stockholders of record as of March 22, 2016. Based on the number of shares of Class A and Class B common stockcurrently outstanding we expect to pay total annual equity distributions of approximately $6.6 million in 2016. Net cash used in financing activities during the year ending December 31, 2015 decreased $13.3 million to $6.9 million compared to $20.2 millionduring the prior year. The decrease in cash used for financing activities includes: ·We repaid $2.0 million of principal outstanding on the Term Loan B compared to $15.3 million of principal during the prior year;·We paid $1.2 million of cash for the amount earned under the contingent earn-out provision of our purchase agreements during the year endingDecember 31, 2015 compared to $0.3 million during the prior year,·We paid $0.9 million of cash against deferred installments due under our purchase agreements during the year ending December 31, 2015; and·We paid cash equity distributions of $6.6 million, on our Class A and Class B common stock compared to $6.2 million during the prior year. Term Loan B and Revolving Credit Facility On March 14, 2013, we entered into a senior secured credit facility, consisting of a term loan of $300.0 million (“Term Loan B”) and a revolving creditfacility of $25.0 million (“Revolver”). The Term Loan B was issued at a discount for total net proceeds of $298.5 million. The discount is being amortized tonon-cash interest expense over the life of the loan using the effective interest method. For each of the twelve months ended December 31, 2014 and 2015,approximately $0.2 million, respectively, of the discount has been recognized as interest expense including approximately $0.3 million and $27,000,respectively, of bank loan fees. The Term Loan B has a term of seven years, maturing in March 2020. During this term, the principal amount may be increased by up to an additional$60.0 million, subject to the terms and conditions of the credit agreement. We are required to make principal payments of $750,000 per quarter which beganon September 30, 2013 for the Term Loan B. Prepayments may be made against the outstanding balance of our Term Loan B. Each repayment of theoutstanding Term Loan B is applied ratably to each of the next four principal installments thereof in the direct order of maturity and thereafter to theremaining principal balance in reverse order of maturity. 76 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We have made prepayments on our Term Loan B, including interest through the date of the as follows: Date Principal Paid Unamortized Discount (Dollars in Thousands) January 30, 2015 $2,000 $15 December 31, 2014 4,000 16 November 28, 2014 4,000 15 September 29, 2014 5,000 18 March 31, 2014 2,250 8 December 30, 2013 750 3 September 30, 2013 4,000 16 June 28, 2013 4,000 14 The Revolver has a term of five years, maturing in March 2018. We report outstanding balances on our Revolver as short-term based on use of theRevolver to fund ordinary and customary operating cash needs with repayments made frequently. We believe that the borrowing capacity under our TermLoan B and Revolver allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at leastthe next twelve months. Borrowings under the Term Loan B may be made at LIBOR (subject to a floor of 1.00%) plus a spread of 3.50% or Wells Fargo’s base rate plus a spreadof 2.50%. Borrowings under the Revolver may be made at LIBOR or Wells Fargo’s base rate plus a spread determined by reference to our leverage ratio, as setforth in the pricing grid below. If an event of default occurs under the credit agreement, the applicable interest rate may increase by 2.00% per annum. AtDecember 31, 2015, the blended interest rate on amounts outstanding under the Term Loan B and Revolver was 4.83%. Revolver Pricing Pricing Level Consolidated Leverage Ratio Base Rate Loans LIBOR Loans 1 Less than 3.00 to 1.00 1.250% 2.250%2 Greater than or equal to 3.00 to 1.00 but less than 4.00 to 1.00 1.500% 2.500%3 Greater than or equal to 4.00 to 1.00 but less than 5.00 to 1.00 1.750% 2.750%4 Greater than or equal to 5.00 to 1.00 but less than 6.00 to 1.00 2.000% 3.000%5 Greater than or equal to 6.00 to 1.00 2.500% 3.500% The obligations under the credit agreement and the related loan documents are secured by liens on substantially all of the assets of Salem and itssubsidiaries, other than certain exceptions set forth in the Security Agreement, dated as of March 14, 2013, among Salem, the subsidiary guarantors partythereto, and Wells Fargo Bank, National Association, as Administrative Agent (the “Security Agreement”) and such other related loan documents. With respect to financial covenants, the credit agreement includes a minimum interest coverage ratio, which started at 1.50 to 1.0 and steps up to 2.50 to1.0 by 2016 and a maximum leverage ratio, which started at 6.75 to 1.0 and steps down to 5.75 to 1.0 by 2017. The credit agreement also includes othernegative covenants that are customary for credit facilities of this type, including covenants that, subject to exceptions described in the credit agreement,restrict the ability of Salem and its subsidiary guarantors: (i) to incur additional indebtedness; (ii) to make investments; (iii) to make equity distributions,loans or transfers of assets; (iv) to enter into, create, incur, assume or suffer to exist any liens; (v) to sell assets; (vi) to enter into transactions with affiliates; or(vii) to merge or consolidate with, or dispose of all or substantially all assets to, a third party. As of December 31, 2015, our leverage ratio was 5.47 to 1compared to our compliance covenant of 6.25 and our interest coverage ratio was 3.33 compared to our compliance ratio of 2.25. We were in compliance withour debt covenants under the credit facility at December 31, 2015. Terminated Senior Secured Second Lien Notes On December 1, 2009, we issued $300.0 million principal amount of our 95/8% Notes Senior Secured Second Lien Notes due 2016 (“Terminated 95/8%Notes”) at a discount for $298.1 million resulting in an effective yield of 9.75%. Interest was due and payable on June 15 and December 15 of each year,commencing June 15, 2010 until maturity. We were not required to make principal payments on the Terminated 95/8% Notes, which were due in full inDecember 2016. The Terminated 95/8% Notes were guaranteed by all of our existing domestic restricted subsidiaries. Upon issuance, we were required to pay$28.9 million per year in interest on the then outstanding Terminated 95/8% Notes. As of December 31, 2012, accrued interest on the Terminated 95/8%Notes was $0.9 million. The discount was being amortized to interest expense over the term of the Terminated 95/8% Notes based on the effective interestmethod. For the twelve months ended December 31, 2013, $37,000 of the discount, respectively, was recognized as interest expense. On March 14, 2013, we tendered for $212.6 million in aggregate principal amount of the Terminated 95/8% Notes for an aggregate purchase price of$240.3 million, or at a price equal to 110.65% of the face value of the Terminated 95/8% Notes in the Tender Offer. We paid $22.7 million for this repurchaseresulting in a $26.9 million pre-tax loss on the early retirement of long-term debt, which included approximately $0.8 million of unamortized discount and$2.9 million of bond issue costs associated with the Terminated 95/8% Notes. We issued a notice of redemption to redeem any of the Terminated 95/8% Notesthat remained outstanding after the expiration date of the Tender Offer. On June 3, 2013, we redeemed the remaining $0.9 million of the outstandingTerminated 95/8% Notes to satisfy and discharge Salem’s obligations under the indenture for the Terminated 95/8% Notes. The carrying value of theTerminated 95/8% Notes was $212.6 million at December 31, 2012. There are no outstanding Terminated 95/8% Notes as of the effectiveness of theredemption. 77 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Information regarding repurchases and redemptions of the Terminated 95/8% Notes is as follows: Date Principal Redeemed/Repurchased Premium Paid Unamortized Discount Bond Issue Costs (Dollars in thousands) June 3, 2013 $903 $27 $3 $- March 14, 2013 212,597 22,650 837 2,867 December 12, 2012 4,000 120 17 57 June 1, 2012 17,500 525 80 287 December 12, 2011 12,500 375 62 337 September 6, 2011 5,000 144 26 135 June 1, 2011 17,500 525 93 472 December 1, 2010 12,500 375 70 334 June 1, 2010 17,500 525 105 417 Terminated Senior Credit Facility On December 1, 2009, we entered into a Revolver (“Terminated Revolver”). We amended the Terminated Revolver on November 1, 2010 to increase theborrowing capacity from $30 million to $40 million. The amendment allowed us to use borrowings under the Revolver, subject to the “Available Amount” asdefined by the terms of the credit agreement, to redeem applicable portions of the Terminated 95/8% Notes. The calculation of the “Available Amount” alsopertained to the payment of dividends when the leverage ratio was above 5.0 to 1. On November 15, 2011, we completed the Second Amendment of the Terminated Revolver to, among other things, (1) extend the maturity date fromDecember 1, 2012 to December 1, 2014, (2) change the interest rate applicable to LIBOR or the Wells Fargo base rate plus a spread to be determined based onour leverage ratio, (3) allow us to borrow and repay unsecured indebtedness provided certain conditions are met and (4) include step-downs related to ourleverage ratio covenant. We incurred $0.5 million in fees to complete this amendment, which were being amortized over the remaining term of the agreement.The applicable interest rate relating to the amended credit agreement was LIBOR plus a spread of 3.00% per annum or the Base Rate plus a spread of 1.25%per annum, which was adjustable based on our leverage ratio. If an event of default occurred, the interest rate could be increased by 2.00% per annum. Detailsof the change in our rate based on our leverage ratio were as follows: Consolidated Leverage Ratio Base Rate Eurodollar Rate Loans Applicable Fee Rate Less than 3.25 to 1.00 0.75% 2.25% 0.40%Greater than or equal to 3.25 to 1.00 but less than 4.50 to 1.00 0.75% 2.50% 0.50%Greater than or equal to 4.50 to 1.00 but less than 6.00 to 1.00 1.25% 3.00% 0.60%Greater than or equal to 6.00 to 1.00 2.25% 3.50% 0.75% The Terminated Revolver included a $5 million subfacility for standby letters of credit and a subfacility for swingline loans of up to $5 million, subjectto the terms and conditions of the credit agreement relating to the Terminated Revolver. In addition to interest charges outlined above, we paid acommitment fee on the unused balance based on the Applicable Fee Rate in the above table. The Terminated Revolver was terminated on March 14, 2013 upon entry into our current senior secured credit facility. This termination resulted in a $0.9million pre-tax loss on the early retirement of long-term debt related to unamortized credit facility fees. There was no outstanding balance on the TerminatedRevolver as of the termination date. Terminated Subordinated Credit Facility with First California Bank On May 21, 2012, we entered into a Business Loan Agreement, Promissory Note and related loan documents with First California Bank (the “FCBLoan”). The FCB Loan was an unsecured, $10.0 million fixed-term loan with a maturity date of June 15, 2014. The interest rate for the FCB Loan (“InterestRate”) was variable and was equal to the greater of: (a) 4.250% or (b) the Wall Street Journal Prime Rate as published in The Wall Street Journal and reportedby FCB plus 1%. We were required to repay the FCB Loan as follows: (a) twenty-three (23) consecutive monthly interest payments based upon the then-current principalbalance outstanding at the then-current Interest Rate commencing on September 15, 2012; (b) seven (7) quarterly consecutive principal payments of $1.25million each commencing on September 15, 2012; and (c) one (1) final principal and interest payment on June 15, 2014 of all outstanding and unpaidinterest and principal as of such maturity date. The FCB Loan could be prepaid at any time subject to a minimum interest charge of fifty dollars ($50). If anevent of default occurred on the FCB Loan, the Interest Rate could have been increased by 5.00% per annum. 78 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The FCB loan was terminated on March 14, 2013 upon entry into our current senior secured credit facility. This termination resulted in a $33,000 pre-taxloss on the early retirement of long-term debt for unamortized credit facility fees. There was no outstanding balance on the FCB Loan as of the terminationdate. Terminated Subordinated Debt due to Related Parties On November 17, 2011, we entered into subordinated lines of credit “Terminated Subordinated Debt due Related Parties” with Edward G. Atsinger III,Chief Executive Officer and director of Salem, and Stuart W. Epperson, Chairman of Salem’s Board of Directors. Pursuant to the related agreements, Mr.Epperson committed to provide an unsecured revolving line of credit to Salem in a principal amount of up to $3 million, and Mr. Atsinger committed toprovide an unsecured revolving line of credit in a principal amount of up to $6 million. On May 21, 2012, we also entered into a subordinated line of creditwith Roland S. Hinz, a Salem board member. Mr. Hinz committed to provide an unsecured revolving line of credit in a principal amount of up to $6 million.On September 12, 2012, we amended and restated the original subordinated line of credit with Mr. Hinz to increase the unsecured revolving line of credit by$6 million for a total line of credit of up to $12 million. The proceeds of the Terminated Subordinated Debt due to Related Parties could be used to repurchase a portion of the Terminated 95/8% Notes.Outstanding amounts under each subordinated line of credit bore interest at a rate equal to the lesser of (1) 5% per annum and (2) the maximum rate permittedfor subordinated debt under the Terminated Revolver referred to above plus 2% per annum. Interest was payable at the time of any repayment of principal. Inaddition, outstanding amounts under each subordinated line of credit were required to be repaid within three (3) months from the time that such amounts wereborrowed, with the exception of the subordinated line of credit with Mr. Hinz, which was to be repaid within six (6) months from the time that such amountswere borrowed. The Terminated Subordinated Debt due to Related Parties did not contain any covenants. On March 14, 2013, we repaid these lines of creditupon entry into our current senior secured credit facility. On April 3, 2013, we provided written notice to Messrs. Atsinger, Epperson and Hinz electing toterminate the Terminated Subordinated Debt due to Related Parties and related agreements effective as of May 3, 2013. There were no outstanding balanceson the Terminated Subordinated Debt due to Related Parties as of the termination date. Summary of long-term debt obligations Long-term debt consisted of the following: As of December 31, 2014 As of December 31, 2015 (Dollars in thousands) Term Loan B $274,933 $273,136 Revolver 1,784 3,306 Capital leases and other loans 788 674 277,505 277,116 Less current portion (1,898) (5,662) $275,607 $271,454 In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of December 31, 2015: ·Outstanding borrowings of $274.0 million under the Term Loan B with interest payments due at LIBOR (subject to a floor of 1.00%) plus3.50% or prime rate plus 2.50%; and·Outstanding borrowings of $3.3 million under the Revolver, with interest payments due at LIBOR plus 3.00% or at prime rate plus 2.00%.·Commitment fees of 0.50% on any unused portion of the revolver. Other Debt We have several capital leases related to office equipment. The obligation recorded at December 31, 2014 and 2015 represents the present value of futurecommitments under the capital lease agreements. 79 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Maturities of Long-Term Debt Principal repayment requirements under all long-term debt agreements outstanding at December 31, 2015 for each of the next five years and thereafterare as follows: Amount For the Twelve Months Ended December 31, (Dollars in thousands) 2016 $5,662 2017 3,113 2018 3,105 2019 3,103 2020 3,106 Thereafter 259,027 $277,116 Impairment Losses on Goodwill and Indefinite-Lived Intangible Assets Under FASB ASC Topic 350 “Intangibles—Goodwill and Other,” indefinite-lived intangibles, including broadcast licenses, goodwill and mastheads arenot amortized but instead are tested for impairment at least annually, or more frequently if events or circumstances indicate that there may be an impairment.Impairment is measured as the excess of the carrying value of the indefinite-lived intangible asset over its fair value. Intangible assets that have finite usefullives continue to be amortized over their useful lives and are measured for impairment if events or circumstances indicate that they may be impaired.Impairment losses are recorded as operating expenses. We have incurred significant impairment losses in prior years with regard to our indefinite-livedintangible assets. We perform our annual impairment testing during the fourth quarter of each year, which coincides with our budget and planning process for theupcoming year. During our annual testing in the fourth quarter of 2015, we recognized an impairment charge of $0.4 million associated with the value ofgoodwill associated with the Singing News Network (formerly Solid Gospel Network.) During our annual testing in the fourth quarter of 2014, we recognizedimpairment charges of $79,000 associated with mastheads and goodwill within our magazine publishing segment. The impairments were driven byreductions in the projected net revenues of the Singing News Network and of continual declines in revenues from our print magazines that were not offsetwith cost reductions from the decrease in the number of publications printed. The growth of digital-only publications, which are often free or significantlyless than a print magazine has hindered the ability of the publishing industry to recover from the economic recession that began in 2008. We believe that theimpairments are indicative of trends in the industry as a whole and are not unique to our company or operations. We believe that our estimate of the value of our broadcast licenses, mastheads, and goodwill is a critical accounting estimate as the value is significant inrelation to our total assets, and our estimates incorporate variables and assumptions that are based on past experiences and judgment about future operatingperformance of our markets and business segments. If actual future results are less favorable than the assumptions and estimates we used, we are subject tofuture impairment charges, the amount of which may be material. The fair value measurements for our indefinite-lived intangible assets use significantunobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value including assumptionsabout risk. The unobservable inputs are defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” as Level 3 inputs discussed in detailin Note 9 of the accompanying consolidated financial statements included in this annual report on Form 10-K. The valuation of intangible assets is subjective and based on estimates rather than precise calculations. The fair value measurements of our indefinite-lived intangible assets use significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use inmeasuring fair value including assumptions about risk. If actual future results are less favorable than the assumptions and estimates we used, we are subject tofuture impairment charges, the amount of which may be material. Given the current economic environment and uncertainties that can negatively impact ourbusiness, there can be no assurance that our estimates and assumptions made for the purpose of our indefinite-lived intangible fair value estimates will proveto be accurate. While the impairment charges we have recognized are non-cash in nature and do not violate the covenants on our Revolver and Term Loan B, thepotential for future impairment charges can be viewed as a negative factor with regard to forecasted future performance and cash flows. We believe that wehave adequately considered the potential for an economic downturn in our valuation models and do not believe that the non-cash impairments in and ofthemselves are a liquidity risk. OFF-BALANCE SHEET ARRANGEMENTS At December 31, 2014 and 2015, Salem did not have any relationships with unconsolidated entities or financial partnerships, such as entities oftenreferred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangementsor other contractually narrow or limited purposes. As such, Salem is not materially exposed to any financing, liquidity, market or credit risk that could arise ifSalem had engaged in such relationships. 80 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CONTRACTUAL OBLIGATIONS We enter into various agreements in the normal course of business that contain minimum guarantees. The typical minimum guarantee is tied to futurerevenue amounts that exceed the contractual level. Accordingly, the estimated fair value of these arrangements is zero. We undertake projects from time totime to upgrade our radio station technical facilities and/or FCC broadcast licenses, expand our Internet offerings, improve our facilities and update ourcomputer infrastructures. We expect to incur capital expenditures of approximately $10.5 million throughout the twelve months ending December 31, 2016;the nature and timing of these upgrades and expenditures can be delayed or scaled back at the discretion of management. The following table summarizes our aggregate contractual obligations at December 31, 2015, and the estimated timing and effect that such obligationsare expected to have on our liquidity and cash flow in future periods. Payments Due by Period Contractual Less than 1-3 3-5 More Than 5 Obligations Total One year years years years (Dollars in thousands) Long-term debt, including current portion $276,441 $5,555 $6,000 $6,000 $258,886 Interest payments on long-term debt (1) 52,924 12,511 25,001 15,405 7 Capital lease obligations and other loans 675 107 218 209 141 Operating leases 80,156 10,317 19,197 16,071 34,571 Deferred cash payments 2,492 2,492 — — — Contingent earn-out consideration(2) 775 173 602 — — Talent (3) 3,373 2,709 664 — — Other Contracts (4) 5,723 4,523 — 1,200 — Total contractual cash obligations $422,559 $38,837 $51,682 $38,885 $293,605 (1)Interest payments on long-term debt are based on the outstanding debt and respective interest rates with interest rates on variable-rate debt heldconstant through maturity at the December 31, 2015 rates. Interest ultimately paid on these obligations will differ based on changes in interestrates for variable-rate debt, as well as any potential repayments or future refinancing. See Note 8 to the accompanying consolidated financialstatements included in this annual report on Form 10-K for further details. (2)Maximum amount of contingent earn-out consideration payable over two years associated with our acquisitions of Daily Bible Devotion on May6, 2015, Bryan Perry Newsletters on February 6, 2015 and Eagle Publishing on January 10, 2014. See Note 4 to the accompanying consolidatedfinancial statements included in this annual report on Form 10-K for further details. (3)Talent agreements are typically one to three years in length with various renewal dates. The liability shown is based on agreements in effect as ofDecember 31, 2015. Future payments will vary as the agreements are renewed. (4)Other contracts consist of purchase commitments, including APA’s as of December 31, 2015. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. DERIVATIVE INSTRUMENTS We are exposed to fluctuations in interest rates. We actively monitor these fluctuations and use derivative instruments from time to time to manage therelated risk. In accordance with our risk management strategy, we use derivative instruments only for the purpose of managing risk associated with an asset,liability, committed transaction, or probable forecasted transaction that is identified by management. Our use of derivative instruments may result in short-term gains or losses that may increase the volatility of our earnings. Under FASB ASC Topic 815 “Derivatives and Hedging” the effective portion of the gain or loss on a derivative instrument designated and qualifying asa cash flow hedging instrument shall be reported as a component of other comprehensive income (outside earnings) and reclassified into earnings in the sameperiod or periods during which the hedged forecasted transaction affects earnings. The remaining gain or loss on the derivative instrument, if any, shall berecognized currently in earnings. On March 27, 2013, we entered into an interest rate swap agreement with Wells Fargo Bank, N.A. that began on March 28, 2014 with a notional principalamount of $150.0 million. The agreement was entered to offset risks associated with the variable interest rate on our Term Loan B. Payments on the swap aredue on a quarterly basis with a LIBOR floor of 0.625%. The swap expires on March 28, 2019 at a fixed rate of 1.645%. The interest rate swap agreement wasnot designated as a cash flow hedge, and as a result, all changes in the fair value are recognized in the current period statement of operations rather thanthrough other comprehensive income. We recorded a long-term liability of $0.8 million as of December 31, 2015, representing the fair value of the interestrate swap agreement. The swap was valued based on observable inputs for similar assets and liabilities and other observable inputs for interest rates and yieldcurves, which are classified within Level 2 inputs in the fair value hierarchy described below and in Note 9 to our consolidated financial statements includedin this annual report on Form 10-K. As of December 31, 2014 As of December 31, 2015 (Dollars in thousands) Fair value of interest rate swap asset (liability) $475 $(798) 81 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS PAGEReport of Independent Registered Public Accounting Firm83 Consolidated Balance Sheets as of December 31, 2014 and 201584 Consolidated Statements of Operations for the years ended December 31, 2013, 2014 and 201585 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013, 2014 and 201587 Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2014 and 201588 Notes to Consolidated Financial Statements90 82 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and StockholdersSalem Media Group, Inc.We have audited the accompanying consolidated balance sheets of Salem Media Group, Inc. and subsidiaries (collectively, the “Company”) as of December31, 2015 and 2014, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period endedDecember 31, 2015. Our audits also included the financial statement schedule of the Company listed in Item 15(a). These consolidated financial statementsand financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidatedfinancial statements and schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, inconformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation tothe basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal controlover financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission in 2013, and our report dated March 11, 2016 expressed an unqualified opinion on the effectivenessof Company’s internal control over financial reporting. /s/ SingerLewak LLPLos Angeles, CaliforniaMarch 11, 2016 83 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SALEM MEDIA GROUP, INC.CONSOLIDATED BALANCE SHEETS(Dollars in thousands, except share and per share data) December 31, 2014 2015 ASSETS Current assets: Cash and cash equivalents $33 $98 Trade accounts receivable (net of allowances of $12,727 in 2014 and $13,479 in 2015) 34,781 36,029 Other receivables 3,546 1,981 Inventories (net of reserves of $1,227 in 2014 and $1,855 in 2015) 572 893 Prepaid expenses 5,580 6,285 Deferred income taxes 8,153 9,813 Assets held for sale 1,700 1,700 Total current assets 54,365 56,799 Notes receivable (net of allowance of $539 in 2014 and $528 in 2015) 228 173 Fair value of interest rate swap 475 — Property and equipment (net of accumulated depreciation of $155,495 in 2014 and $162,382 in2015) 99,227 105,483 Broadcast licenses 385,726 393,031 Goodwill 24,684 24,563 Other indefinite-lived intangible assets 833 833 Amortizable intangible assets (net of accumulated amortization of $34,130 in 2014 and $39,454 in2015) 12,395 11,481 Deferred financing costs 3,166 2,512 Other assets 2,060 2,500 Total assets $583,159 $597,375 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $2,964 $5,177 Accrued expenses 12,704 11,301 Accrued compensation and related expenses 8,777 8,297 Accrued interest 48 16 Current portion of deferred revenue 13,205 13,128 Income tax payable 154 73 Current portion of long-term debt and capital lease obligations 1,898 5,662 Total current liabilities 39,750 43,654 Long-term debt and capital lease obligations, less current portion 275,607 271,454 Fair value of interest rate swap — 798 Deferred income taxes 49,109 57,082 Deferred revenue less current portion 10,576 13,930 Other long-term liabilities 4,123 636 Total liabilities 379,165 387,554 Commitments and contingencies (Note 11) Stockholders’ Equity: Class A common stock, $0.01 par value; authorized 80,000,000 shares; 22,082,140 and22,246,134 issued and 19,764,490 and 19,928,484 outstanding at December 31, 2014 and 2015,respectively 221 223 Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued andoutstanding at December 31, 2014 and 2015, respectively 56 56 Additional paid-in capital 240,493 241,780 Accumulated earnings (deficit) (2,770) 1,768 Treasury stock, at cost (2,317,650 shares at December 31, 2014 and 2015) (34,006) (34,006)Total stockholders’ equity 203,994 209,821 Total liabilities and stockholders’ equity $583,159 $597,375 See accompanying notes 84 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SALEM MEDIA GROUP, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(Dollars in thousands, except share and per share data) Year Ended December 31, 2013 2014 2015 Net broadcast revenue $188,544 $192,923 $196,090 Net digital media revenue 35,156 46,862 45,855 Net publishing revenue 13,234 26,751 23,842 Total net revenue 236,934 266,536 265,787 Operating expenses: Broadcast operating expenses, exclusive of depreciation and amortization shownbelow (including $1,428, $1,454 and $1,509 for the years ended December 31,2013, 2014 and 2015, respectively, paid to related parties) 129,857 138,564 140,230 Digital media operating expenses, exclusive of depreciation and amortizationshown below 25,741 36,232 35,969 Publishing operating expenses exclusive of depreciation and amortization shownbelow 14,280 26,143 24,774 Unallocated corporate expenses, exclusive of depreciation and amortization shownbelow (including $239, $274 and $133 for the years ended December 31, 2013,2014 and 2015, respectively, paid to related parties) 16,081 17,092 15,146 Depreciation 12,448 12,629 12,417 Amortization 2,814 6,196 5,324 Change in the estimated fair value of contingent earn-out consideration — 734 (1,715)Impairment of indefinite-lived long-term assets other than goodwill 1,006 34 — Impairment of goodwill 438 45 439 (Gain) loss on the sale or disposal of assets (264) 251 181 Total operating expenses 202,401 237,920 232,765 Operating income from continuing operations 34,533 28,616 33,022 Other income (expense): Interest income 68 45 8 Interest expense, net of capitalized interest (including $154, $0 and $0 for the yearsended December 31, 2013, 2014 and 2015, respectively, due to related parties) (16,892) (15,993) (15,429)Change in the fair value of interest rate swap 3,177 (2,702) (1,273)Gain on bargain purchase — — 1,357 Loss on early retirement of long-term debt (27,795) (391) (41)Net miscellaneous income and (expenses) 18 665 201 Income (loss) from continuing operations before income taxes (6,891) 10,240 17,845 Provision for (benefit from) income taxes (4,192) 4,765 6,695 Income (loss) from continuing operations (2,699) 5,475 11,150 Loss from discontinued operations, net of tax (37) — — Net income (loss) $(2,736) $5,475 $11,150 See accompanying notes 85 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SALEM MEDIA GROUP, INC.CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)(Dollars in thousands, except share and per share data) Year Ended December 31, 2013 2014 2015 Basic earnings (loss) per share data: Earnings (loss) per share from continuing operations $(0.11) $0.21 $0.43 Earnings (loss) per share from discontinued operations — — — Basic earnings (loss) per share $(0.11) $0.21 $0.43 Diluted earnings (loss) per share data: Earnings (loss) per share from continuing operations $(0.11) $0.21 $0.43 Earnings (loss) from discontinued operations — — — Diluted earnings (loss) per share $(0.11) $0.21 $0.43 Distributions per share $0.21 $0.24 $0.26 Basic weighted average shares outstanding 24,938,075 25,336,809 25,426,732 Diluted weighted average shares outstanding 24,938,075 26,081,175 25,887,819 See accompanying notes 86 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SALEM MEDIA GROUP, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(Dollars in thousands, except share data) Class A Class B Additional Retained Common Stock Common Stock Paid-In Earnings Treasury Shares Amount Shares Amount Capital (Accumulated Deficit) Stock Total Stockholders' equity,December 31, 2012 21,312,510 213 5,553,696 56 233,974 5,832 (34,006) 206,069 Stock-basedcompensation — — — — 1,849 — — 1,849 Lapse of restrictedshares 79,810 — — — — — — — Options exercised 410,983 5 — — 1,417 — — 1,422 Tax benefit related tostock optionsexercised — — — — 339 — — 339 Cash distributions — — — — — (5,158) — (5,158)Net loss — — — — — (2,736) — (2,736)Stockholders' equity,December 31, 2013 21,803,303 218 5,553,696 56 237,579 (2,062) (34,006) 201,785 Stock-basedcompensation — — — — 1,576 — — 1,576 Options exercised 278,837 3 — — 1,218 — — 1,221 Tax benefit related tostock optionsexercised — — — — 120 — — 120 Cash distributions — — — — — (6,183) — (6,183)Net income — — — — — 5,475 — 5,475 Stockholders' equity,December 31, 2014 22,082,140 221 5,553,696 56 240,493 (2,770) (34,006) 203,994 Stock-basedcompensation — — — — 771 — — 771 Options exercised 163,994 2 — — 383 — — 385 Tax benefit related tostock optionsexercised — — — — 133 — — 133 Cash distributions — — — — — (6,612) — (6,612)Net income — — — — — 11,150 — 11,150 Stockholders' equity,December 31, 2015 22,246,134 223 5,553,696 56 241,780 1,768 (34,006) 209,821 87 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SALEM MEDIA GROUP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in thousands) Year Ended December 31, 2013 2014 2015 OPERATING ACTIVITIES Income (loss) from continuing operations $(2,699) $5,475 $11,150 Adjustments to reconcile income (loss) from continuing operations to net cash provided bycontinuing operating activities: Non-cash stock-based compensation 1,849 1,576 771 Tax benefit related to stock options exercised 339 120 133 Depreciation and amortization 15,262 18,825 17,741 Amortization of deferred financing costs 853 643 628 Accretion of financing items 194 187 188 Accretion of acquisition-related deferred payments and contingent earn-outconsideration — 576 349 Provision for bad debts 3,456 3,026 1,733 Deferred income taxes (4,764) 4,375 6,313 Impairment of indefinite-lived long-term assets other than goodwill 1,006 34 — Impairment of goodwill 438 45 439 Change in the fair value of interest rate swaps (3,177) 2,702 1,273 Change in the estimated fair value of contingent earn-out consideration — 734 (1,715)(Gain) loss on the sale or disposal of assets (264) 251 181 Gain on bargain purchase — — (1,357)Loss on early retirement of debt 27,795 391 41 Changes in operating assets and liabilities: Accounts receivable (3,049) 4,756 1,958 Inventories — (27) (307)Prepaid expenses and other current assets (50) 237 (705)Accounts payable and accrued expenses (4,733) 4,041 (3,090)Deferred revenue (3,688) (4,929) (216)Other liabilities — (1,125) 703 Income taxes payable (33) 12 (81)Net cash provided by continuing operating activities 28,735 41,925 36,130 INVESTING ACTIVITIES Cash paid for capital expenditures net of tenant improvement allowances (10,639) (9,363) (8,833)Capital expenditures reimbursable under tenant improvement allowances and tradeagreements — (711) (3,034)Escrow deposits related to acquisitions 81 (65) — Purchases of broadcast assets and radio stations (5,500) (6,195) (12,411)Purchases of digital media businesses and assets (1,977) (3,713) (4,472)Purchases of publishing businesses and assets — (2,774) — Proceeds from the sale of assets 477 1,370 10 Other (179) (283) (443)Net cash used in investing activities (17,737) (21,734) (29,183)FINANCING ACTIVITIES Payments to redeem Terminated 95/8% Notes (213,500) — — Payments of bond premium in connection with early redemptions and repurchases of theTerminated 95/8% Notes (22,677) — — Proceeds from borrowings under Term Loan B 298,500 — — Payments under Term Loan B (8,750) (15,250) (2,000)Proceeds from borrowings under Revolver 30,961 56,510 60,219 Payments under Revolver (30,961) (54,726) (58,698)Payments of costs related to bank credit facility (4,394) (13) — Proceeds from borrowings under terminated credit facilities and subordinated debt 46,747 — — See accompanying notes 88 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SALEM MEDIA GROUP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)(Dollars in thousands) Year Ended December 31, 2013 2014 2015 Payments under terminated credit facilities and subordinated debt (87,220) — — Payments to Terminated Subordinated Debt due to Related Parties (15,000) — — Payments of acquisition-related contingent earn-out consideration — (300) (1,204)Payments of deferred installments due from acquisition activity — — (935)Payment of seller financed note (2,000) — — Proceeds from exercise of stock options 1,422 1,221 385 Payment of cash distribution on common stock (5,158) (6,183) (6,612)Payments on capital lease obligations (122) (130) (112)Book overdraft 876 (1,352) 2,075 Net cash used in financing activities (11,276) (20,223) (6,882)CASH FLOWS FROM DISCONTINUED OPERATIONS Operating cash flows (37) — — Total cash outflows from discontinued operations (37) — — Net increase (decrease) in cash and cash equivalents (315) (32) 65 Cash and cash equivalents at beginning of period 380 65 33 Cash and cash equivalents at end of period $65 $33 $98 Supplemental disclosures of cash flow information: Cash paid during the period for: Cash paid for interest net of capitalized interest (including $296, $0 and $0 for the yearsended December 31, 2013, 2014 and 2015, respectively, of interest paid to related parties) $16,747 $14,518 $14,289 Cash paid for income taxes $242 $257 $330 Other supplemental disclosures of cash flow information: Barter revenue $5,917 $6,227 $6,204 Barter expense $4,897 $6,052 $5,990 Non-cash investing and financing activities: Present value of advertising credit payable $2,427 $— $— Seller financed note due directly to seller of station assets $2,000 $— $— Capital expenditures reimbursable under tenant improvement allowances $— $670 $2,998 Non-cash capital expenditures for property & equipment acquired under barter arrangements $— $41 $36 Estimated present value of contingent earn-out consideration $616 $2,047 $300 Current value of deferred cash payments (short-term) $300 $600 $21 Present value of deferred cash payments (due 2015) $— $893 $— Present value of deferred cash payments (due 2016) $— $2,289 $— Assets acquired under capital leases $118 $64 $— See accompanying notes 89 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SALEM MEDIA GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements of Salem Media Group, Inc. (“Salem” “we,” “us,” “our” or the “company”) include the companyand its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Description of Business Salem is a domestic multi-media company with integrated operations including radio broadcasting, digital media, and publishing. Effective as ofFebruary 19, 2015, we changed our name from Salem Communications Corporation to Salem Media Group, Inc. Salem was formed in 1986 as a Californiacorporation and was reincorporated in Delaware in 1999. Our content is intended for audiences interested in Christian and family-themed programming andconservative news talk. We maintain a website at www.salemmedia.com. Our foundational business is the ownership and operation of radio stations in large metropolitan markets. We also own and operate Salem RadioNetwork® (“SRN”), SRN News Network (“SNN”), Salem Music Network (“SMN”), Today’s Christian Music (“TCM”), Singing News Network (formerly SolidGospel Network) and Salem Media RepresentativesTM (“SMR”). SRN, SNN, SMN and Singing News Network are networks that develop, produce andsyndicate a broad range of programming specifically targeted to Christian and family-themed talk stations, music stations and general News Talk stationsthroughout the United States, including Salem owned and operated stations. SMR, a national advertising sales firm with offices in 8 U.S. cities, specializes inplacing national advertising on religious and other commercial radio stations. Web-based and digital content has been a significant growth area for Salem and continues to be a focus of future development. Salem Web Network™(“SWN”) and our other web-based businesses provide Christian and conservative-themed content, audio and video streaming, and other resources digitallythrough the web. SWN’s web portals include Christian content websites: OnePlace.com, Christianity.com, Crosswalk.com®, GodVine.com, Jesus.org andBibleStudyTools.com. Our conservative opinion websites, collectively known as Townhall Media, include Townhall.com™, HotAir.com, Twitchy.com,HumanEvents.com and RedState.com. We also issue digital newsletters, including Eagle Financial Publications, that provide market analysis and investmentstrategies for individual subscribers from financial commentators. Church product websites including WorshipHouseMedia.com, SermonSpice.com, andChurchStaffing.com offer downloads and service platforms to pastors and other educators. Our web content is accessible through all of our radio stationwebsites that feature content of interest to local listeners throughout the United States. Digital media also includes our e-commerce sites, Salem Consumer Products (“SCP”), Eagle Wellness and Gene Smart Wellness. SCP is our e-commercebusiness that sells books, DVD’s and editorial content developed by our on-air personalities. Eagle Wellness and Gene Smart Wellness are e-commerce sitesthat offer health advice and nutritional products. Our acquisition of Regnery Publishing expanded our publishing operations to include book publishing in addition to print magazines and our self-publishing service. Regnery Publishing has published dozens of bestselling books by leading conservative authors and personalities, including Ann Coulter,Newt Gingrich, David Limbaugh, Ed Klein, Mark Steyn and Dinesh D'Souza. Our publishing operating segment also includes Salem Publishing™ and XulonPress. Cash and Cash Equivalents We consider all highly liquid debt instruments, purchased with an initial maturity of three-months or less, to be cash equivalents. The carrying value ofour cash equivalents approximated fair value at each balance sheet date. Trade Accounts Receivable Trade accounts receivable represent receivables from customers for the sale of advertising, block program time, sponsorships and events, product sales,royalties, video and graphic downloads, subscriptions, and book sales. Our receivables are recorded as invoiced and represent claims that will be settled incash. The carrying value of our receivables, net of the allowance for doubtful accounts and estimated sales returns, represents their estimated net realizablevalue. Trade accounts receivable for our self-publishing services represent contractual amounts due under individual payment plans. These contractualreceivables are included in deferred revenue until the applicable earnings process is complete. 90 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Allowance for Doubtful Accounts We evaluate the balance reserved in our allowance for doubtful accounts on a quarterly basis based on our historical collection experience, the age of thereceivables, specific customer information and current economic conditions. Past due balances are generally not written-off until all of our collection effortshave been unsuccessful, including use of a collections agency. A considerable amount of judgment is required in assessing the likelihood of ultimaterealization of these receivables, including the current creditworthiness of each customer. If the financial condition of our customers were to deteriorate,resulting in an impairment of their ability to make payments, additional allowances may be required. We have not modified our estimate methodology andwe have not historically recognized significant losses from changes in our estimates. Inventory Inventories consist of finished goods, including published books and wellness products. Inventory is recorded at the lower of cost or market asdetermined on a First-In First-Out (“FIFO”) cost method. Inventory Reserves We reviewed historical data associated with book and wellness product inventories held by Regnery Publishing and our e-commerce wellness entities, aswell as our own experiences to estimate the fair value of inventory on hand. Our analysis includes a review of actual sales returns, our allowances, royaltyreserves, overall economic conditions and product demand. We record a provision to expense the balance of unsold inventory that we believe to beunrecoverable. We regularly monitor actual performance to our estimates and make adjustments as necessary. Estimated inventory reserves may be adjusted,either favorably or unfavorably, if factors such as the historical data we used to calculate these estimates do not properly reflect future returns or as a result ofchanges in economic conditions of the customer and/or the market. We have not modified our estimate methodology and we have not historically recognizedsignificant losses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected. Accounting for Property and Equipment Property and equipment are recorded at cost less accumulated depreciation. Cost represents the historical cost of acquiring the asset, including the costsnecessarily incurred to bring it to the condition and location necessary for its intended use. For assets constructed for our own use, such as towers andbuildings that are discrete projects for which costs are separately accumulated and for which construction takes considerable time, we record capitalizedinterest. The amount capitalized is the cost that could have been avoided had the asset not been constructed and is based on the average accumulatedexpenditures incurred over the capitalization period at the weighted average rate applicable to our outstanding variable rate debt. We capitalized interest of$0.2 million and $0.1 million during the years ended December 31, 2014 and 2015, respectively. Repair and maintenance costs are charged to expense asincurred. Improvements are capitalized when they extend the life of the asset or enhance the quality or ability of the asset to benefit operations. Depreciationis computed using the straight-line method over estimated useful lives as follows: Category Estimated LifeBuildings 40 yearsOffice furnishings and equipment 5 -10 yearsAntennae, towers and transmitting equipment 10 - 20 yearsStudio, production and mobile equipment 5 - 10 yearsComputer software and website development costs 3 yearsRecord and tape libraries 3 yearsAutomobiles 5 yearsLeasehold improvements Lesser of 15 years or life of lease The carrying value of property and equipment is evaluated periodically in relation to the operating performance and anticipated future cash flows of theunderlying radio stations and business units for indicators of impairment. When indicators of impairment are present, and the cash flows estimated to begenerated from these assets is less than the carrying value, an adjustment to reduce the carrying value to the fair market value of the assets is recorded. SeeNote 6 – Property and Equipment. Accounting for Internally Developed Software and Website Development Costs We capitalize costs incurred during the application development stage related to the development of internal-use software as specified in FASB ASCTopic 350-40 “Internal-Use Software.” Capitalized costs are generally amortized over the estimated useful life of three years. Costs incurred related to theconceptual design and maintenance of internal-use software are expensed as incurred. Website development activities include planning, design anddevelopment of graphics and content for new websites and operation of existing sites. Costs incurred that involve providing additional functions and featuresto the website are capitalized. Costs associated with website planning, maintenance, content development and training are expensed as incurred. Wecapitalized $2.2 million, $3.9 million and $1.5 million during the years ended December 31, 2015, 2014 and 2013, respectively, related to internallydeveloped software and website development costs. Amortization expense of amounts capitalized was $2.4 million, $2.4 million and $2.3 million for theyears ended December 31, 2015, 2014 and 2013, respectively. 91 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Accounting for Amortizable Intangible Assets Intangible assets are recorded at cost less accumulated amortization. Typically, intangible assets are acquired in conjunction with the acquisition ofbroadcast entities, digital media entities and publishing entities. These intangibles are amortized using the straight-line method over the following estimateduseful lives: Category Estimated LifeCustomer lists and contracts Lesser of 5 years or life of contractDomain and brand names 5 -7 yearsFavorable and assigned leases Lease TermSubscriber base and lists 3 - 7 yearsAuthor relationships 1 - 7 yearsNon-compete agreements 2 to 5 years The carrying value of our amortizable intangible assets are evaluated periodically in relation to the operating performance and anticipated future cashflows of the underlying radio stations and businesses for indicators of impairment. In accordance with FASB ASC Topic 360 “Property, Plant andEquipment,” when indicators of impairment are present and the undiscounted cash flows estimated to be generated from these assets are less than the carryingamounts of these assets, an adjustment to reduce the carrying value to the fair market value of these assets is recorded, if necessary. No adjustments to thecarrying amounts of our amortizable intangible assets were necessary during the years ended December 31, 2013, 2014 or 2015. See Note 7 – AmortizableIntangible Assets. Goodwill and Other Indefinite-Lived Intangible Assets Approximately 70% of our total assets as of December 31, 2015 consist of indefinite-lived intangible assets, such as broadcast licenses, goodwill andmastheads, the value of which depends significantly upon the operating results of our businesses. In the case of our radio stations, we would not be able tooperate the properties without the related FCC license for each property. Broadcast licenses are renewed with the FCC every eight years for a nominal costthat is expensed as incurred. We continually monitor our stations’ compliance with the various regulatory requirements. Historically, all of our broadcastlicenses have been renewed at the end of their respective periods, and we expect that all broadcast licenses will continue to be renewed in the future.Accordingly, we consider our broadcast licenses to be indefinite-lived intangible assets in accordance with FASB ASC Topic 350, “Intangibles – Goodwilland Other”. Broadcast licenses account for approximately 94% of our indefinite-lived intangible assets. Goodwill and magazine mastheads account for theremaining 6%. We do not amortize goodwill or other indefinite-lived intangible assets, but rather test for impairment at least annually or more frequently ifevents or circumstances indicate that an asset may be impaired. We complete our annual impairment tests in the fourth quarter of each year. See Note 2 –Impairment of Goodwill and Other Indefinite-Lived Intangible Assets. Accounting for Acquisitions We account for business acquisitions in accordance with the acquisition method of accounting as specified in FASB ASC Topic 805 “BusinessCombinations.” The total acquisition consideration is allocated to assets acquired and liabilities assumed based on their estimated fair values as of the date ofthe transaction. Estimates of the fair value include discounted estimated cash flows to be generated by the assets and their expected useful lives based onhistorical experience, market trends and any synergies believed to be achieved from the acquisition. The excess of consideration paid over the estimated fairvalues of the net assets acquired is recorded as goodwill and any excess of fair value of the net assets acquired over the consideration paid is recorded as again on bargain purchase. Prior to recording a gain, the acquiring entity must reassess whether all acquired assets and assumed liabilities have been identifiedand recognized and perform re-measurements to verify that the consideration paid, assets acquired, and liabilities assumed have been properly valued. Weunderwent such a reassessment, and as a result, recorded a gain on the bargain purchase of $1.4 million, including a gain on bargain purchase of $0.8 millionfor WSDZ-AM in St. Louis, Missouri, $0.3 million for KDIZ-AM in Minneapolis, Minnesota, and $0.3 million for WWMI-AM in Tampa, Florida. We believethat these gains on bargain purchase resulted from various factors that may have impacted the acquisition price, including, without limitation, that Disneywas eager to divest of their Radio Disney properties. A majority of our radio station acquisitions have consisted primarily of the FCC licenses to broadcast in a particular market. We often do not acquire theexisting format, or we change the format upon acquisition when we find it beneficial. As a result, a substantial portion of the purchase price for the assets of aradio station is allocated to the broadcast license. Property and equipment are recorded at their estimated fair value and depreciated on a straight-line basis over their estimated useful lives. Finite-livedintangible assets are recorded at their estimated fair value and amortized on a straight-line basis over their estimated useful lives. Costs associated withacquisitions, such as consulting and legal fees, are expensed as incurred in unallocated corporate operating expenses. 92 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Accounting for Contingent Earn-Out Consideration Our acquisitions often include contingent earn-out consideration as part of the purchase price. The fair value of the contingent earn-out consideration isestimated as of the acquisition date based on the present value of the expected contingent payments to be made using a weighted probability of possiblepayments. The unobservable inputs used in the determination of the fair value of the contingent earn-out consideration include our own assumptions aboutthe likelihood of payment based on the established benchmarks and discount rates based on our internal rate of return analysis. The fair value measurementincludes inputs that are Level 3 measurement as discussed in Note 9 to our consolidated financial statements included in this annual report on Form 10-K. We review the probabilities of possible future payments to the estimated fair value of any contingent earn-out consideration on a quarterly basis over theearn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results increase or decreaseas compared to the assumption used in our analysis, the fair value of the contingent earn-out consideration obligations will increase or decrease, up to thecontracted limit, as applicable. Changes in the fair value of the contingent earn-out consideration could cause a material impact and volatility in ouroperating results. See Note 4 – Contingent Earn-Out Consideration. Accounting for Discontinued Operations We regularly review underperforming assets to determine if a sale or disposal might be a better way to monetize the assets. When a station, group ofstations, or other asset group is considered for sale or disposal, we review the transaction to determine if or when the entity qualifies as a discontinuedoperation in accordance with the criteria of FASB ASC Topic 205-20 “Discontinued Operations.” In April 2014, the FASB issued authoritative guidancewhich raises the threshold for disposals to qualify as discontinued operations. Under the new guidance, a discontinued operation is (1) a component of anentity or group of components that have been disposed of or are classified as held for sale and represent a strategic shift that has or will have a major effect onan entity's operations and financial results, or (2) an acquired business that is classified as held for sale on the acquisition date. We elected to early-adopt theFASB guidance for discontinued operations issued in April 2014. Revenue Recognition Revenue is recognized as it is earned in accordance with applicable guidelines. We consider amounts to be earned once evidence of an arrangement hasbeen obtained, services are performed, fees are fixed or determinable and collectability is reasonably assured. We account for broadcast revenue from the sale of airtime for programs or spots as the program or advertisement is broadcast. Revenues are reported netof agency commissions, which are calculated as a stated percentage applied to gross billings. Digital revenue is recognized upon delivery of page-views,delivery of impressions as specified in the contract, delivery of the digital newsletter or email, or upon delivery of the advertisement or programming contentvia streaming. Revenues are reported net of agency commissions, which are calculated as a stated percentage applied to gross billings. Revenue from productsales and book sales are recognized upon shipment net of distribution fees and an allowance for sales returns. Revenues from advertisements in our printmagazines are recognized upon delivery of the publication net of agency commissions, which are calculated as a stated percentage applied to gross billings.Subscription revenue from our print magazines and digital newsletters is recognized over the life of the related subscription. Revenue recognition for multiple-deliverables We enter bundled advertising agreements that may include cross-promotions such as advertisements on our radio stations, digital banners, printmagazine placements, booth space at local events, or some combination thereof. The multiple deliverables contained in each agreement are accounted forseparately over their respective delivery period provided that they are separate units of accounting. The selling price for each deliverable is based on vendorspecific objective evidence, if available, or the estimated fair value of each deliverable. Objective evidence of the fair value includes the price charged foreach element when sold separately or the price that we would transact if the deliverable is sold regularly on a standalone basis. Arrangement consideration isallocated at the inception of each agreement to all deliverables using the relative selling price method. The relative selling price method allocates anydiscount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price. 93 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Sales Returns We provide for estimated returns for products sold with the right of return, primarily book sales associated with Regnery Publishing and nutritionalproducts sold through Eagle Wellness and Gene Smart. We record an estimate of these product returns as a reduction of revenue in the period of the sale. Ourestimates are based upon historical sales returns, the amount of current period sales, economic trends and any changes in customer demand and acceptance ofour products. We regularly monitor actual performance to estimated return rates and make adjustments as necessary. Estimated return rates utilized forestablishing estimated returns reserves have approximated actual returns experience. However, actual returns may differ significantly, either favorably orunfavorably, from these estimates if factors such as the historical data we used to calculate these estimates do not properly reflect future returns or as a resultof changes in economic conditions of the customer and/or the market. We have not modified our estimate methodology and we have not recognizedsignificant losses from changes in our estimates Barter Transactions We may provide broadcast time or digital advertising placement to customers in exchange for certain products, supplies or services. The terms of theseexchanges generally permit for the preemption of such broadcast time or digital placements in favor of customers who purchase these items for cash. Weinclude the value of such exchanges in net revenues and operating expenses. The value recorded for barter revenue and barter expense is based uponmanagement’s estimate of the fair value of the products, supplies or services received. . We believe that our estimates and assumptions are reasonable and thatour barter revenue and barter expense are accurately reflected. We record barter revenue as it is earned, typically when the broadcast time is used or the digital advertisement is delivered. We record barter expenseequal to the estimated fair value of the goods or services received upon receipt or usage of the items as applicable. Barter revenue included in broadcastrevenue for the years ended December 31, 2013, 2014 and 2015 was approximately $5.6 million, $6.0 million and $6.1 million, respectively. Barter expensesincluded in broadcast operating expense for the years ended December 31, 2013, 2014 and 2015 were approximately $4.8 million, $6.0 million and $5.9million, respectively. Accounting for Stock-Based Compensation We account for stock-based compensation under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification(“ASC”) Topic 718, “Compensation—Stock Compensation.” We record equity awards with stock-based compensation measured at the fair value of the awardas of the grant date. We determine the fair value of our options using the Black-Scholes option-pricing model that requires the input of highly subjectiveassumptions, including the expected stock price volatility and expected term of the options granted. The exercise price for options is equal to the closingmarket price of Salem Media Group common stock as of the date of grant. We use the straight-line attribution method to recognize share-based compensationcosts over the expected service period of the award. Upon exercise, cancellation, forfeiture, or expiration of stock options, or upon vesting or forfeiture ofrestricted stock awards, deferred tax assets for options and restricted stock awards with multiple vesting dates are eliminated for each vesting period on a first-in, first-out basis as if each vesting period was a separate award. See Note 12 – Stock Incentive Plan. s. Accounting for Advertising and Promotional Cost Costs of media advertising and associated production costs are expensed as incurred and amounted to approximately $11.3 million, $11.5 million and$10.0 million for each of the years ending December 31, 2015, 2014, and 2013, respectively. Leases We lease various facilities including broadcast tower and transmitter sites. When we enter a lease agreement, we review the terms to determine theappropriate classification of the lease as a capital lease or operating lease based on the factors listed in FASB ASC Topic 840 “Leases.” Our current leaseterms generally range from one to twenty-five years with rent expense recorded on a straight-line basis for financial reporting purposes. We also subleasetowers that we own under various agreements with other broadcasters. Subleases generally cover a sixty-year term, over which time we recognize rentalincome on a straight-line basis. Deferred rental revenue was $4.3 million as of December 31, 2015 compared to $4.4 million as of the prior year. Leasehold Improvements We may construct or otherwise invest in leasehold improvements to properties. The costs of these leasehold improvements are capitalized anddepreciated over the shorter of the estimated useful life of the improvement or the remaining lease term. 94 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Partial Self-Insurance on Employee Health Plan We provide health insurance benefits to eligible employees under a self-insured plan whereby the company pays actual medical claims subject to certainstop loss limits. We record self-insurance liabilities based on actual claims filed and an estimate of those claims incurred but not reported. Any projection oflosses concerning our liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors such as futureinflation rates, changes in severity, benefit level changes, medical costs and claim settlement patterns. Should the actual amount of claims increase ordecrease beyond what was anticipated, we may adjust our future reserves. Our self-insurance liability was $0.7 million and $0.9 million at December 31, 2015and 2014, respectively. Derivative Instruments We are exposed to fluctuations in interest rates. We actively monitor these fluctuations and use derivative instruments from time to time to manage therelated risk. In accordance with our risk management strategy, we may use derivative instruments only for the purpose of managing risk associated with anasset, liability, committed transaction, or probable forecasted transaction that is identified by management. Our use of derivative instruments may result inshort-term gains or losses that may increase the volatility of our earnings. Under FASB ASC Topic 815, “Derivatives and Hedging” the effective portion of the gain or loss on a derivative instrument designated and qualifying asa cash flow hedging instrument shall be reported as a component of other comprehensive income (outside earnings) and reclassified into earnings in the sameperiod or periods during which the hedged forecasted transaction affects earnings. The remaining gain or loss on the derivative instrument, if any, shall berecognized currently in earnings. On March 27, 2013, we entered into an interest rate swap agreement with Wells Fargo Bank, N.A. that began on March 28, 2014 with a notional principalamount of $150.0 million. The agreement was entered to offset risks associated with the variable interest rate on our Term Loan B. Payments on the swap aredue on a quarterly basis with a LIBOR floor of 0.625%. The swap expires on March 28, 2019 at a fixed rate of 1.645%. The interest rate swap agreement wasnot designated as a cash flow hedge, and as a result, all changes in the fair value are recognized in the current period statement of operations rather thanthrough other comprehensive income. We recorded a long-term liability of $0.8 million as of December 31, 2015, representing the fair value of the interestrate swap agreement. The swap was valued based on observable inputs for similar assets and liabilities and other observable inputs for interest rates and yieldcurves, which are classified within Level 2 inputs in the fair value hierarchy described below and in Note 9 to our consolidated financial statements includedin this annual report on Form 10-K. As of December 31, 2014 As of December 31, 2015 (Dollars in thousands) Fair value of interest rate swap asset (liability) $475 $(798) Fair Value Accounting As of December 31, 2015, the carrying value of cash and cash equivalents, trade accounts receivables, accounts payable, accrued expenses and accruedinterest approximates fair value due to the short-term nature of such instruments. The carrying value of other long-term liabilities approximates fair value asthe related interest rates approximate rates currently available to the company. See Note 9 – Fair Value Accounting. Long-term Debt and Debt Covenant Compliance Our classification of outstanding borrowings on our Term Loan B as long-term debt on our balance sheet is based on our assessment that, under the termsof our Credit Agreement and after considering our projected operating results and cash flows for the coming year, no principal payments are required to bemade. The Term Loan B has a term of seven years, maturing in March 2020. We are required to make principal payments of $750,000 per quarter, whichbegan on September 30, 2013. Prepayments may be made against the outstanding balance of our Term Loan B. Each repayment of the Term Loan B isapplied ratably to each of the next four principal installments thereof in the direct order of maturity and thereafter to the remaining principal balance inreverse order of maturity. Our projections of operating results and cash flows for the coming year are estimates dependent upon a number of factors including but not limited todevelopments in the markets in which we are operating in and varying economic and political factors. Accordingly, these projections are inherently uncertainand our actual results could differ from these estimates. 95 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Deferred Financing Costs Deferred financing costs consists of underwriting and legal fees incurred in conjunction with entering our Term Loan B and Revolver. These costs arebeing amortized to interest expense over the seven-year term of the Term Loan B and the five-year term of the Revolver. During the year ended December 31,2015, approximately $27,000 of the deferred financing costs were written off in conjunction with the early retirement of the Term Loan B compared to $0.3million during the prior year. Deferred financing costs were $2.5 million and $3.2 million at December 31, 2015 and 2014, respectively. Income Taxes and Uncertain Tax Positions We account for income taxes in accordance with FASB ASC Topic 740 “Income Taxes.” Deferred income taxes are determined based on the differencebetween the consolidated financial statement and income tax bases of assets and liabilities using enacted tax rates in effect in the years in which thedifferences are expected to reverse. See Note 10 – Income Taxes. Valuation Allowance (deferred taxes) For financial reporting purposes, we recorded a valuation allowance of $2.8 million as of December 31, 2015 to offset a portion of the deferred tax assetsrelated to the state net operating loss carryforwards. We regularly review our financial forecasts in an effort to determine our ability to utilize the netoperating loss carryforwards for tax purposes. Accordingly, the valuation allowance is adjusted periodically based on our estimate of the benefit thecompany will receive from such carryforwards. Royalty Advances to Authors Royalties due to book authors are paid in advance and capitalized. Royalties are expensed as the related book revenues are earned or when we determinethat future recovery of the royalty is not likely. We reviewed historical data associated with royalty advances, earnings and recoverability based on actualresults of Regnery Publishing. Historically, the longer the unearned portion of an advance remains outstanding, the less likely it is that we will recover theadvance through the sale of the book. We apply this historical experience to outstanding royalty advances to estimate the likelihood of recovery. A provisionwas established to expense the balance of any unearned advance which we believe is not recoverable. Our analysis also considers other discrete factors, suchas death of an author, any decision to not pursue publication of a title, poor market demand or other relevant factors. We have not modified our estimatemethodology and we have not historically recognized significant losses from changes in our estimates. We believe that our estimates and assumptions arereasonable and that our reserves are accurately reflected. Contingency reserves In the ordinary course of business, we are involved in various legal proceedings, lawsuits, arbitration and other claims which are complex in nature andhave outcomes that are difficult to predict. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financialimpact with respect to these matters. We record contingency reserves to the extent we conclude that it is probable that a liability has been incurred and the amount of the related loss can bereasonably estimated. The establishment of the reserve is based on a review of all relevant factors, the advice of legal counsel, and the subjective judgment ofmanagement. The reserves we have recorded to date have not been material to our consolidated financial position, results of operations or cash flows. Webelieve that our estimates and assumptions are reasonable and that our reserves are accurately reflected. While we believe that the final resolution of any known maters, individually and in the aggregate, will not have a material adverse effect upon ourconsolidated financial position, results of operations or cash flows, it is possible that we could incur additional losses. We maintain insurance that mayprovide coverage for such matters. Future claims against us, whether meritorious or not, could have a material adverse effect upon our consolidated financialposition, results of operations or cash flows, including losses due to costly litigation and losses due to matters that require significant amounts ofmanagement time that can result in the diversion of significant operational resources. See Note 11 – Commitments and Contingencies. Gain or Loss on the Sale or Disposal of Assets We record gains or losses on the sale or disposal of assets equal to the proceeds, if any, as compared to the net book value. Exchange transactions areaccounted for in accordance with FASB ASC Topic 845 “Non-Monetary Transactions.” For the year ended December 31, 2013, we recorded a $0.4 millionpre-tax gain on the partial sale of land in our Cleveland market and $0.1 million of insurance proceeds for damages at one of our stations offset by variousfixed asset and equipment disposals. For the year ended December 31, 2014, we recorded a $0.3 million pre-tax loss which included a $0.2 million lossassociated with the write-off of a receivable from a prior station sale, a $0.2 million loss from the sale of land and building in our Miami market, a $0.1million loss due to the relocation of our office and studio facility in our San Francisco market offset by $0.1 million of insurance proceeds from a claimassociated with one of our markets as well as other various fixed asset and equipment disposals. For the year ending December 31, 2015, we recorded a $0.2million pre-tax loss which included a $0.2 million charge associated with the relocation of our office and studio in our Seattle, Washington market offset byproceeds from various fixed asset and equipment disposals. 96 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Basic and Diluted Net Earnings Per Share Basic net earnings per share has been computed using the weighted average number of Class A and Class B shares of common stock outstanding duringthe period. Diluted net earnings per share is computed using the weighted average number of shares of Class A and Class B common stock outstanding duringthe period plus the dilutive effects of stock options. Options to purchase 2,162,067, 1,816,204 and 1,581,123 shares of Class A common stock were outstanding at December 31, 2013, 2014 and 2015,respectively. Diluted weighted average shares outstanding exclude outstanding stock options whose exercise price is in excess of the average price of thecompany’s stock price. These options are excluded from the respective computations of diluted net income or loss per share because their effect would beanti-dilutive. The number of anti-dilutive shares as of December 31, 2013, 2014 and 2015 was nil, 589,437 and 705,163, respectively. The following table sets forth the shares used to compute basic and diluted net earnings per share for the periods indicated: Year Ended December 31, 2013 2014 2015 Weighted average shares 24,938,075 25,336,809 25,426,732 Effect of dilutive securities - stock options — 744,366 461,087 Weighted average shares adjusted for dilutive securities 24,938,075 26,081,175 25,887,819 Segments Our operating segments reflect how our chief operating decision makers, which we define as a collective group of senior executives, assesses theperformance of each operating segment and determines the appropriate allocations of resources to each segment. Our operating segments do not all meet thequantitative thresholds to qualify as reportable segments; however, we have elected to disclose the results of these non-reportable operating segments as webelieve this information is useful to readers of our financial statements. We continue to review our operating segment classifications to align with operationalchanges in our business and may make future changes as necessary. See Note 17 – Segment Data. Variable Interest Entities We account for entities qualifying as variable interest entities (“VIEs”) in accordance with FASB ASC Topic 810, “Consolidation” which requires VIEsto be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interests in the VIE. A VIE is anentity for which the primary beneficiary’s interest in the entity can change with variations in factors other than the amount of investment in the entity. We may enter into LMAs contemporaneously with entering an APA to acquire or sell a radio station. We may also enter into TBAs. Typically, bothLMAs and TBAs are contractual agreements under which the station owner/licensee makes airtime available to a programmer/licensee in exchange for a feeand reimbursement of certain expenses. LMAs and TBAs are subject to compliance with the antitrust laws and the communications laws, including therequirement that the licensee must maintain independent control over the station and, in particular, its personnel, programming, and finances. The FCC hasheld that such agreements do not violate the communications laws as long as the licensee of the station receiving programming from another stationmaintains ultimate responsibility for, and control over, station operations and otherwise ensures compliance with the communications laws. The requirements of FASB ASC Topic 810 may apply to entities under LMAs or TBAs, depending on the facts and circumstances related to eachtransaction. As of December 31, 2015, we did not consolidate any entities with which we entered into LMAs or TBAs under the guidance in FASB ASC Topic810. Concentrations of Business Risks We derive a substantial part of our total revenues from the sale of advertising. For the years ended December 31, 2013, 2014 and 2015, 40.8%, 40.2% and39.4% of our total revenues, respectively, were generated from the sale of broadcast advertising. We are particularly dependent on revenue from stations inthe Los Angeles and Dallas markets, which generated 15.2% and 25.5% for the year ended December 31, 2013, 14.3% and 24.0% for the year endedDecember 31, 2014 and 14.7% and 24.5% for the year ended December 31, 2015. Because substantial portions of our revenues are derived from localadvertisers in these key markets, our ability to generate revenues in those markets could be adversely affected by local or regional economic downturns. 97 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Concentrations of Credit Risks Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents; trade accounts receivable andderivative instruments. We place our cash and cash equivalents with high quality financial institutions. Such balances may be in excess of the FederalDeposit Insurance Corporation insured limits. To manage the related credit exposure, we continually monitor the credit worthiness of the financialinstitutions where we have deposits. Concentrations of credit risk with respect to trade accounts receivable are limited due to the wide variety of customersand markets in which we provide services, as well as the dispersion of our operations across many geographic areas. We perform ongoing credit evaluations ofour customers, but generally do not require collateral to support customer receivables. We establish an allowance for doubtful accounts based on variousfactors including the credit risk of specific customers, age of receivables outstanding, historical trends, economic conditions and other information.Historically, our bad debt expense has been within management’s expectations. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amountsreported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant areas for which management uses estimates include: ·asset impairments, including goodwill, broadcasting licenses 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;·income tax valuation allowances; and·uncertain tax positions. These estimates require the use of judgment as future events and the effect of these events cannot be predicted with certainty. The estimates will changeas new events occur, as more experience is acquired and as more information is obtained. We evaluate and update our assumptions and estimates on anongoing basis and we may consult outside experts to assist as considered necessary. Reclassifications Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. Recent Accounting Pronouncements Changes to accounting principles are established by the FASB in the form of accounting standards updates (“ASU’s”) to the FASB’s Codification. Weconsider the applicability and impact of all ASU’s. ASU’s that are not listed below were assessed and determined to be not applicable to our financialposition, results of operations, cash flows, or presentation thereof. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires that lessees recognize a right-of-use asset and a lease liability forall leases with lease terms greater than twelve months in the balance sheet. ASU 2016-02 requires additional disclosures including the significant judgmentsmade by management to provide insight into the revenue and expense to be recognized from existing contracts and the timing and uncertainty of cash flowsarising from leases. The standard is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. We have not yetevaluated the impact of the adoption of this accounting standard on our financial position, results of operations, cash flows, or presentation thereof. 98 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which providesupdated guidance that enhances the reporting model for financial instruments, including amendments, to address aspects of recognition, measurement,presentation and disclosure. The standard is effective for annual reporting periods beginning after December 15, 2017. With the exception of the earlyapplication guidance, early adoption of the amendments is not permitted. We have not yet evaluated the impact of the adoption of this accounting standardon our financial position, results of operations, cash flows, or presentation thereof. In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes” to simplify the presentation of deferred taxes inthe statement of financial position. The updated guidance requires that deferred tax assets and liabilities be classified as noncurrent in a classified balancesheet. The standard is effective for annual reporting periods beginning after December 15, 2016. Early application is permitted. We have not yet evaluatedthe impact of the adoption of this accounting standard on our financial position, results of operations, cash flows, or presentation thereof. In September 2015, the FASB issued ASU 2015-16, “Business Combinations, Simplifying the Accounting for Measurement Period Adjustments.” ThisASU requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in whichthe adjustment amounts are determined. This guidance for public entities is effective for fiscal years beginning after December 15, 2015, with early adoptionpermitted. We are in the process of evaluating the adoption of this ASU, but do not expect this to have a material effect on our financial position, results ofoperations or cash flows. In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” to reduce the complexity in accounting for inventory. ThisASU requires entities to measure inventory at the lower of cost or net realizable value, replacing the market value approach that required floor and ceilingconsiderations. This guidance for public entities is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. We are in theprocess of evaluating the adoption of this ASU, but do not expect this to have a material effect on our financial position, results of operations or cash flows. In June 2015, the FASB issued ASU 2015-10, “Technical Corrections and Improvements,” which covers a wide range of Topics in the Codification. Theamendments in this ASU represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to theCodification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost on most entities. Asthe objectives of this standard are to clarify the Codification; correct unintended application of guidance, eliminate inconsistencies, and to improve theCodification’s presentation of guidance, the adoption of this standard is not expected to have a material impact our financial position, results of operations,cash flows, or presentation thereof. In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presentedin the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The new standard is effective forfiscal years beginning after December 15, 2015, and for interim reporting periods within those fiscal years, with early adoption permitted. The new guidanceis to be applied on a retrospective basis and reported as a change in accounting principle. The adoption of ASU 2015-03 will affect our balance sheetpresentation only and is not expected to have a material impact on our financial position, results of operations or cash flows. In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): “Amendments to the Consolidation Analysis,” which modifies existingconsolidation guidance related to (i) limited partnerships and similar legal entities, (ii) the evaluation of variable interests for fees paid to decision makers orservice providers, (iii) the effect of fee arrangements and related parties on the primary beneficiary determination, and (iv) certain investment funds. Thesechanges reduce the number of consolidation models from four to two and place more emphasis on the risk of loss when determining a controlling financialinterest. This guidance is effective for fiscal years beginning after December 15, 2015. We are in the process of evaluating the adoption of this ASU, but donot expect this to have a material effect on our financial position, results of operations or cash flows. In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entities Ability to Continue as a Going Concern,” which requiresmanagement to assess a company’s ability to continue as a going concern and to provide related footnote disclosures. The new standard providesmanagement with specific guidance on the assessments and related disclosures as well as provides a longer look-forward period as one year from the financialstatement issuance date. The new standard is effective for the annual period ending after December 15, 2016, with early adoption permitted. The adoption ofASU 2014-15 is not expected to have a material impact on our financial position, results of operations, cash flows, or presentation thereof. 99 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue towhich it expects to be entitled for the transfer of promised goods or services to customers. In August 2015, the FASB deferred the effective date of the newstandard by one year. The new standard is now effective as of the first interim period within annual reporting periods beginning on or after December 15,2017, and will replace most existing revenue recognition guidance in U.S. GAAP. Early adoption is not permitted. The standard permits the use of either theretrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements andrelated disclosures. We have not yet selected a transition method, nor have we determined the effect of ASU 2014-09 on our financial position, results ofoperations, cash flows, or presentation thereof. NOTE 2. IMPAIRMENT OF GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS Goodwill and other indefinite-lived intangible assets We account for goodwill and other indefinite-lived intangible assets in accordance with FASB ASC Topic 350 “Intangibles—Goodwill and Other.”Approximately 70% of our total assets as of December 31, 2015, consist of indefinite-lived intangible assets, such as broadcast licenses, goodwill andmastheads, the value of which depends significantly upon the operating results of our businesses. Broadcast licenses account for approximately 94% of ourindefinite-lived intangible assets. Goodwill and mastheads account for the remaining 6%. We do not amortize goodwill or other indefinite-lived intangibleassets, but rather test for impairment annually or more frequently if events or circumstances indicate that an asset may be impaired. We complete our annualimpairment tests in the fourth quarter of each year. We believe that our estimate of the value of our broadcast licenses, mastheads, and goodwill is a critical accounting estimate as the value is significant inrelation to our total assets, and our estimates incorporate variables and assumptions that are based on experiences and judgment about future operatingperformance of our markets and business segments. The fair value measurements for our indefinite-lived intangible assets use significant unobservable inputs that reflect our own assumptions about theestimates that market participants would use in measuring fair value including assumptions about risk. If actual future results are less favorable than theassumptions and estimates we used, we are subject to future impairment charges, the amount of which may be material. The fair value measurements for ourindefinite-lived intangible assets use significant unobservable inputs that reflect our own assumptions about the estimates that market participants would usein measuring fair value including assumptions about risk. The unobservable inputs are defined in FASB ASC Topic 820, “Fair Value Measurements andDisclosures” as Level 3 inputs discussed in detail in Note 9 to our Consolidated Financial Statements. In accordance with the FASB Accounting Standards Update (“ASU”) 2012-02, “Intangibles – Goodwill and Other (Topic 350)” we have the option toperform a qualitative assessment as to whether it is more likely than not that an indefinite-lived intangible asset is impaired. The qualitative assessmentrequires significant judgment in considering events and circumstances that may affect the estimated fair value of our indefinite-lived intangible assets andrequires that we weigh these events and circumstances by what we believe to be the strongest to weakest indicator of potential impairment. If it is more likelythan not that impairment exists, we are required to perform a quantitative analysis to estimate the fair value of the assets. ASU 2012-02 provides examples of events and circumstances that could affect the estimated fair value of indefinite-lived intangible assets; however, theexamples are not all-inclusive and are not by themselves indicators of impairment. We consider these events and circumstances, as well as other external andinternal considerations. Our analysis includes the following events and circumstances, which are presented in the order of what we believe to be the strongestto weakest indicators of impairment: (1)the difference between any recent fair value calculations and the carrying value;(2)financial performance, such as station operating income, including performance as compared to projected results used in prior estimates of fairvalue;(3)macroeconomic economic conditions, including limitations on accessing capital that could affect the discount rates used in prior estimates offair value;(4)industry and market considerations such as a declines in market-dependent multiples or metrics, a change in demand, competition, or othereconomic factors;(5)operating cost factors, such as increases in labor, that could have a negative effect on future expected earnings and cash flows;(6)legal, regulatory, contractual, political, business, or other factors;(7)other relevant entity-specific events such as changes in management or customers; and(8)any changes to the carrying amount of the indefinite-lived intangible asset. 100 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Broadcast licenses In the case of our broadcast radio stations, we would not be able to operate the properties without the related FCC broadcast license for each property.Broadcast licenses are renewed with the FCC every eight years for a nominal fee that is expensed as incurred. We continually monitor our stations’compliance with the various regulatory requirements that are necessary for FCC renewal and all of our broadcast licenses have been renewed at the end oftheir respective periods. We expect all of our broadcast licenses to be renewed in the future and therefore, we consider our broadcast licenses to be indefinite-lived intangible assets. The unit of accounting we use to test broadcast licenses is the cluster level, which we define as a group of radio stations operating in the same geographicmarket, sharing the same building and equipment and managed by a single general manager. The cluster level is the lowest level for which discrete financialinformation and cash flows are available and the level reviewed by management to analyze operating results. We perform a qualitative assessment for each of our broadcast market clusters. We review the significant assumptions and key estimates applicable to ourprior year estimated fair value calculations to assess if events and circumstances have occurred that could affect these assumptions and key estimates. We alsoreview internal benchmarks and the economic performance for each market cluster to assess if it is more likely than not that impairment exists. The first step of our qualitative assessment is to calculate excess fair value, or the amount by which our prior year estimated fair value exceeds the currentyear carrying value. We believe based on our analysis and review, including the financial performance of each market, that a 25% excess fair value margin isa conservative and reasonable benchmark for our qualitative analysis. Markets with an excess fair value of 25% or more, which have had no significantchanges in the prior year assumptions and key estimates, are not likely to be impaired. Of the twenty-seven markets for which a fair value appraisal was performed in the prior year, eight markets were subject to further testing. The tablebelow presents the percentage within a range by which our prior year start-up income estimated fair value exceeds the current year carrying value of ourbroadcasting licenses: Geographic Market Clusters as of December 31, 2015 Percentage Range By Which 2014 Estimated Fair Value Exceeds 2015 Carrying Value ≤25% >26%-50% >50% to 75% > than 75% Number of accounting units 8 5 3 11 Broadcast license carrying value (inthousands) $185,372 $66,914 $35,843 $51,941 The second step of our qualitative assessment consists of a review of the financial operating results for each market cluster. Radio stations are often soldon the basis of a multiple of projected cash flow, or station operating income less station operating expenses (“SOI”). Numerous trade organizations andanalysts review these radio station sales to track SOI multiples applicable to each transaction. Based on published reports and analysis of market transactions,we believe industry benchmarks to be in the six to seven times cash flow range. We elected an SOI benchmark of four as a conservative indicator of fair value.Using an SOI multiple to estimate fair value, we did not identify additional markets for further testing. We performed a quantitative analysis for three of our market clusters that we had not obtained an independent third party fair value appraisal for duringthe last annual testing period. The table below shows the percentage within a range by which our estimated fair value exceeded the carrying value of ourbroadcasting licenses for these three market clusters: Geographic Market Clusters as of December 31, 2015 Tested due to length of time from prior valuation >90% >140% Number of accounting units 2 1 Broadcast license carrying value (in thousands) $11,319 $4,242 We engaged an independent third-party appraisal and valuation firm to assist us in estimating the fair value of our broadcast licenses that were subject tofurther testing. Bond & Pecaro prepared valuations of the estimated fair value for the testing period ending December 31, 2013. Noble Financial CapitalMarkets prepared the valuations for the testing periods ending December 31, 2014 and December 31, 2015. In each of these years, the estimated fair value was determined using the Greenfield Method, a form of the income approach. The premise of theGreenfield Method is that the value of an FCC License is equivalent to a hypothetical start-up in which the only asset owned by the station as of thevaluation date is the FCC License. This approach eliminates factors that are unique to the operation of the station, including its format and historicalfinancial performance. The method then assumes the entity has to purchase, build, or rent all of the other assets needed to operate a comparable station to theone in which the FCC license is being utilized as of the valuation date. Cash flows are estimated and netted against all start-up costs, expenses andinvestments necessary to achieve a normalized and mature state of operations, thus reflecting only the cash flows directly attributable to the FCC License. Amulti-year discounted cash flow approach is then used to determine the net present value of these cash flows to derive an indication of fair value. For cashflows beyond the projection period, a terminal value is calculated using the Gordon constant growth model and long-term industry growth rate assumptionsbased on long-term industry growth and Gross Domestic Product (“GDP”) inflation rates. 101 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Broadcast Licenses December 31, 2013 December 31, 2014 December 31, 2015 Risk-adjusted discount rate 9.0% 8.0% 8.0%Operating profit margin ranges 4.1% - 37.5% (13.9%) - 30.8% (13.9%) - 30.8%Long-term market revenue growth rate ranges 1.0% - 2.5% 1.5% - 2.5% 2.0% The primary assumptions used in the Greenfield Method are (1)gross operating revenue in the station’s designated market area,(2)normalized market share,(3)normalized profit margin,(4)duration of the “ramp-up” period to reach normalized operations, (which was assumed to be three years),(5)estimated start-up costs (based on market size),(6)ongoing replacement costs of fixed assets and working capital,(7)the calculations of yearly net free cash flows to invested capital; and(8)amortization of the intangible asset, the FCC license. The assumptions used reflect those of a hypothetical market participant and not necessarily the actual or projected results of Salem. The key estimates and assumptions used in the start-up income valuation for our broadcast licenses were as follows: The risk-adjusted discount rate reflects the Weighted Average Cost of Capital (“WACC”) developed based on data from same or similar industryparticipants and publicly available market data as of the measurement date. The decrease in the WACC for 2014 as compared to 2013 was largely attributableto decreases in the risk free rate and corporate borrowing interest rates. Based on our review and analysis we determined that no impairment charges were necessary to the carrying value of our broadcast licenses as of theannual testing period ending December 31, 2015, December 31, 2014, and December 31, 2013, respectively. We performed a sensitivity analysis of certaincurrent year key assumptions, including the long-term revenue growth rate and the WACC, to determine the impact that such changes would have on theestimated fair value of our broadcast licenses. The sensitivity analysis indicated that a reduction in the long-term revenue growth rate and an increase in theWACC by 100 basis points would have resulted in an impairment to our broadcast licenses of $25.6 million. The table below presents the results of our impairment testing under the income approach for the 2015 annual testing period: Excess Fair Value Market Cluster 2015 Estimate Boston, MA 42.6%Chicago, IL 72.3%Colorado Springs, CO 142.8%Dallas, TX 10.9%Greenville, SC 95.5%Minneapolis, MN 92.2%Orlando FL 51.0%Phoenix, AZ 12.5%Portland, OR 2.2%Sacramento, CA 21.2%Tampa, FL 48.8% Mastheads Mastheads consist of the graphic elements that identify our publications to readers and advertisers. These include customized typeset page headers,section headers, and column graphics as well as other name and identity stylized elements within the body of each publication. We test the value ofmastheads as a single combined publishing entity as our print magazines operate from one shared facility under one general manager with operating resultsand cash flows reported on a combined basis for all publications. This is the lowest level for which discrete financial information and cash flows are availableand the level reviewed by management to analyze operating results. 102 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We regularly perform quantitative reviews of our mastheads due to the low margin by which our estimated fair values have exceeded our carrying value,and ongoing operating results that have not met or exceeded our expectations. We engaged an independent third-party appraisal firm to assist us inestimating the fair value of our mastheads using a relief from royalty method, a form of the income approach. Bond & Pecaro prepared valuations of theestimated fair value for the testing period ending December 31, 2013. Noble Financial Capital Markets prepared the valuations for the testing periods endingDecember 31, 2014 and December 31, 2015. The relief from royalty method estimates the fair value of mastheads through use of a discounted cash flow model that incorporates a hypothetical“royalty rate” that a third-party owner would be willing to pay in lieu of owning the asset. The royalty rate is based on observed royalty rates for comparableassets as of the measurement date. We adjust the selected royalty rate to account for a percentage of the royalty fee that could be attributed to the use of otherintangibles, such as goodwill, time in existence, trade secrets and industry expertise. The adjusted royalty rate represents the royalty fee remaining that couldbe attributed to the use of the masthead only. Pre-tax royalty income is based on a 10-year revenue forecast and assumed to carry on into perpetuity. Revenue beyond the projection period (terminalyear) is based on estimated long-term industry growth rates. The risk-adjusted discount rate used in the analysis is based on our WACC. The analysis alsoincorporated the present value of the tax amortization benefit associated with the mastheads. The key estimates and assumptions are as follows: Mastheads Interim June 30, 2013 December 31, 2013 December 31, 2014 December 31, 2015 Risk-adjusted discount rate 9.0% 9.5% 8.0% 8.0% Projected revenue growth ranges 1.0% - 2.8% 1.2% - 2.5% (4.8%) – 1.4% 2.1 – 2.9% Royalty growth rate 3.0% 2.0% 3.0% 3.0% Due to actual operating results that did not meet or exceed the expectations and assumptions used in our prior estimates of fair value, we performed aninterim valuation of our mastheads as of June 30, 2013. Based on our reductions in projected revenue growth and an increase in the risk-adjusted discountrate, we determined that the carrying value of the mastheads were less than their estimated fair value. We recorded an impairment charge of $0.3 millionassociated with the mastheads. During our annual testing for 2013 performed in the fourth quarter, we recorded an additional $0.7 million impairment chargebased on further reductions in the projected revenue growth and an increase in the discount rate from 9.0% to 9.5%. During our annual testing for 2014, which coincided with our budget and financial forecasts process for the following year, we decided to ceasepublishing Townhall Magazine as of December 2014. We reduced our projected net revenues for the following year and considered ceasing additional printmagazines in the future. Although we expected to realize cost savings from the reduction in the number of print magazines produced, we did not expect thecost savings to increase operating margins. Based on the reduction of projected net revenues and the potential to further reduce the number of magazinepublished, we recorded an impairment charge of $34,000 associated with magazine mastheads as of December 2014. Based on our review and analysis as of the December 2015 annual testing period, we determined that no impairment charges were necessary to thecarrying value of our mastheads. We performed a sensitivity analysis of certain current year key assumptions, including the long-term revenue growth rateand the WACC, to determine the impact that such changes would have on the estimated fair value of the mastheads. The sensitivity analysis indicated thatreducing the long-term revenue growth rate and increasing the WACC by 100 basis points would have resulted in an impairment to our mastheads of $0.2million. The table below presents the results of our impairment testing under the income approach for the 2015 annual testing period: Excess Fair Value Mastheads 2015 Estimate Print Magazines 1.1% The impairments recognized in 2013 and 2014 were driven by reductions in the projected net revenues and a reduction in the number of print magazinesproduced. The growth of digital-only publications, which are often free to readers or at a significantly reduced cost to readers, has hindered the ability of thepublishing industry to recover from the economic recession that began in 2008. We believe that the impairments are indicative of trends in the publishingindustry as a whole and are not unique to our company or operations. Goodwill – Broadcast Radio Stations The unit of accounting we use to test goodwill associated with our radio stations is the cluster level, which we define as a group of radio stationsoperating in the same geographic market, sharing the same building and equipment and managed by a single general manager. Nineteen of our 34 marketclusters have goodwill associated with them as of our annual testing period ending December 31, 2015. We perform a qualitative assessment to determine if events and circumstances have occurred that indicate it is more likely than not that the fair value ofthe assets in each of our market clusters are less than their carrying values. We review the significant inputs used in our prior year fair value estimates todetermine if any changes to those inputs should be made. We estimate fair value using a market approach and compare the estimated fair value of each marketcluster to its carrying value, including goodwill. If the carrying amount, including goodwill, exceeds the estimated fair value of the market cluster, a potentialindication exists that the amount of goodwill attributed to that market cluster may be impaired. When we have indication of impairment, we engage an independent third-party appraisal and valuation firm to assist us with determining the enterprisevalue. Bond & Pecaro prepared valuations of the estimated fair value for the testing periods ending December 31, 2013. Noble Financial Capital Marketsprepared the valuations for the testing periods ending December 31, 2014 and December 31, 2015. 103 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In performing our annual impairment testing of goodwill, the fair value of each applicable accounting unit was estimated using a discounted cash flowanalysis, a form of the income approach. The discounted cash flow analysis utilizes a five-year projection period to derive operating cash flow projectionsfrom a market participant view. We made certain assumptions regarding future revenue growth based on industry market data, historical performance andexpected future performance. We also made assumptions regarding working capital requirements and ongoing capital expenditures for fixed assets. Future net free cash flows were calculated on a debt free basis and discounted to present value using a risk adjusted discount rate, which reflected ourWACC. The terminal year value was calculated using the Gordon constant growth method and long-term growth rate assumptions based on long-termindustry growth and GDP inflation rates. The resulting fair value estimates, net of any interest bearing debt, are compared to the carrying value of eachaccounting units’ net assets. The key estimates and assumptions used for our enterprise valuations are as follows: December 31, 2013 December 31, 2014 December 31, 2015 Enterprise Valuations Broadcast Markets Broadcast Markets Broadcast Markets Risk-adjusted discount rate 9.0% 8.0% 8.0%Operating profit margin ranges 11.9% - 44.7% 8.4% - 46.1% 49.7%Long-term revenue market growth rate ranges 1.0% - 2.5% 1.0% - 5.0% 2.0% Based on our review and analysis, we determined that no impairment charges were necessary to the carrying value of our broadcast market goodwill as ofthe annual testing period ending December 31, 2015, December 31, 2014, and December 31, 2013, respectively. We performed a sensitivity analysis ofcertain current year key assumptions, including the long-term revenue growth rate and the WACC, to determine the impact that such changes would have onthe estimated fair value of goodwill associated with our broadcast segment. The sensitivity analysis indicated that reducing the long-term revenue growthrate and increasing the WACC by 100 basis points would have no incremental impact to the carrying value of goodwill associated with our broadcastmarkets. The tables below present the percentage within a range by which the estimated fair value exceeded the carrying value of each of our market clusters,including goodwill: Broadcast Market Clusters as of December 31, 2015 Percentage Range By Which Estimated Fair Value Exceeds Carrying Value IncludingGoodwill <10% >10% to 20% >20% to 50% > than 50% Number of accounting units 3 3 2 11 Carrying value including goodwill (inthousands) $56,179 $52,164 $37,570 169,907 Broadcast Market Clusters as of December 31, 2014 Percentage Range By Which Estimated Fair Value Exceeds Carrying Value IncludingGoodwill <10% >10% to 20% >20% to 50% > than 50% Number of accounting units 5 — 2 7 Carrying value including goodwill (inthousands) $81,507 $— $27,636 $84,693 Broadcast Market Clusters as of December 31, 2013 Percentage Range By Which Estimated Fair Value Exceeds Carrying Value IncludingGoodwill <1% >10% to 20% >20% to 50% > than 50% Number of accounting units 4 1 3 3 Carrying value including goodwill (inthousands) $28,952 $17,978 $45,375 $45,152 Goodwill – Broadcast Networks The unit of accounting we use to test goodwill in our radio networks is the entity level, which includes Salem Radio Network® (“SRN”), SRN NewsNetwork (“SNN”), Salem Music Network (“SMN”), Todays Christian Music (“TCM”) and Singing News Network (formerly Solid Gospel Network. The entitylevel is the level reviewed by management for which discreet financial information is available. Two of our five networks have goodwill associated with themas of our annual testing period ending December 31, 2015. The estimated fair value of our networks exceeded the carrying value by 64% and 63% for each of the annual testing periods ending December 31, 2014and 2013, respectively. For our annual testing as of the fourth quarter of 2015, we identified operating losses within our Singing News Network that indicatedthat the value of goodwill may be impaired. We engaged an independent third-party appraisal and valuation firm to assist us with determining the enterprisevalue. 104 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In performing our annual impairment testing of goodwill, the fair value of each entity was estimated using a discounted cash flow analysis, a form of theincome approach. The discounted cash flow analysis utilizes a seven-year projection period to derive operating cash flow projections from a marketparticipant view. We made certain assumptions regarding future revenue growth based on industry market data, historical performance and expected futureperformance. We also made assumptions regarding working capital requirements and ongoing capital expenditures for fixed assets. Future net free cash flows were calculated on a debt free basis and discounted to present value using a risk adjusted discount rate, which reflected a riskadjusted WACC. The terminal year value was calculated using the Gordon constant growth method and long-term growth rate assumptions based on long-term industry growth and GDP inflation rates. The resulting fair value estimates, net of any interest bearing debt, are compared to the carrying value of eachreporting units’ net assets. The key estimates and assumptions used for our enterprise valuations are as follows: December 31, 2015 Enterprise Valuations Broadcast Networks Risk-adjusted discount rate 9.0%Operating profit margin ranges (74.1%) – (97.5%) Long-term revenue market growth rate ranges 2.0% Based on this review and analysis, we recorded an impairment charge of $0.4 million associated with the value of goodwill for the Singing NewsNetwork. Based on our prior review and analysis, we determined that no impairment charges were necessary to the carrying value of our network goodwill asof the annual testing period ending December 31, 2014 and December 31, 2013. We did not perform a sensitivity analysis for the current year certain keyassumptions, as such changes in assumptions would have no impact on the carrying value of goodwill associated with our broadcast networks. Goodwill – Digital Media The unit of accounting we use to test goodwill in our digital media segment is the entity level, which includes Salem Web Network, Townhall.com,Eagle Financial Publications and Wellness products. The financial statements for Salem Web Network reflect the operating results and cash flows for all ofour Internet sites and our church product sites exclusive of Townhall.com. The financial statements for Townhall.com reflect the operating results for each ofour conservative opinion sites. Eagle Wellness includes only the results of the e-commerce site for nutritional products. We perform a qualitative assessment to determine if events and circumstances have occurred that indicate it is more likely than not that the fair value ofthe assets in each of our digital media entities are less than their carrying values. We review the significant inputs used in our prior year fair value estimates todetermine if any changes should be made to those inputs. We estimate the fair value using a market approach and compare the estimated fair value of eachentity to its carrying value, including goodwill. Under the market approach, we apply a multiple of four to each entities operating income to estimate the fairvalue. We believe that a multiple of four is a conservative indicator of fair value as described above. If the carrying amount, including goodwill, exceeds the estimated fair value of the entity, an indication exists that the amount of goodwill attributed tothat entity may be impaired. When we have indication of impairment, we engage an independent third-party appraisal and valuation firm to assist us withdetermining the enterprise value. Bond & Pecaro prepared valuations of the estimated fair value for the testing period ending December 31, 2013. NobleFinancial Capital Markets prepared the valuations for the testing periods ending December 31, 2014 and December 31, 2015. In performing our annual impairment testing of goodwill, the fair value of each applicable accounting unit was estimated using a discounted cash flowanalysis as described above. The key estimates and assumptions used in the valuation of our digital media entities for each testing period are as follows: Enterprise Valuation December 31, 2013 December 31, 2014 December 31, 2015 Risk adjusted discount rate 13.5% 8.0% 8.0% - 9.0%Operating profit margin ranges 21.2% - 22.0% (7.4%) - 34.9% (8.9%) - 13.8%Long-term revenue market growth rate ranges 3.0% 2.50% 2.0-3.0% Based on our review and analysis, we determined that no impairment charges were necessary to the carrying value of goodwill associated with our digitalmedia entities as of the annual testing period ending December 31, 2015, December 31, 2014, and December 31, 2013, respectively. The estimated fair valueof Townhall.com exceeded its carrying value, including goodwill, by 0.8% as of December 31, 2015. We performed a sensitivity analysis of certain current year key assumptions, including the long-term revenue growth rate and the WACC, to determinethe impact that such changes would have on the estimated fair value of goodwill associated with our digital media segment. The sensitivity analysisindicated that reducing the long-term revenue growth rates and increasing the WACC by 100 basis points would have resulted in an impairment to goodwillassociated with our digital media entities of $1.1 million. 105 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The table below presents the percentage within a range by which the estimated fair value exceeded the carrying value of our accounting units, includinggoodwill. Digital Media Entities as of December 31, 2015 Percentage Range By Which Estimated Fair Value Exceeds Carrying Value IncludingGoodwill <10% >10% to 20% >20% to 50% > than 50% Number of accounting units 1 - 4 Carrying value including goodwill (inthousands) $4,488 $- $ $29,126 Digital Media Entities as of December 31, 2014 Percentage Range By Which Estimated Fair Value Exceeds Carrying Value IncludingGoodwill <10% >10% to 20% >20% to 50% > than 50% Number of accounting units 1 1 1 1 Carrying value including goodwill (inthousands) $4,649 $6,118 $385 $26,101 Digital Media Entities as of December 31, 2013 Percentage Range By Which Estimated Fair Value Exceeds Carrying Value IncludingGoodwill <10% >10% to 20% >20% to 50% > than 50% Number of accounting units 1 - 1 - Carrying value including goodwill(in thousands) $27,456 $- $2,984 $- Goodwill – Publishing The unit of accounting we use to test goodwill in our publishing segment is the entity level, which includes Salem Publishing, Regnery Publishing, andXulon Press. Salem Publishing is our printing entity that produces our print magazines from a stand-alone facility, under one general manager, with operatingresults and cash flows of all publications reported on a combined basis. Regnery Publishing is our book publishing entity based in Washington DC, with astand-alone facility under one general manager, with operating results and cash flows of reported at the entity level. Xulon Press also operates from a stand-alone facility in Orlando, Florida under one general manager who is responsible for the separately stated operating results and cash flows. We have regularly performed quantitative reviews of goodwill associated with our print magazine entity based on the low margins by which ourestimated fair values exceed our carrying value including goodwill and actual operating results that have not met our expectations. As of our annual testingperiod for 2015, only Regnery Publishing and Xulon Press have goodwill associated with them. Based on actual operating results that did not meet ourprojections, we engaged an independent third-party appraisal firm to assist us with estimating the enterprise value Regnery Publishing. Bond & Pecaro prepared valuations of the estimated fair value for the testing period ending December 31, 2013. Noble Financial Capital Marketsprepared the valuations for the testing periods ending December 31, 2014 and December 31, 2015. The enterprise valuation assumes that the subject assetsare installed as part of an operating business rather than as a hypothetical start-up. The key estimates and assumptions used for our enterprise valuations are asfollows: Enterprise Valuation InterimJune 30, 2013 December 31, 2013 December 31, 2014 December 31, 2015 Risk adjusted discount rate 9.0% 9.5% 8.0% 9.5%Operating margin ranges 0.9% - 6.0% (0.5%) – 6.0% 2.4% - 5.9% (0.5%) – 6.0%Long-term revenue market growth rate ranges 1.0% 0.5% 1.5% 2.0% 106 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Based on our review and analysis of the enterprise estimated fair value, we recorded a $0.4 million impairment charge associated with the print magazinegoodwill as of the June 2013 interim testing period. This impairment was driven by lower projected profit margins based on the failure of the print magazinesegment to achieve the amounts previously projected. Additionally, the discount rate was raised from 9.0% to 9.5% based on risks associated with printmagazines. The decline in revenues from print magazines is prevalent throughout the industry and is not unique to our operations. No goodwill impairmentcharges were necessary as of the annual testing period ended December 31, 2013. Based on the impairment recognized to the value of our mastheads in 2014, we could not conclude that it was more likely than not that goodwillassociated with our magazine publishing unit was not impaired. We obtained an independent fair value of our magazine publishing unit as of December2014. Based on this valuation, we determined that the carrying value of the goodwill was less than the implied value of goodwill as of that date and werecorded an impairment charge of $45,000. Based on our review and analysis, we determined that no impairment charges were necessary to the carrying value of goodwill associated with ourpublishing entities as of the annual testing period ending December 31, 2015. We performed a sensitivity analysis of certain current year key assumptions,including the long-term revenue growth rate and the WACC, to determine the impact that such changes would have on the estimated fair value of goodwillassociated with our publishing segment. The sensitivity analysis indicated that reducing the long-term revenue growth rate and increasing the WACC by 100basis points would have no incremental impact to the carrying value of goodwill associated with our publishing entities. The table below presents the percentage within a range by which the estimated fair value exceeded the carrying value of our accounting units, includinggoodwill. Publishing Accounting units as of December 31, 2015 Percentage Range By Which Estimated Fair Value Exceeds Carrying Value IncludingGoodwill <10% >10% to 20% >20% to 50% > than 50% Number of accounting units 1 - - 1 Carrying value including goodwill(in thousands) $854 $- $- $2,453 Publishing Accounting units as of December 31, 2014 Percentage Range By Which Estimated Fair Value Exceeds Carrying Value IncludingGoodwill <10% >10% to 20% >20% to 50% > than 50% Number of accounting units 2 - - 1 Carrying value including goodwill(in thousands) $3,417 $- $- $2,314 Publishing Accounting units as of December 31, 2013 Percentage Range By Which Estimated Fair Value Exceeds Carrying Value IncludingGoodwill <10% >10% to 20% >20% to 50% > than 50% Number of accounting units 1 - 1 - Carrying value including goodwill(in thousands) $1,251 $- $2,123 $- We believe that we have made reasonable estimates and assumptions to calculate the estimated fair value of our indefinite-lived intangible assets,however, these estimates and assumptions could be materially different from actual results. If actual market conditions are less favorable than those projectedby the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of our indefinite-lived intangible assets belowthe amounts reflected on our balance sheet, we may recognize future impairment charges, the amount of which may be material. NOTE 3. ACQUISITIONS AND RECENT TRANSACTIONS During the year ended December 31, 2015, we completed or entered into the following transactions: Debt On January 30, 2015, we repaid $2.0 million in principal on our current senior secured credit facility, consisting of a term loan of $300.0 million (“TermLoan B”) and paid interest due as of that date. We recorded a $15,000 pre-tax loss on the early retirement of long-term debt related to the unamortizeddiscount and $27,000 in bank loan fees associated with the principal repayment. Equity On December 1, 2015, we announced a quarterly equity distribution in the amount of $0.0650 per share on Class A and Class B common stock. Theequity distribution of $1.7 million was paid on December 29, 2015 to all Class A and Class B common stockholders of record as of December 15, 2015. 107 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On September 1, 2015, we announced a quarterly equity distribution in the amount of $0.0650 per share on Class A and Class B common stock. Theequity distribution of $1.7 million was paid on September 30, 2015 to all Class A and Class B common stockholders of record as of September 16, 2015. On June 2, 2015, we announced a quarterly equity distribution in the amount of $0.0650 per share on Class A and Class B common stock. The equitydistribution of $1.7 million was paid on June 30, 2015 to all Class A and Class B common stockholders of record as of June 16, 2015. On March 5, 2015, we announced a quarterly equity distribution in the amount of $0.0650 per share on Class A and Class B common stock. The equitydistribution of $1.6 million was paid on March 31, 2015 to all Class A and Class B common stockholders of record as of March 17, 2015. Acquisitions On December 18, 2015, we acquired radio station WSDZ-AM in St. Louis, Missouri, for $0.3 million in cash. We recorded a gain on bargain purchase ofapproximately $0.8 million associated with this acquisition based on the estimated fair value of the net assets acquired as compared to our purchase priceconsideration. The accompanying consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcastoperating segment. On December 15, 2015, we acquired radio station KDIZ-AM in Minneapolis, Minnesota, for $0.4 million in cash. We recorded a gain on bargainpurchase of approximately $0.3 million associated with this acquisition based on the estimated fair value of the net assets acquired as compared to ourpurchase price consideration. The accompanying consolidated statements of operations reflect the operating results of this station as of the closing datewithin the broadcast operating segment. On December 11, 2015, we acquired radio station WWMI-AM in Tampa, Florida, for $0.8 million in cash. We recorded a gain on bargain purchase ofapproximately $0.3 million associated with this acquisition based on the estimated fair value of the net assets acquired as compared to our purchase priceconsideration. The accompanying consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcastoperating segment. On December 8, 2015, we acquired radio station KDDZ-AM in Denver, Colorado, for $0.6 million in cash. We recorded goodwill of approximately$9,000 attributable to the additional audience reach obtained and the expected synergies to be realized when combining the operations of this station intoour existing cluster in this market. The accompanying consolidated statements of operations reflect the operating results of this station as of the closing datewithin the broadcast operating segment. On December 7, 2015, we acquired the Instapray mobile applications and a related website for $0.1 million in cash. On December 4, 2015, we acquired radio station KDZR-AM in Portland, Oregon, for $0.3 million in cash. We recorded goodwill of approximately $9,000attributable to the additional audience reach obtained and the expected synergies to be realized when combining the operations of this station into ourexisting cluster in this market. The accompanying consolidated statements of operations reflect the operating results of this station as of the closing datewithin the broadcast operating segment. On October 29, 2015, we acquired DividendYieldHunter.com for $42,500 in cash, with $21,250 paid at closing and $21,250 payable in January 2016.DividendYieldHunter.com provides individuals with information about different classes of dividend-paying stocks including preferred stocks, bonds, MasterLimited Partnerships (MLPs), Real Estate Investment Trusts (REITs) and more. On October 1, 2015, we acquired radio station KKSP-FM in Little Rock, Arkansas for $1.5 million in cash. We recorded goodwill of approximately$16,000 associated with the going concern value of this radio station and expected synergies to be realized from combining the operations of this station intoour existing cluster in this market. We began programming this station under a TBA as of April 1, 2015. The accompanying consolidated statements ofoperations reflect the operating results of this station as of TBA date within the broadcast operating segment. On September 15, 2015, we acquired radio station KEXB-AM (formerly KMKI-AM) in Dallas, Texas, for $3.0 million in cash. We recorded goodwill ofapproximately $12,000 attributable to the additional audience reach obtained and the expected synergies to be realized when combining the operations ofthis station into our existing cluster in this market. The accompanying consolidated statements of operations reflect the operating results of this station as ofthe closing date within the broadcast operating segment. 108 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On September 10, 2015, we acquired radio station WBIX-AM (formerly WMKI-AM) in Boston, Massachusetts, for $0.5 million in cash. We recordedgoodwill of approximately $5,000 attributable to the additional audience reach obtained and the expected synergies to be realized when combining theoperations of this station into our existing cluster in this market. The accompanying consolidated statements of operations reflect the operating results of thisstation as of the closing date within the broadcast operating segment. On September 3, 2015, we acquired a Spanish Bible mobile applications and its related website and Facebook properties for $0.5 million in cash. Werecorded goodwill of approximately $10,000 associated with the expected synergies to be realized from combining the operations of the Spanish Biblemobile applications into our digital media platform. The accompanying consolidated statements of operations reflect the operating results of theseapplications as of the closing date within the digital media operating segment. On September 1, 2015, we acquired the DailyBible mobile applications, including all content, code and functionality, for $1.5 million in cash. Werecorded goodwill of approximately $45,000 associated with the expected synergies to be realized from combining the operations of the DailyBible mobileapplications into our digital media platform and brand loyalty from its existing subscriber base that is not a separately identifiable intangible asset. Theaccompanying consolidated statements of operations reflect the operating results of these applications as of the closing date within the digital mediaoperating segment. On July 1, 2015, we acquired DividendInvestor.com for $1.0 million in cash and the assumption of $70,000 in deferred subscription liabilities.DividendInvestor.com is a website offering stock screening tools and dividend information for individual subscribers to obtain dividend information anddata. We recorded goodwill of approximately $82,000 associated with the expected synergies to be realized from combining the operations ofDividendInvestor.com into our digital media platform and brand loyalty from its existing subscriber base that is not a separately identifiable intangible asset.The accompanying consolidated statements of operations reflect the operating results of this business as of the closing date within the digital mediaoperating segment. On June 4, 2015, we acquired the Gene Smart Wellness e-commerce website for $0.1 million in cash. Gene Smart Wellness products are complementaryto our Eagle Wellness Products and are reported as digital revenue in our operating results as of the date of acquisition. On May 12, 2015, we acquired radio station WPGP-AM (formerly WDDZ-AM) in Pittsburgh, Pennsylvania, for $1.0 million in cash. We recordedgoodwill of approximately $5,000 attributable to the additional audience reach obtained and the expected synergies to be realized when combining theoperations of this station into our existing cluster in this market. The accompanying consolidated statements of operations reflect the operating results of thisstation as of the closing date within the broadcast operating segment. On May 7, 2015, we acquired radio station WDWD-AM in Atlanta, Georgia, for $2.8 million in cash. We recorded goodwill of approximately $5,000attributable to the additional audience reach obtained and the expected synergies to be realized when combining the operations of this station into ourexisting cluster in this market. The accompanying consolidated statements of operations reflect the operating results of this station as of the closing datewithin the broadcast operating segment. On May 6, 2015, we acquired domain names, mobile applications and code functionality for the Daily Bible Devotion for $1.1 million in cash. Underterms of the APA, we may pay up to an additional $0.3 million in contingent earn-out consideration payable over the next two years based upon on theachievement of certain benchmarks. The estimated fair value of the contingent earn-out consideration was recorded at the present value of $0.1 million and isdiscussed in more detail in Note 4. We recorded goodwill of $0.1 million associated with the expected synergies to be realized from combining theoperations of the Daily Bible Devotional into our digital media platform and brand loyalty from its existing subscriber base that is not a separatelyidentifiable intangible asset. The accompanying consolidated statements of operations reflect the operating results of the Daily Bible Devotional as of theclosing date within our digital media operating segment. On April 7, 2015, we acquired land and real estate in Greenville, South Carolina, for $0.2 million in cash. On March 27, 2015, we acquired radio station WDYZ-AM in Orlando, Florida, for $1.3 million in cash. We began operating this station under an APA asof December 10, 2014. We recorded goodwill of approximately $3,000 attributable to the additional audience reach obtained and the expected synergies tobe realized when combining the operations of this station into our existing cluster in this market. The accompanying consolidated statements of operationsreflect the operating results of this station as of the APA date within the broadcast operating segment. 109 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On February 6, 2015, we acquired Bryan Perry’s Cash Machine and Bryan Perry’s Premium Income financial publications (“Bryan Perry Newsletters”)with assets valued at $0.6 million and we assumed deferred subscription liabilities of $0.4 million. We paid no cash to the seller upon closing. We recordedgoodwill of approximately $3,000 associated with the expected synergies to be realized from combining the operations of Bryan Perry Newsletters into ourdigital media platform. Future amounts payable to the seller are contingent upon net subscriber revenues over a two year period from the closing date, ofwhich we will pay the seller 50%. There is no minimum or maximum contractual amount. The estimated fair value of the contingent earn-out considerationwas recorded at the present value of $0.2 million and is discussed in more detail in Note 4. The accompanying consolidated statements of operations reflectthe operating results of the Bryan Perry newsletters as of the closing date within our digital media operating segment. Throughout the year ended December 31, 2015, we acquired other domain names and assets associated with our digital media operating segment forapproximately $0.1 million in cash. A summary of our business acquisitions and asset purchases for the year ended December 31, 2015, none of which were individually or in the aggregatematerial to our Consolidated financial position as of the respective date of acquisition, is as follows: Acquisition Date Description Total Cost (Dollars in thousands) December 18, 2015 WSDZ-AM, St. Louis, Missouri (business acquisition) $275 December 15, 2015 KDIZ-AM, Minneapolis, Minnesota (business acquisition) 375 December 11, 2015 WWMI-AM, Tampa, Florida(business acquisition) 750 December 8, 2015 KDDZ-AM, Denver, Colorado (business acquisition) 550 December 7, 2015 Instapray mobile applications (asset acquisition) 118 December 4, 2015 KDZR-AM, Portland, Oregon (business acquisition) 275 October 29, 2015 DividendYieldHunter.com (asset acquisition) 43 October 1, 2015 KKSP-FM, Little Rock, Arkansas (business acquisition) 1,500 September 15, 2015 KEXB-AM (formerly KMKI-AM) Dallas, Texas (business acquisition) 3,000 September 10, 2015 WBIX-AM (formerly WMKI-AM), Boston, Massachusetts (business acquisition) 500 September 3, 2015 Spanish Bible mobile applications (business acquisition) 500 September 1, 2015 DailyBible mobile applications (business acquisition) 1,500 July 1, 2015 DividendInvestor.com (business acquisition) 1,000 June 4, 2015 Gene Smart Wellness (asset acquisition) 100 May 12, 2015 WPGP-AM (formerly WDDZ-AM), Pittsburgh, Pennsylvania (business acquisition) 1,000 May 7, 2015 WDWD-AM, Atlanta, Georgia (business acquisition) 2,750 May 6, 2015 Daily Bible Devotion mobile applications (business acquisition) 1,242 April 7, 2015 Land and Studio Building, Greenville, South Carolina (asset purchase) 201 March 27, 2015 WDYZ-AM, Orlando, Florida (business acquisition) 1,300 February 6, 2015 Bryan Perry Newsletters (business acquisition) 158 Various Purchase of domain names and digital media assets (asset purchases) 134 $17,271 The operating results of our business acquisitions and asset purchases are included in our consolidated results of operations from their respective closingdate or the date that we began operating them under an LMA or TBA. Under the acquisition method of accounting as specified in FASB ASC Topic 805,“Business Combinations,” the total acquisition consideration is allocated to the assets acquired and liabilities assumed based on their estimated fair values asof the date of the transaction. The excess of consideration paid over the estimated fair values of the net assets acquired is recorded as goodwill and any excessof fair value of the net assets acquired over the consideration paid is recorded as a gain on bargain purchase. Prior to recording a gain, the acquiring entitymust reassess whether all acquired assets and assumed liabilities have been identified and recognized and perform re-measurements to verify that theconsideration paid, assets acquired, and liabilities assumed have been properly valued. We underwent such a reassessment, and as a result, recorded a gain onthe bargain purchase of $1.4 million, including a gain on bargain purchase of $0.8 million for WSDZ-AM in St. Louis, Missouri, $0.3 million for KDIZ-AMin Minneapolis, Minnesota, and $0.3 million for WWMI-AM in Tampa, Florida. We believe that these gains on bargain purchase resulted from various factorsthat may have impacted the acquisition price, including, without limitation, that Disney was eager to divest of their Radio Disney properties. Estimates of the fair value include discounted estimated cash flows to be generated by the assets acquired and their expected useful lives based onhistorical experience, market trends and any synergies believed to be achieved from the acquisition. Our acquisitions may also include contingent earn-outconsideration, the fair value of which is estimated as of the acquisition date as the present value of the expected contingent payments as determined usingweighted probabilities of the payment amounts. We may retain a third-party appraiser to estimate the fair value of the net assets acquired as of the acquisition date. As part of the valuation and appraisalprocess, the third-party appraiser prepares a report assigning estimated fair values to the various asset categories in our financial statements. These fair valueestimates are subjective in nature and require careful consideration and judgment. Management reviews the third party reports for reasonableness of theassigned values. We believe that these valuations and analysis provide appropriate estimates of the fair value for net assets acquired. Acquired property and equipment are recorded at their 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 typically represents the organizational systems and procedures in place to ensure the effective operation of the business acquired, may be recorded andsubject to testing for impairment. Costs associated with acquisitions, such as consulting and legal fees are expensed as incurred. We recognized costsassociated with acquisitions of $0.3 million during the year ending December 31, 2015, compared to $0.5 million for the prior year. These costs are reportedin unallocated corporate expenses in the accompanying consolidated statements of operations. 110 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The total acquisition consideration is equal to the sum of all cash payments, the present value of any deferred payments and promissory notes, and thepresent 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 measurements are based on significant inputs that are not observable in the market and thus represent aLevel 3 measurement as discussed in Note 9 -Fair Value Measurements in our consolidated financial statements. The fair value of any contingent earn-outconsideration is reviewed quarterly over the applicable earn-out period. Actual results and achievements of benchmarks are compared to the estimates used inour forecasts. Changes in the estimated fair value of any contingent earn-out consideration are reflected in our results of operations in the period in whichthey are identified and may materially impact and cause volatility in our operating results as discussed in Note 4 – Contingent Earn-out Consideration to ourconsolidated financial statements. The following table summarizes the total acquisition consideration for the year ended December 31, 2015: Description Total Consideration (Dollars in thousands) Cash payments $16,885 Escrow deposits paid in prior years 65 Cash payment due January 2016 21 Present value of estimated fair value contingent earn out consideration due2016 176 Present value of estimated fair value contingent earn out consideration due2017 124 Total acquisition consideration $17,271 Gain on bargain purchase 1,357 Fair value of net assets acquired $18,628 The fair value of the acquisition consideration was allocated to the net assets acquired as follows: Net BroadcastAssets Acquired Net Digital Media Assets Acquired Net AssetsAcquired (Dollars in thousands) Assets Property and equipment $7,845 649 8,494 Broadcast licenses 5,923 — 5,923 Goodwill 64 254 318 Customer lists and contracts — 99 99 Domain and brand names — 1,154 1,154 Subscriber base and lists — 3,011 3,011 Non-compete agreements — 146 146 Liabilities Deferred revenue liabilities assumed — (517) (517) $13,832 4,796 18,628 Pending Transactions On April 1, 2015, we began programming KHTE-FM, Little Rock, Arkansas under a 36-month Time Brokerage Agreement (“TBA”) that can be extendedto 48 months. We have the option to acquire the station for $1.2 million in cash during the TBA period. The accompanying consolidated statements ofoperations included in this annual report on Form 10-K reflect the operating results of this entity as of the TBA date. On December 15, 2015, we entered an APA to acquire an FM Translator in Columbus, Ohio for $0.4 million in cash. The transaction is expected to closein the first quarter of 2016. On December 31, 2015, we ceased programming KVCE-AM, in Dallas, Texas upon expiration of our TBA. During the year ended December 31, 2014, we completed or entered into the following transactions: Debt Throughout the year, we repaid $15.3 million in principal on our current senior secured credit facility, consisting of a term loan of $300.0 million (“TermLoan B”) and paid interest through each repayment date. We recorded a loss on early retirement of debt of $0.1 million related to the unamortized discountand $0.3 million in bank loan fees. 111 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Repayments of our Term Loan B were as follows: Date Principal Paid Unamortized Discount (Dollars in Thousands) December 31, 2014 $4,000 $16 November 28, 2014 4,000 15 September 29, 2014 5,000 18 March 31, 2014 2,250 8 Equity During the year ended December 31, 2014, after quarterly review of our earnings, cash flows, financial requirements, and other factors, our Board ofDirectors’ declared equity distributions to all stockholders of record of our Class A and Class B common stock as follows: Announcement Date Record Date Payment Date Amount Per Share Cash Distributed(in thousands) December 2, 2014 December 15, 2014 December 29, 2014 $0.0650 $1,646 September 2, 2014 September 16, 2014 September 30, 2014 $0.0625 $1,579 May 27, 2014 June 16, 2014 June 30, 2014 $0.0600 $1,514 March 6, 2014 March 17, 2014 March 31, 2014 $0.0575 $1,444 The actual declaration of future equity distributions and the establishment of the per share amount, record dates, and payment dates are subject to finaldetermination by our Board of Directors and dependent upon future earnings, cash flows, financial requirements, and other factors. Acquisition of Eagle Publishing On January 10, 2014, we acquired the entities of Eagle Publishing, including Regnery Publishing, HumanEvents.com, RedState.com, Eagle FinancialPublications and Eagle Wellness. The base purchase price was $8.5 million, with $3.5 million paid in cash upon closing, and deferred payments of $2.5million each due January 2015 and January 2016. The deferred payments due January 2015 and January 2016 were recorded at their present value of $2.4million and $2.3 million, respectively, with the discount being amortized to non-cash interest expense over the payment term using the effective interestmethod. We paid an additional $0.4 million of costs upon closing associated with liabilities incurred by the seller. On June 6, 2014, we paid $1.5 million ofthe $2.5 million deferred installment that was due January 2015. Based on the early payment, our deferred payment due January 2015 was reduced to $0.9million. We began operating these entities as of the closing date. The accompanying Consolidated Statements of Operations reflect the operating results of theseentities as of the closing date. We believe that strong author relationships, assembled creative talent agreements and the loyal readers of Eagle publications,as well as our ability to market and promote these products through our existing media platform, provides future economic benefits to us. We have recordedgoodwill of $2.3 million representing the excess value of these future economic benefits. As part of the purchase agreement, we may pay up to an additional $8.5 million of contingent earn-out consideration over the next three years based onthe achievement of certain revenue benchmarks established for calendar years 2014, 2015 and 2016 for each of the Eagle entities. The estimated fair value ofthe contingent earn-out consideration of $2.0 million was determined using a probability-weighted discounted cash flow model at the time of closing and isdiscussed in detail in Note 4 – Contingent Earn-Out Consideration. Other Acquisitions On December 23, 2014, we completed the acquisition of the construction permit for WLTE-FM in Pendleton, South Carolina for $0.5 million in cash.The asset acquisition cost was reflected in projects-in-process as of December 2014. The station will operate within our Greenville, South Carolina market. On December 23, 2014, we completed the acquisition of an FM translator in Pickens, South Carolina for $0.2 million in cash. The asset acquisition costwas included in projects-in-process as of December 2014. The FM Translator will operate in our Greenville, South Carolina market. On December 22, 2014, we completed the acquisition of an FM translator in Bayshore Gardens, Florida for $0.1 million in cash. The asset acquisitioncost was included in projects-in-process as of December 2014. The FM Translator will operate in our Tampa, Florida market. 112 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On November 24, 2014, we completed the acquisition of an FM translator in Travelers Rest, South Carolina for $0.2 million in cash. The assetacquisition cost was included in projects-in-process as of December 2014. The FM Translator will operate in our Greenville, South Carolina market. On October 1, 2014, we completed the acquisition of radio station KXXT-AM in Phoenix, Arizona for $0.6 million in cash. We began operating thestation under an LMA as of June 6, 2014. The accompanying Consolidated Statements of Operations reflect the operating results of this entity as of the LMAdate. We recorded goodwill of $1,400 associated with the excess value of this entity attributable to the audience reach obtained and expected synergies to berealized from combining the operations of this station into our existing cluster in this market. On May 22, 2014, we completed the acquisition of radio station WOCN-AM, Miami, Florida and the related transmitter site for $2.5 million in cash. Theaccompanying Consolidated Statements of Operations reflect the operating results of this entity as of the closing date. On November 24, 2014, we entered aTBA with a programmer under which we will receive monthly license fees beginning in December 2014 through November 2019. Upon acquisition, werecorded goodwill of $12,000 associated with the excess value of this entity attributable to the existing tower site, the related transmitter site and theaudience reach obtained and expected synergies to be realized from combining the operations of this station into our existing cluster in this market. On May 6, 2014, we completed the acquisition of WRTH-FM (formerly WOLT-FM) in Greenville, South Carolina for $1.1 million in cash. We beganoperating this station under an LMA as of February 28, 2014. The accompanying Consolidated Statements of Operations reflect the operating results of thisentity as of the LMA date. We recorded goodwill of $6,400 associated with the excess value of this entity attributable to the existing tower site, theadditional audience reach obtained, and the expected synergies to be realized when combining the operations of this station into our existing cluster in thismarket. On April 15, 2014, we completed the acquisition of three FM translators for $0.4 million in cash. The asset acquisition cost is reflected in projects-in-process as of December 2014. The FM translators will serve our Orlando, Florida, Tampa, Florida and Omaha, Nebraska markets. On February 7, 2014, we completed the acquisition of radio stations KDIS-FM, Little Rock, Arkansas and KRDY-AM, San Antonio, Texas for $2.0million in cash. We began operating these stations as of the closing date. The accompanying Consolidated Statement of Operations reflects the operatingresults of these entities as of the closing date. We recorded goodwill of $18,000 associated with the excess value of these entities attributable to the existingtower site, the additional audience reach obtained, and the expected synergies to be realized when combining the operations of this station into our existingcluster in this market. Throughout the year ending December 31, 2014, we have acquired domain names associated with our Internet segment for an aggregate amount ofapproximately $0.4 million in cash. A summary of our business acquisitions and asset purchases for the year ended December 31, 2014, none of which were individually or in the aggregatematerial to our Consolidated financial position as of the respective date of acquisition, is as follows: Acquisition Date Description Total Cost (Dollars in thousands) December 23, 2014 WLTE-FM Pendleton, South Carolina (asset acquisition) $525 December 23, 2014 FM Translator, Pickens, South Carolina (asset acquisition) 185 December 22, 2014 FM Translator, Bayshore Gardens, Florida (asset acquisition) 140 November 24, 2014 FM Translator, Traveler’s Rest, South Carolina (asset acquisition) 200 October 1, 2014 KXXT-AM Phoenix, Arizona (business acquisition) 575 May 22, 2014 WOCN-AM Miami, Florida (business acquisition) 2,450 May 6, 2014 WRTH-FM (formerly WOLT-FM), Greenville, South Carolina (business acquisition) 1,125 April 15, 2014 FM Translators, Orlando, Florida, Tampa, Florida, Omaha, Nebraska (asset purchase) 357 February 7, 2014 KDIS-FM, Little Rock Arkansas and KRDY-AM, San Antonio, Texas (businessacquisition) 1,984 January 10, 2014 Eagle Publishing (business acquisition) 10,628 Various Purchases of domain names (asset purchases) 487 $18,656 113 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following table summarizes the total acquisition consideration for the year ended December 31, 2014: Purchase Price Consideration Total Consideration (Dollars in thousands) Cash payments $12,682 Escrow deposits paid in prior years 1,345 Deferred cash payments made related to prior year acquisition (600)Present value of deferred cash payments (due 2015) 893 Present value of deferred cash payments (due 2016) 2,289 Present value of estimated fair value of contingent earn-out consideration 2,047 Total purchase price consideration $18,656 The total acquisition consideration was allocated to the net assets acquired as follows: Net BroadcastAssets Acquired Net DigitalMedia AssetsAcquired Net PublishingAssetsAcquired Net AssetsAcquired (Dollars in thousands) Assets Property and equipment $2,338 $1,179 $3,929 $7,446 Developed websites — 539 38 577 Broadcast licenses 5,144 — — 5,144 Goodwill 38 2,128 189 2,355 Customer lists and contracts — 2,232 509 2,741 Domain and brand names — 1,921 843 2,764 Subscriber base and lists — 2,446 — 2,446 Author relationships — — 1,682 1,682 Non-compete agreements — 79 66 145 Favorable and assigned leases 20 — — 20 Liabilities Deferred revenue & royalties assumed — (3,779) (2,885) (6,664) $7,540 $6,745 $4,371 $18,656 Discontinued Operations Based on operating results that did not meet our expectations, we ceased operating Samaritan Fundraising in December 2011. As of December 31, 2011,all employees of this entity were terminated. As a result of our decision to close operations, there have been no material cash flows associated with this entityand we have no ongoing or further involvement in the operations of this entity. The Statements of Operations for all prior periods presented are updated toreflect the operating results of this entity as a discontinued operation. The following table sets forth the components of the loss from discontinued operations: For the Year EndedDecember 31, 2013 (Dollars in thousands) Net revenues $10 Operating expenses 72 Operating loss $(62)Benefit from income taxes (25)Loss from discontinued operations, net of tax $(37) NOTE 4. CONTINGENT EARN-OUT CONSIDERATION Our acquisitions may include contingent earn-out consideration as part of the purchase price under which we will make future payments to the sellerupon the achievement of certain benchmarks. The fair value of the contingent earn-out consideration is estimated as of the acquisition date at the presentvalue of the expected contingent payments to be made using a probability-weighted discounted cash flow model for probabilities of possible futurepayments. The present value of the expected future payouts is accreted to interest expense over the earn-out period. The fair value estimates use significantunobservable inputs that reflect our own assumptions as to the ability of the acquired business to meet the targeted benchmarks and discount rates used in thecalculations. The unobservable inputs are defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” as Level 3 inputs discussed indetail in Note 9. 114 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We review the probabilities of possible future payments to the estimated fair value of any contingent earn-out consideration on a quarterly basis over theearn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the acquiredbusiness increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent earn-out consideration liability willincrease or decrease, up to the contracted limit, as applicable. Changes in the estimated fair value of the contingent earn-out consideration are reflected in ourresults of operations in the period in which they are identified. Changes in the estimated fair value of the contingent earn-out consideration may materiallyimpact and cause volatility in our operating results. Daily Bible Devotion We acquired Daily Bible Devotion mobile applications on May 6, 2015 for $1.1 million in cash paid upon closing and up to an additional $0.3 millionin contingent earn-out consideration payable over the next two years based upon on the achievement of cumulative session benchmarks for each mobileapplication. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of Bible Devotional Applications toachieve the session benchmarks at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $165,000, which wasrecorded at the discounted present value of $142,000. The discount is being accreted to interest expense over the two-year earn out period. We believe thatour experience with digital mobile applications and websites provides a reasonable basis for our estimates. The fair value of the contingent earn-out consideration is reviewed quarterly over the two-year earn-out period to compare actual cumulative sessionsachieved compared to the cumulative session estimates used in our forecasts. Any changes in the estimated fair value of the contingent earn-outconsideration are reflected in our results of operations in the period they are identified up to the maximum future value of $0.3 million. Changes in the fairvalue of the contingent earn-out consideration may materially impact and cause volatility in our future operating results. Based upon the achievement ofactual cumulative sessions that exceeded the estimated amounts used in our original forecasts, we increased the probabilities of achieving the futurebenchmarks by approximately 11.3% as of the year ending December 31, 2015. We recorded a net increase of $32,000 in the estimated fair value of thecontingent earn-out consideration in our results of operations for the year ending December 31, 2015. Our first payment of $75,000 for the period endingDecember 31, 2015 was paid in January 2016. Bryan Perry Newsletters On February 6, 2015, we acquired the assets and assumed the deferred subscription liabilities for Bryan Perry Newsletters, paying no cash to the sellerupon closing. Future contingent earn-out consideration due to the seller is based upon net subscriber revenues achieved over a two-year period from date ofclose, of which we will pay the seller 50%. There is no minimum or maximum contractual amount due. Using a probability-weighted discounted cash flowmodel based on our revenue projections at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $171,000, which werecorded at the discounted present value of $158,000. The discount is being accreted to interest expense over the two-year earn out period. We believe thatour experience with digital publications and renewals provides a reasonable basis for our estimates. The fair value of the contingent earn-out consideration is reviewed quarterly over the two year earn-out period to compare actual subscription revenueearned to the estimated subscription revenue used in our forecasts. Any changes in the estimated fair value of the contingent earn-out consideration arereflected in our results of operations in the period they are identified. Changes in the fair value of the contingent earn-out consideration may materiallyimpact and cause volatility in our future operating results. Based upon actual subscription revenue earned, we have paid approximately $42,000 to the selleras of the year ending December 31, 2015. We recorded a net decrease of $66,000 in the estimated fair value of the contingent earn-out consideration of in ourresults of operations for the year ending December 31, 2015. The decline reflects lower actual subscription revenues achieved during 2015 compared tosubscription revenues estimates used in our forecasts. Eagle Publishing On January 10, 2014, we acquired the entities of Eagle Publishing, including Regnery Publishing, HumanEvents.com, RedState.com, Eagle FinancialPublications and Eagle Wellness. The base purchase price was $8.5 million, with $3.5 million paid in cash upon closing, and deferred payments of $2.5million each due January 2015 and January 2016. As part of the purchase agreement, we may pay up to an additional $8.5 million of contingent earn-outconsideration over the next three years based on the achievement of certain revenue benchmarks established for calendar years 2014, 2015 and 2016 for eachof the Eagle entities. Using a probability-weighted discounted cash flow model based on the likelihood of achievement of the benchmarks at the time ofclosing, we estimated the fair value of the contingent earn-out consideration to be $2.4 million, which was recorded at the discounted present value of $2.0million. The discount is being accreted to interest expense over the three-year earn out period. We believe that our experience with publications, renewalrates and websites provide a reasonable basis for our estimates. 115 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The fair value of the contingent earn-out consideration is reviewed quarterly over the three year earn-out period to compare actual operating revenuesearned to the estimated revenue used in our forecasts. Any changes in the estimated fair value of the contingent earn-out consideration are reflected in ourresults of operations in the period they are identified. Changes in the fair value of the contingent earn-out consideration may materially impact and causevolatility in our future operating results. Our results of operations for the years ending December 31, 2014 and 2015 reflect an increase of $0.4 million and adecrease of $1.2 million, respectively, for changes in the estimated fair value of the contingent earn-out consideration based upon actual revenues thatdiffered from estimated revenues used in our forecasts. During the year ending December 31, 2015, we have paid $0.9 million in cash for amounts earned under the contingent earn-out consideration. Using aprobability-weighted discounted cash flow model based on the likelihood of achievement of the benchmarks, we estimated the remaining fair value of thecontingent earn-out consideration to be $0.5 million. The declines noted in actual revenues occurred during the second half of 2015, during which timeEagle Publishing did not produce a bestseller and renewals of financial publications declined significantly as compared to prior quarters. Twitchy.com On December 10, 2013, we acquired Twitchy.com for $0.9 million in cash paid upon closing and up to $1.3 million in contingent earn-out considerationpayable over a two-year period based upon the achievement of future page view targets. Using a probability-weighted discounted cash flow model based onthe likelihood of achievement of the benchmarks at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $0.8million, which was recorded at the discounted present value of $0.6 million. The discount was accreted to interest expense over the two-year earn out periodending December 31, 2015. We believe that our experience with digital content and websites provided a reasonable basis for our estimates. The fair value of the contingent earn-out consideration was reviewed quarterly over the two year earn-out period. Changes in the estimated fair value ofthe contingent earn-out consideration were reflected in our results of operations in the period they were identified. Our results of operations for the yearsending December 31, 2014 and 2015 reflect an increase of $0.3 million and a decrease of $0.5 million, respectively, for changes in the estimated fair value ofthe contingent earn-out consideration based upon actual page views that differed from those estimated in our forecasts. Declines in page views during thesecond half of 2015 were greater than in other periods which we believe resulted from changes in the Facebook algorithm that drives traffic to our sites. Wepaid a total of $0.6 million in cash for amounts due under the contingent earn-out over the two-year period. The following table reflects the changes in the present value of our acquisition-related estimated contingent earn-out consideration for the years endingDecember 31, 2015 and 2014. Twelve Months Ended December 31, 2015 Short-Term Long-Term Accrued Expenses Other Liabilities Total (Dollars in thousands) Beginning Balance as of January 1, 2015 $1,575 $1,710 $3,285 Acquisitions 176 124 300 Accretion of acquisition-related contingent earn-out consideration 60 49 109 Change in the estimated fair value of contingent earn-out consideration (1,269) (446) (1,715)Reclassification of payments due in next 12 months to short-term 835 (835) — Payments (1,204) — (1,204)Ending Balance as of December 31, 2015 $173 $602 $775 Twelve Months Ended December 31, 2014 Short-Term Long-Term Accrued Expenses Other Liabilities Total (Dollars in thousands) Beginning Balance as of January 1, 2014 329 287 616 Acquisitions 692 1,355 2,047 Accretion of acquisition-related contingent earn-out consideration 68 120 188 Change in the estimated fair value of contingent earn-out consideration 341 393 734 Reclassification of payments due in next12 month to short-term 445 (445) — Payments (300) — (300)Ending Balance as of December 31, 2014 $1,575 $1,710 $3,285 116 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 5. INVENTORIES Inventories consist of finished goods valued at the lower of cost or market as determined on a First-In First-Out (“FIFO”) cost method. Inventories arereported net of estimated reserves for obsolescence. The following table provides details of inventory on hand by segment: As of December 31, 2014 As of December 31, 2015 (Dollars in thousands) Regnery Publishing book inventories $1,575 $2,186 Reserve for obsolescence – Regnery Publishing (1,225) (1,798)Inventory net, Regnery Publishing 350 388 Wellness products – Eagle & Gene Smart $224 $562 Reserve for obsolescence – Wellness products (2) (57)Inventory, net Wellness products 222 505 Consolidated inventories, net $572 $893 NOTE 6. PROPERTY AND EQUIPMENT The following is a summary of the categories of our property and equipment: As of December 31, 2014 2015 (Dollars in thousands) Land $29,424 $31,565 Buildings 24,898 25,448 Office furnishings and equipment 39,772 39,040 Antennae, towers and transmitting equipment 78,628 84,296 Studio, production and mobile equipment 30,202 30,598 Computer software and website development costs 26,593 28,134 Record and tape libraries 59 55 Automobiles 1,205 1,298 Leasehold improvements 19,634 20,799 Construction-in-progress 4,307 6,632 $254,722 $267,865 Less accumulated depreciation (155,495) (162,382) $99,227 $105,483 Depreciation expense was approximately $12.4 million, $12.6 million, and $12.4 million for the years ended December 31, 2015, 2014, and 2013,respectively, which includes depreciation of $53,000 for each of these years on a radio station tower valued at $0.8 million under a capital lease obligation.Accumulated depreciation associated with the capital lease was $464,000, $411,000 and $344,000 at December 31, 2015, 2014 and 2013, respectively. Based on changes in management’s planned usage, we classified land in Covina, California as held for sale as of June 2012. We evaluated the land forimpairment in accordance with guidance for impairment of long-lived assets held for sale. We determined that the carrying value of the land exceeded theestimated fair value less costs to sell. We recorded an impairment charge of $5.6 million associated with the land based on our estimated sale price. InDecember 2012, after several purchase offers for the land were terminated, we obtained a third party valuation for the land. Based on the fair value determinedby the third-party, we recorded an additional impairment charge of $1.2 million associated with the land. We continue to market the land for sale and do notintend on using the land in our operations. There were no indications of impairment present during the period ending December 31, 2015 and it is our intent to continue to pursue the sale of thisland. 117 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The table below presents the fair value measurements used to value this asset. Fair Value Measurements Using: (Dollars in thousands) Description As of December31, 2015 Quoted prices inactive markets(Level 1) Significant OtherObservableInputs (Level 2) SignificantUnobservable Inputs(Level 3) Total Gains(Losses) Long-Lived Asset Held for Sale $1,700 $1,700 $— NOTE 7. AMORTIZABLE INTANGIBLE ASSETS The following tables provide a summary of our significant classes of amortizable intangible assets: As of December 31, 2015 Accumulated Cost Amortization Net (Dollars in thousands) Customer lists and contracts $20,009 $(18,914) $1,095 Domain and brand names 16,619 (11,200) 5,419 Favorable and assigned leases 2,379 (1,887) 492 Subscriber base and lists 7,313 (3,808) 3,505 Author relationships 2,245 (1,523) 722 Non-compete agreements 1,034 (786) 248 Other amortizable intangible assets 1,336 (1,336) — $50,935 $(39,454) $11,481 As of December 31, 2014 Accumulated Cost Amortization Net (Dollars in thousands) Customer lists and contracts $19,910 $(16,558) $3,352 Domain and brand names 15,465 (9,722) 5,743 Favorable and assigned leases 2,379 (1,795) 584 Subscriber base and lists 4,302 (2,671) 1,631 Author relationships 2,245 (1,379) 866 Non-compete agreements 888 (669) 219 Other amortizable intangible assets 1,336 (1,336) — $46,525 $(34,130) $12,395 Based on the amortizable intangible assets as of December 31, 2015, we estimate amortization expense for the next five years to be as follows: Year Ending December 31, Amortization Expense (Dollars in thousands) 2016 $3,846 2017 2,442 2018 2,199 2019 1,767 2020 982 Thereafter 245 Total $11,481 NOTE 8. NOTES PAYABLE AND LONG-TERM DEBT Salem Media Group, Inc. has no independent assets or operations, the subsidiary guarantees are full and unconditional and joint and several, and anysubsidiaries of Salem Media Group, Inc. other than the subsidiary guarantors are minor. Term Loan B and Revolving Credit Facility On March 14, 2013, we entered into a senior secured credit facility, consisting of a term loan of $300.0 million (“Term Loan B”) and a revolving creditfacility of $25.0 million (“Revolver”). The Term Loan B was issued at a discount for total net proceeds of $298.5 million. The discount is being amortized tonon-cash interest expense over the life of the loan using the effective interest method. For each of the twelve months ended December 31, 2014 and 2015,approximately $0.2 million, respectively, of the discount has been recognized as interest expense including approximately $0.3 million and $27,000,respectively, of bank loan fees. 118 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Term Loan B has a term of seven years, maturing in March 2020. During this term, the principal amount may be increased by up to an additional$60.0 million, subject to the terms and conditions of the credit agreement. We are required to make principal payments of $750,000 per quarter which beganon September 30, 2013 for the Term Loan B. Prepayments may be made against the outstanding balance of our Term Loan B. Each repayment of theoutstanding Term Loan B is applied ratably to each of the next four principal installments thereof in the direct order of maturity and thereafter to theremaining principal balance in reverse order of maturity. We have made prepayments on our Term Loan B, including interest through the date of the as follows: Date Principal Paid Unamortized Discount (Dollars in Thousands) January 30, 2015 $2,000 $15 December 31, 2014 4,000 16 November 28, 2014 4,000 15 September 29, 2014 5,000 18 March 31, 2014 2,250 8 December 30, 2013 750 3 September 30, 2013 4,000 16 June 28, 2013 4,000 14 The Revolver has a term of five years, maturing in March 2018. We report outstanding balances on our Revolver as short-term based on use of theRevolver to fund ordinary and customary operating cash needs with repayments made frequently. We believe that the borrowing capacity under our TermLoan B and Revolver allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at leastthe next twelve months. Borrowings under the Term Loan B may be made at LIBOR (subject to a floor of 1.00%) plus a spread of 3.50% or Wells Fargo’s base rate plus a spreadof 2.50%. Borrowings under the Revolver may be made at LIBOR or Wells Fargo’s base rate plus a spread determined by reference to our leverage ratio, as setforth in the pricing grid below. If an event of default occurs under the credit agreement, the applicable interest rate may increase by 2.00% per annum. AtDecember 31, 2015, the blended interest rate on amounts outstanding under the Term Loan B and Revolver was 4.83%. Revolver Pricing Pricing Level Consolidated Leverage Ratio Base Rate Loans LIBOR Loans 1 Less than 3.00 to 1.00 1.250% 2.250%2 Greater than or equal to 3.00 to 1.00 but less than 4.00 to 1.00 1.500% 2.500%3 Greater than or equal to 4.00 to 1.00 but less than 5.00 to 1.00 1.750% 2.750%4 Greater than or equal to 5.00 to 1.00 but less than 6.00 to 1.00 2.000% 3.000%5 Greater than or equal to 6.00 to 1.00 2.500% 3.500% The obligations under the credit agreement and the related loan documents are secured by liens on substantially all of the assets of Salem and itssubsidiaries, other than certain exceptions set forth in the Security Agreement, dated as of March 14, 2013, among Salem, the subsidiary guarantors partythereto, and Wells Fargo Bank, National Association, as Administrative Agent (the “Security Agreement”) and such other related loan documents. With respect to financial covenants, the credit agreement includes a minimum interest coverage ratio, which started at 1.50 to 1.0 and steps up to 2.50 to1.0 by 2016 and a maximum leverage ratio, which started at 6.75 to 1.0 and steps down to 5.75 to 1.0 by 2017. The credit agreement also includes othernegative covenants that are customary for credit facilities of this type, including covenants that, subject to exceptions described in the credit agreement,restrict the ability of Salem and its subsidiary guarantors: (i) to incur additional indebtedness; (ii) to make investments; (iii) to make distributions, loans ortransfers of assets; (iv) to enter into, create, incur, assume or suffer to exist any liens; (v) to sell assets; (vi) to enter into transactions with affiliates; or (vii) tomerge or consolidate with, or dispose of all or substantially all assets to, a third party. As of December 31, 2015, our leverage ratio was 5.47 to 1 compared toour compliance covenant of 6.25 and our interest coverage ratio was 3.33 compared to our compliance ratio of 2.25. We were in compliance with our debtcovenants under the credit facility at December 31, 2015. 119 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Terminated Senior Secured Second Lien Notes On December 1, 2009, we issued $300.0 million principal amount of our 95/8% Notes Senior Secured Second Lien Notes due 2016 (“Terminated 95/8%Notes”) at a discount for $298.1 million resulting in an effective yield of 9.75%. Interest was due and payable on June 15 and December 15 of each year,commencing June 15, 2010 until maturity. We were not required to make principal payments on the Terminated 95/8% Notes, which were due in full inDecember 2016. The Terminated 95/8% Notes were guaranteed by all of our existing domestic restricted subsidiaries. Upon issuance, we were required to pay$28.9 million per year in interest on the then outstanding Terminated 95/8% Notes. As of December 31, 2012, accrued interest on the Terminated 95/8%Notes was $0.9 million. The discount was being amortized to interest expense over the term of the Terminated 95/8% Notes based on the effective interestmethod. For the twelve months ended December 31, 2013, $37,000 of the discount, respectively, was recognized as interest expense. On March 14, 2013, we tendered for $212.6 million in aggregate principal amount of the Terminated 95/8% Notes for an aggregate purchase price of$240.3 million, or at a price equal to 110.65% of the face value of the Terminated 95/8% Notes in the Tender Offer. We paid $22.7 million for this repurchaseresulting in a $26.9 million pre-tax loss on the early retirement of long-term debt, which included approximately $0.8 million of unamortized discount and$2.9 million of bond issue costs associated with the Terminated 95/8% Notes. We issued a notice of redemption to redeem any of the Terminated 95/8% Notesthat remained outstanding after the expiration date of the Tender Offer. On June 3, 2013, we redeemed the remaining $0.9 million of the outstandingTerminated 95/8% Notes to satisfy and discharge Salem’s obligations under the indenture for the Terminated 95/8% Notes. The carrying value of theTerminated 95/8% Notes was $212.6 million at December 31, 2012. There are no outstanding Terminated 95/8% Notes as of the effectiveness of theredemption. Information regarding repurchases and redemptions of the Terminated 95/8% Notes is as follows: Date PrincipalRedeemed/Repurchased PremiumPaid UnamortizedDiscount Bond IssueCosts (Dollars in thousands) June 3, 2013 $903 $27 $3 $- March 14, 2013 212,597 22,650 837 2,867 December 12, 2012 4,000 120 17 57 June 1, 2012 17,500 525 80 287 December 12, 2011 12,500 375 62 337 September 6, 2011 5,000 144 26 135 June 1, 2011 17,500 525 93 472 December 1, 2010 12,500 375 70 334 June 1, 2010 17,500 525 105 417 Terminated Senior Credit Facility On December 1, 2009, we entered into a Revolver (“Terminated Revolver”). We amended the Terminated Revolver on November 1, 2010 to increase theborrowing capacity from $30 million to $40 million. The amendment allowed us to use borrowings under the Revolver, subject to the “Available Amount” asdefined by the terms of the credit agreement, to redeem applicable portions of the Terminated 95/8% Notes. The calculation of the “Available Amount” alsopertained to the payment of dividends when the leverage ratio was above 5.0 to 1. On November 15, 2011, we completed the Second Amendment of the Terminated Revolver to, among other things, (1) extend the maturity date fromDecember 1, 2012 to December 1, 2014, (2) change the interest rate applicable to LIBOR or the Wells Fargo base rate plus a spread to be determined based onour leverage ratio, (3) allow us to borrow and repay unsecured indebtedness provided certain conditions are met and (4) include step-downs related to ourleverage ratio covenant. We incurred $0.5 million in fees to complete this amendment, which were being amortized over the remaining term of the agreement.The applicable interest rate relating to the amended credit agreement was LIBOR plus a spread of 3.00% per annum or the Base Rate plus a spread of 1.25%per annum, which was adjustable based on our leverage ratio. If an event of default occurred, the interest rate could be increased by 2.00% per annum. Detailsof the change in our rate based on our leverage ratio were as follows: Consolidated Leverage Ratio Base Rate Eurodollar Rate Loans Applicable FeeRate Less than 3.25 to 1.00 0.75% 2.25% 0.40%Greater than or equal to 3.25 to 1.00 but less than 4.50 to 1.00 0.75% 2.50% 0.50%Greater than or equal to 4.50 to 1.00 but less than 6.00 to 1.00 1.25% 3.00% 0.60%Greater than or equal to 6.00 to 1.00 2.25% 3.50% 0.75% The Terminated Revolver included a $5 million subfacility for standby letters of credit and a subfacility for swingline loans of up to $5 million, subjectto the terms and conditions of the credit agreement relating to the Terminated Revolver. In addition to interest charges outlined above, we paid acommitment fee on the unused balance based on the Applicable Fee Rate in the above table. 120 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Terminated Revolver was terminated on March 14, 2013 upon entry into our current senior secured credit facility. This termination resulted in a $0.9million pre-tax loss on the early retirement of long-term debt related to unamortized credit facility fees. There was no outstanding balance on the TerminatedRevolver as of the termination date. Terminated Subordinated Credit Facility with First California Bank On May 21, 2012, we entered into a Business Loan Agreement, Promissory Note and related loan documents with First California Bank (the “FCBLoan”). The FCB Loan was an unsecured, $10.0 million fixed-term loan with a maturity date of June 15, 2014. The interest rate for the FCB Loan (“InterestRate”) was variable and was equal to the greater of: (a) 4.250% or (b) the Wall Street Journal Prime Rate as published in The Wall Street Journal and reportedby FCB plus 1%. We were required to repay the FCB Loan as follows: (a) twenty-three (23) consecutive monthly interest payments based upon the then-current principalbalance outstanding at the then-current Interest Rate commencing on September 15, 2012; (b) seven (7) quarterly consecutive principal payments of $1.25million each commencing on September 15, 2012; and (c) one (1) final principal and interest payment on June 15, 2014 of all outstanding and unpaidinterest and principal as of such maturity date. The FCB Loan could be prepaid at any time subject to a minimum interest charge of fifty dollars ($50). If anevent of default occurred on the FCB Loan, the Interest Rate could have been increased by 5.00% per annum. The FCB loan was terminated on March 14, 2013 upon entry into our current senior secured credit facility. This termination resulted in a $33,000 pre-taxloss on the early retirement of long-term debt for unamortized credit facility fees. There was no outstanding balance on the FCB Loan as of the terminationdate. Terminated Subordinated Debt due to Related Parties On November 17, 2011, we entered into subordinated lines of credit “Terminated Subordinated Debt due Related Parties” with Edward G. Atsinger III,Chief Executive Officer and director of Salem, and Stuart W. Epperson, Chairman of Salem’s Board of Directors. Pursuant to the related agreements, Mr.Epperson committed to provide an unsecured revolving line of credit to Salem in a principal amount of up to $3 million, and Mr. Atsinger committed toprovide an unsecured revolving line of credit in a principal amount of up to $6 million. On May 21, 2012, we also entered into a subordinated line of creditwith Roland S. Hinz, a Salem board member. Mr. Hinz committed to provide an unsecured revolving line of credit in a principal amount of up to $6 million.On September 12, 2012, we amended and restated the original subordinated line of credit with Mr. Hinz to increase the unsecured revolving line of credit by$6 million for a total line of credit of up to $12 million. The proceeds of the Terminated Subordinated Debt due to Related Parties could be used to repurchase a portion of the Terminated 95/8% Notes.Outstanding amounts under each subordinated line of credit bore interest at a rate equal to the lesser of (1) 5% per annum and (2) the maximum rate permittedfor subordinated debt under the Terminated Revolver referred to above plus 2% per annum. Interest was payable at the time of any repayment of principal. Inaddition, outstanding amounts under each subordinated line of credit were required to be repaid within three (3) months from the time that such amounts wereborrowed, with the exception of the subordinated line of credit with Mr. Hinz, which was to be repaid within six (6) months from the time that such amountswere borrowed. The Terminated Subordinated Debt due to Related Parties did not contain any covenants. On March 14, 2013, we repaid these lines of creditupon entry into our current senior secured credit facility. On April 3, 2013, we provided written notice to Messrs. Atsinger, Epperson and Hinz electing toterminate the Terminated Subordinated Debt due to Related Parties and related agreements effective as of May 3, 2013. There were no outstanding balanceson the Terminated Subordinated Debt due to Related Parties as of the termination date. Summary of long-term debt obligations Long-term debt consisted of the following: As of December 31, 2014 As of December 31, 2015 (Dollars in thousands) Term Loan B $274,933 $273,136 Revolver 1,784 3,306 Capital leases and other loans 788 674 277,505 277,116 Less current portion (1,898) (5,662) $275,607 $271,454 In addition to the outstanding amounts listed above, we also have interest payments related to our long-term debt as follows as of December 31, 2015: ·Outstanding borrowings of $274.0 million under the Term Loan B with interest payments due at LIBOR (subject to a floor of 1.00%) plus3.50% or prime rate plus 2.50%; and 121 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·Outstanding borrowings of $3.3 million under the Revolver, with interest payments due at LIBOR plus 3.00% or at prime rate plus 2.00%.·Commitment fees of 0.50% on any unused portion of the revolver. Other Debt We have several capital leases related to office equipment. The obligation recorded at December 31, 2014 and 2015 represents the present value of futurecommitments under the capital lease agreements. Maturities of Long-Term Debt Principal repayment requirements under all long-term debt agreements outstanding at December 31, 2015 for each of the next five years and thereafterare as follows: Amount For the Twelve Months Ended December 31, (Dollars in thousands) 2016 $5,662 2017 3,113 2018 3,105 2019 3,103 2020 3,106 Thereafter 259,027 $277,116 NOTE 9. FAIR VALUE ACCOUNTING FASB ASC Topic 820 “Fair Value Measurements and Disclosures” established a hierarchal disclosure framework associated with the level of pricingobservability utilized in measuring fair value. This framework defines three levels of inputs to the fair value measurement process and requires that each fairvalue measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The threebroad levels of inputs defined by the FASB ASC Topic 820 hierarchy are as follows: ·Level 1 Inputs—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to accessat the measurement date; ·Level 2 Inputs—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly orindirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of theasset or liability; and ·Level 3 Inputs—unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about theassumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available inthe circumstances (which might include the reporting entity’s own data). As of December 31, 2015, the carrying value of cash and cash equivalents, trade accounts receivables, accounts payable, accrued expenses and accruedinterest approximates fair value due to the short-term nature of such instruments. The carrying value of other long-term liabilities approximates fair value asthe related interest rates approximate rates currently available to the company. The following table summarizes the fair value of our financial assets that aremeasured at fair value: December 31, 2015 Total Fair Value and Carrying Value on Fair Value Measurement Category Balance Sheet Level 1 Level 2 Level 3 (Dollars in thousands) Assets: Cash and cash equivalents $98 $98 $— $—Trade accounts receivable, net 36,029 36,029 — — Liabilities: Accounts payable 5,177 5,177 — — Accrued expenses including estimated fair value of contingentearn-out consideration 11,301 11,128 — 173 Accrued interest 16 16 — — Long term liabilities including estimated fair value ofcontingent earn-out consideration 636 34 — 602 Long-term debt and capital lease obligations 277,116 277,116 — — Fair value of interest rate swap 798 — 798 — 122 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 10. INCOME TAXES We account for income taxes in accordance with FASB ASC Topic 740 “Income Taxes.” Deferred income taxes are determined based on the differencebetween the consolidated financial statement and income tax bases of assets and liabilities using enacted tax rates in effect in the years in which thedifferences are expected to reverse. Our evaluation was performed for tax years that remain subject to examination by major tax jurisdictions, which rangefrom 2011 through 2014. During 2015, we recognized a net decrease of $0.4 million in liabilities and at December 31, 2015, had $0.1 million in liabilities for unrecognized taxbenefits. Included in this liability amount is approximately $20,000 of accrued interest, net of federal income tax benefits, and $6,000 for the relatedpenalties recorded in income tax expense on our consolidated financial statements included in this annual report on Form 10-K. A summary of the changes in the gross amount of unrecognized tax benefits is as follows: December 31, 2015 (Dollars in thousands) Balance at January 1, 2015 $508 Additions based on tax positions related to the current year — Additions based on tax positions related to prior years — Reductions related to tax positions of prior years — Decrease due to statute expirations (417)Related interest and penalties, net of federal tax benefits 9 Balance as of December 31, 2015 $100 The consolidated provision (benefit) for income taxes from continuing operations for Salem consisted of the following: December 31, 2013 2014 2015 (Dollars in thousands) Current: Federal $— $— $— State 193 269 249 193 269 249 Deferred: Federal (1,075) 3,932 6,234 State (3,310) 564 212 (4,385) 4,496 6,446 Provision for (benefit from) income taxes $(4,192) $4,765 $6,695 Discontinued operations are reported net of the tax benefit of $(0.02) million in 2013. The consolidated deferred tax asset and liability consisted of the following: December 31, 2014 2015 (Dollars in thousands) Deferred tax assets: Financial statement accruals not currently deductible $8,045 $9,699 Net operating loss, AMT credit and other carryforwards 72,618 71,593 State taxes 108 114 Other 3,821 3,785 Total deferred tax assets 84,592 85,191 Valuation allowance for deferred tax assets (2,952) (2,771)Net deferred tax assets $81,640 $82,420 Deferred tax liabilities: Excess of net book value of property and equipment and software for financial reporting purposesover tax basis $3,000 $2,826 Excess of net book value of intangible assets for financial reporting purposes over tax basis 118,773 127,078 Interest rate swap 187 (315)Unrecognized tax benefits 508 100 Other 128 — Total deferred tax liabilities 122,596 129,689 Net deferred tax liabilities $(40,956) $(47,269) 123 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The consolidated provision (benefit) for income taxes from continuing operations for Salem consisted of the following: December 31, 2013 2014 2015 (Dollars in thousands) Current: Federal $— $— $— State 193 269 249 193 269 249 Deferred: Federal (1,075) 3,932 6,234 State (3,310) 564 212 (4,385) 4,496 6,446 Provision for (benefit from) income taxes $(4,192) $4,765 $6,695 Discontinued operations are reported net of the tax benefit of $(0.02) million in 2013. The consolidated deferred tax asset and liability consisted of the following: December 31, 2014 2015 (Dollars in thousands) Deferred tax assets: Financial statement accruals not currently deductible $8,045 $9,699 Net operating loss, AMT credit and other carryforwards 72,618 71,593 State taxes 108 114 Other 3,821 3,785 Total deferred tax assets 84,592 85,191 Valuation allowance for deferred tax assets (2,952) (2,771)Net deferred tax assets $81,640 $82,420 Deferred tax liabilities: Excess of net book value of property and equipment and software for financial reporting purposes over taxbasis $3,000 $2,826 Excess of net book value of intangible assets for financial reporting purposes over tax basis 118,773 127,078 Interest rate swap 187 (315)Unrecognized tax benefits 508 100 Other 128 — Total deferred tax liabilities 122,596 129,689 Net deferred tax liabilities $(40,956) $(47,269) The following table reconciles the above net deferred tax liabilities to the financial statements: December 31, 2014 2015 (Dollars in thousands) Deferred income tax asset per balance sheet $8,153 $9,813 Deferred income tax liability per balance sheet (49,109) (57,082) $(40,956) $(47,269) A reconciliation of the statutory federal income tax rate to the provision for income tax is as follows: Year Ended December 31, 2013 2014 2015 (Dollars in thousands) Statutory federal income tax rate (at 35%) $(2,411) $3,584 $6,246 Effect of state taxes, net of federal (2,025) 542 300 Permanent items 270 613 445 Other, net (26) 26 (296) Provision for income taxes $(4,192) $4,765 $6,695 124 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. At December 31, 2015, we had net operating loss carryforwards for federal income tax purposes of approximately $156.2 million that expire in 2020through 2034 and for state income tax purposes of approximately $981.0 million that expire in years 2016 through 2034. For financial reporting purposes atDecember 31, 2015, we had a valuation allowance of $2.8 million, net of federal benefit, to offset a portion of the deferred tax assets related to state netoperating loss carryforwards that may not be realized. NOTE 11. COMMITMENTS AND CONTINGENCIES The company enters into various agreements in the normal course of business that contain minimum guarantees. These minimum guarantees are oftentied to future events, such as future revenue earned in excess of the contractual level. Accordingly, the fair value of these arrangements is zero. The company also records contingent earn-out consideration representing the estimated fair value of future liabilities associated with acquisitions thatmay have additional payments due upon the achievement of certain performance targets. The fair value of the contingent earn-out consideration is estimatedas of the acquisition date as the present value of the expected contingent payments as determined using weighted probabilities of the expected paymentamounts. We review the probabilities of possible future payments to estimate the fair value of any contingent earn-out consideration on a quarterly basisover the earn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of theacquired business increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent earn-out considerationliability will increase or decrease, up to the contracted limit, as applicable. Changes in the estimated fair value of the contingent earn-out consideration arereflected in our results of operations in the period in which they are identified. Changes in the estimated fair value of the contingent earn-out considerationmay materially impact and cause volatility in our operating results. The company and its subsidiaries, incident to its business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims.Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. The company maintains insurance that may providecoverage for such matters. Consequently, the company is unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact withrespect to these matters. The company believes, at this time, that the final resolution of these matters, individually and in the aggregate, will not have amaterial adverse effect upon the company’s annual consolidated financial position, results of operations or cash flows. Salem leases various land, offices, studios and other equipment under operating leases that generally expire over the next ten to twenty-five years. Themajority of these leases are subject to escalation clauses and may be renewed for successive periods ranging from one to five years on terms similar to currentagreements and except for specified increases in lease payments. Rental expense included in operating expense under all lease agreements was $16.9 million,$17.9 million and $19.1 million in 2013, 2014 and 2015, respectively. Future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as ofDecember 31, 2015, are as follows: Related Parties Other Total (Dollars in thousands) 2016 $1,530 $10,317 $11,847 2017 1,190 10,034 11,224 2018 445 9,163 9,608 2019 179 8,308 8,487 2020 183 7,763 7,946 Thereafter 3,626 34,571 38,197 $7,153 $80,156 $87,309 NOTE 12. STOCK INCENTIVE PLAN The company has one stock incentive plan. The Amended and Restated 1999 Stock Incentive Plan (the “Plan”) allows the company to grant stockoptions and restricted stock to employees, directors, officers and advisors of the company. A maximum of 5,000,000 shares are authorized under the Plan.Options generally vest over a four-year period and have a maximum term of five years from the vesting date. The Plan provides that vesting may beaccelerated upon the occurrence of certain corporate transactions of the company. The Plan provides that the Board of Directors, or a committee appointed bythe Board, has discretion, subject to certain limits, to modify the terms of outstanding options. We recognize non-cash stock-based compensation expenserelated to the estimated fair value of stock options granted in accordance with FASB ASC Topic 718 “Compensation—Stock Compensation.” 125 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. During the year ending December 31, 2014, the Board of Directors accelerated the vesting period for three outstanding stock awards issued to anemployee. This accelerated vesting resulted in additional compensation expense of $30,000 recognized in the fourth quarter of 2014. The following tablereflects the components of stock-based compensation expense recognized in the Consolidated Statements of Operations for the years ended December 31,2013, 2014 and 2015: Year Ended December 31, 2013 2014 2015 (Dollars in thousands) Stock option compensation expense included in corporate expenses $766 $1,025 $474 Restricted stock shares compensation expense included in corporate expenses 481 — 34 Stock option compensation expense included in broadcast operating expenses 302 325 130 Stock option compensation expense included in Internet operating expenses 253 165 92 Stock option compensation expense included in publishing operating expenses 47 61 41 Total stock-based compensation expense, pre-tax $1,849 $1,576 $771 Tax benefit (expense) from stock-based compensation expense (740) (630) (308)Total stock-based compensation expense, net of tax $1,109 $946 $463 Stock option and restricted stock grants The Plan allows the company to grant stock options and shares of restricted stock to employees, directors, officers and advisors of the company. Forgrants of stock options, the option exercise price is set at the closing price of the company’s common stock on the date of grant, and the related number ofshares underlying the stock option is fixed at that point in time. The Plan also provides for grants of restricted stock. Eligible employees may receive stockoptions annually with the number of shares and type of instrument generally determined by the employee’s salary grade and performance level. In addition,certain management and professional level employees typically receive a stock option grant upon commencement of employment. The Plan does not allowkey employees and directors (restricted persons) to exercise options during pre-defined blackout periods. Employees may participate in plans establishedpursuant to Rule 10b5-1 under the Exchange Act that allow them to exercise options according to pre-established criteria. We use the Black-Scholes valuation model to estimate the grant date fair value of stock options and restricted stock. The expected volatility reflects theconsideration of the historical volatility of our stock as determined by the closing price over a six to ten year term that is generally commensurate with theexpected term of the award. Expected dividends reflect the quarterly distributions authorized and declared on our Class A and Class B common stock as ofthe grant date. The expected term of the awards are based on evaluations of historical and expected future employee exercise behavior. The risk-free interestrates for periods within the expected term of the award are based on the U.S. Treasury yield curve in effect during the period the options were granted. We usehistorical data to estimate future forfeiture rates to apply against the gross amount of compensation expense determined using the valuation model. The weighted-average assumptions used to estimate the fair value of the stock options and restricted stock awards using the Black-Scholes valuationmodel were as follows for the years ended December 31, 2013, 2014 and 2015: Year Ended December 31, 2013 2014 2015 Expected volatility 100.78% 74.98% 52.37%Expected dividends 2.05% 2.70% 4.28%Expected term (in years) 6.6 7.8 3.0 Risk-free interest rate 1.06% 2.27% 0.85% Stock option information with respect to the company’s stock-based equity plans during the three years ended December 31, 2015 is as follows (Dollarsin thousands, except weighted average exercise price and weighted average grant date fair value): Options Shares Weighted AverageExercise Price Weighted Average Grant Date Fair Value Weighted AverageRemaining Contractual Term AggregateIntrinsic Value Outstanding at January 1, 2013 1,927,099 $4.37 $3.45 5.4 years $3,899 Granted 735,750 6.93 4.90 1,303 Exercised (410,983) 3.46 2.47 1,883 Forfeited or expired (89,799) 12.30 7.43 72 Outstanding at December 31, 2013 2,162,067 $5.09 $3.57 5.5 years $8,491 Exercisable at December 31, 2013 514,751 6.29 4.52 2.7 years 1,919 Expected to Vest 1,564,128 $4.71 $3.28 6.4 years $6,240 Outstanding at January 1, 2014 2,162,067 $5.09 $3.57 5.5 years $8,491 Granted 25,000 8.40 4.73 — Exercised (278,837) 4.38 3.43 1,260 Forfeited or expired (92,026) 12.25 7.89 43 Outstanding at December 31, 2014 1,816,204 $4.88 $3.39 4.8 years $5,718 Exercisable at December 31, 2014 663,417 5.32 3.90 3.0 years 2,015 Expected to Vest 1,094,574 $4.62 $3.10 5.9 years $3,515 Outstanding at January 1, 2015 1,816,204 $4.88 $3.39 5.5 years $5,718 Granted 10,000 6.08 1.98 — Exercised (163,994) 2.35 1.53 589 Forfeited or expired (81,087) 10.32 6.93 12 Outstanding at December 31, 2015 1,581,123 $4.87 $3.39 4.3 years $1,738 Exercisable at December 31, 2015 947,573 4.92 3.54 3.3 years 1,001 Expected to Vest 601,557 $4.80 $3.15 5.6 years $700 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 126 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The aggregate intrinsic value represents the difference between the company’s closing stock price on December 31, 2015 of $4.98 and the optionexercise price of the shares for stock options that were in the money, multiplied by the number of shares underlying such options. The total fair value ofoptions vested during the years ended December 31, 2013, 2014 and 2015 was $0.8 million, $1.9 million and $1.5 million, respectively. Non-employee directors of the company have been awarded restricted stock grants that vest one year from the date of issuance. During the twelve monthsended December 31, 2013, the company granted restricted stock awards to certain members of management. These restricted stock awards vestedimmediately, but contained transfer restrictions under which they could not be sold, pledged, transferred or assigned until the three-month anniversary fromthe grant date. During the twelve months ended December 31, 2015, the company granted restricted stock awards to non-employee directors that vest oneyear from the date of issuance. These restricted stock awards contained transfer restrictions under which they could not be sold, pledged, transferred orassigned until the sooner of the fifth anniversary from the grant date or the day after the non-employee director is no longer a member of the company’sboard. The restricted stock awards were independent of option grants and were granted at no cost to the recipient other than applicable taxes owed by therecipient. The awards were considered issued and outstanding from the date of grant. The fair values of shares of restricted stock awards are determined based on the closing price of the company’s common stock on the grant dates.Information regarding the company’s restricted stock during the year ended December 31, 2013 and 2015 is as follows: Restricted Stock Awards Shares Weighted Average Grant Date Fair Value Weighted Average RemainingContractual Term Aggregate IntrinsicValue Non-Vested at January 1, 2013 — $— 5.4 years $3,899 Granted 79,810 6.02 1,303 Lapsed (79,810) 6.02 1,883 Forfeited (89,799) — 72 Outstanding at December 31, 2013 — $— 5.5 years $8,491 Non-Vested at January 1, 2015 — $— $— Granted 10,000 5.83 1.0 years 61 Lapsed — — Forfeited or expired (2,000) 5.83 10 Outstanding at December 31, 2015 8,000 $5.83 0.2 years $40 As of December 31, 2015, there was $0.3 million of total unrecognized compensation cost related to non-vested awards of stock options. This cost isexpected to be recognized over a weighted-average period of 1.03 years. Additional information regarding options outstanding as of December 31, 2015, is as follows: Weighted Average Contractual Life Weighted Weighted Average Range of Remaining Average Exercisable Grant Date Exercise Prices Options (Years) Exercise Price Options Fair Value $ 0.36 - $ 3.00 737,746 4.5 $2.59 401,246 $1.71 $ 3.01 - $ 6.00 146,214 2.0 5.13 145,414 4.20 $ 6.01 - $ 9.00 679,938 4.6 6.97 375,688 4.86 $ 9.01 - $ 12.00 22,350 0.2 11.80 22,350 8.80 $ 12.01 - $ 15.00 2,875 0.3 13.20 2,875 9.78 $ 0.36 - $ 15.00 1,589,123 4.2 $4.84 947,573 $3.40 127 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 13. RELATED PARTY TRANSACTIONS Our board of directors has adopted a written policy for review, approval and monitoring of transactions between the company and its related parties.Related parties include our directors, executive officers, nominees to become a director, any person beneficially owning more than 5% of any class of ourstock, immediate family members of any of the foregoing, and any entity in which any of the foregoing persons is employed or is a general partner orprincipal or in which the person has a 10% or greater beneficial ownership interest. The policy covers material transactions in which a related party had, hasor will have a direct or indirect interest. Leases with Principal Stockholders A trust controlled by the Chief Executive Officer of the company, Edward G. Atsinger III, owns real estate on which assets of one radio station arelocated. Salem has entered into a lease agreement with this trust. Rental expense related to this lease included in operating expense for 2015, 2014 and 2013amounted to $180,000, $175,000 and $170,000, respectively. Land and buildings occupied by various Salem radio stations are leased from entities owned by the company’s CEO and its Chairman of the Board.Rental expense under these leases included in operating expense for 2015, 2014 and 2013 amounted to $1.3 million, $1.3 million and $1.2 million,respectively. Terminated Subordinated Debt due to Related Parties On November 17, 2011, we entered into terminated subordinated lines of credit with Edward G. Atsinger III, Chief Executive Officer and director ofSalem, and Stuart W. Epperson, Chairman of Salem’s board of directors. Pursuant to the related agreements, Mr. Epperson had committed to provide anunsecured revolving line of credit to Salem in a principal amount of up to $3 million, and Mr. Atsinger had committed to provide an unsecured revolvingline of credit in a principal amount of up to $6 million. On May 21, 2012, we entered into a line of credit with Roland S. Hinz, a Salem board member. Mr.Hinz committed to provide an unsecured revolving line of credit in a principal amount of up to $6.0 million. On September 12, 2012, we amended andrestated the original line of credit with Mr. Hinz to increase the unsecured revolving line of credit by $6.0 million for a total line of credit of up to $12.0million (together, the “Terminated Subordinated Debt due to Related Parties”). The proceeds of the Subordinated Debt due to Related Parties may have been used to repurchase a portion of Salem’s then outstanding Terminated95/8% Notes. Outstanding amounts under each subordinated line of credit bore interest at a rate equal to the lesser of (1) 5% per annum and (2) the maximumrate permitted for subordinated debt under the Revolver referred to above plus 2% per annum. Interest was payable at the time of any repayment of principal. In addition, outstanding amounts under each terminated subordinated line of credit were required to be repaid within three (3) months from the time thatsuch amounts are borrowed, with the exception of the subordinated line of credit with Mr. Hinz, which was to be repaid within six (6) months from the timethat such amounts were borrowed. The terminated subordinated lines of credit did not contain any covenants. At December 31, 2011 and 2012, $9.0 millionand $15.0 million, respectively, was outstanding under the Terminated Subordinated Debt due to Related Parties. On March 14, 2013, we repaid these linesof credit upon entry into our current senior secured credit facility. On April 3, 2013, we provided written notice to Messrs. Atsinger, Epperson and Hinzelecting to terminate the Terminated Subordinated Debt due to Related Parties and related agreements effective as of May 3, 2013. There are no outstandingbalances on the Terminated Subordinated Debt due Related Parties as of the repayment date. Because the transactions with Messrs. Atsinger, Epperson and Hinz described above constitute related party transactions, the Nominating and CorporateGovernance committee (the “Committee”) of Salem’s board of directors approved the entry by Salem into the subordinated lines of credit and any definitivecredit agreements associated therewith. As part of its consideration, the Committee concluded that the terms of the subordinated lines of credit were morefavorable to Salem as compared to terms of lines of credit available from unaffiliated third parties. Additionally, in August 2012, the company obtained afairness opinion from Bond & Pecaro confirming this conclusion. Radio Stations Owned by the Epperson’s Nancy A. Epperson, the wife of the Chairman of the Board, Stuart W. Epperson, currently serves as an officer, director and stockholder of six radiostations in Virginia, five radio stations in North Carolina, and five radio stations in Florida. Chesapeake-Portsmouth Broadcasting Corporation (“Chesapeake-Portsmouth”) is a company controlled by Nancy Epperson, wife of Salem’s Chairman of the Board Stuart W. Epperson and sister of CEO Edward G. AtsingerIII. Chesapeake-Portsmouth owns and operates radio stations WJGR-AM, Jacksonville, Florida, WZNZ-AM, Jacksonville, Florida and WZAZ-AM,Jacksonville, Florida. 128 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The markets where these radio stations are located are not currently served by stations owned and operated by the company. Under his employmentagreement, Mr. Epperson is required to offer the company a right of first refusal of opportunities related to the company’s business. Radio Stations Owned by Mr. Hinz Mr. Hinz, a director of the company, through companies or entities controlled by him, operates three radio stations in Southern California. These radiostations are formatted in Christian Teaching and Talk programming in the Spanish language. Truth For Life—Mr. Riddle and Mrs. Weinberg Truth For Life is a non-profit organization that is a customer of Salem Media Group, Inc. During 2015, 2014 and 2013, the company billed Truth For Lifeapproximately $2.2 million, $2.2 million and $2.1 million, respectively, for airtime on its stations. Mr. Riddle, a director of the company, joined the Truth forLife board in October 2010 and remains a member of this board. Mrs. Allyson Weinberg is the wife of the company’s former director Dennis M. Weinberg,who did not stand for re-election to the board at the 2013 Annual Meeting of Stockholders. Mrs. Weinberg joined the board of Truth for Life in April 2011and remains a member of this board. Know the Truth - Mr. Riddle Know the Truth is a non-profit organization that is a customer of Salem Media Group, Inc. During 2015, 2014 and 2013, the company billed Know theTruth approximately $0.4 million, $0.5 million and $0.4 million, respectively, for airtime on its stations. Mr. Riddle, a director of the company, joined theKnow the Truth board in 2010 and remains a member of this board. Split-Dollar Life Insurance The company purchased split-dollar life insurance policies for its Chairman and Chief Executive Officer in 1997. During 2011, the then existing policieswere cancelled and new policies were entered. The company is the owner of the policies and is entitled to recover all of the premiums paid on these policies.The company records an asset based on the lower of the aggregate premiums paid or insurance cash surrender value. The premiums were $386,000 for each ofthe years ended December 31, 2015, 2014 and 2013. As of December 31, 2015, 2014, and 2013 we recorded net assets of $2.5 million, $1.9 million and $1.6million, respectively. Benefits above and beyond the cumulative premiums paid will go to the beneficiary trusts established by each of the Chairman andChief Executive Officer. Transportation Services Supplied by Atsinger Aviation From time to time, the company rents aircraft from a company owned by Edward G. Atsinger III, Chief Executive Officer and director of Salem. Asapproved by the independent members of the company’s board of directors, the company rents these aircraft on an hourly basis at what the company believesare market rates and uses them for general corporate needs. Total rental expense for these aircraft for 2015, 2014 and 2013 amounted to approximately$133,000, $274,000 and $239,000, respectively. NOTE 14. DEFINED CONTRIBTION PLAN We maintain a 401(k) defined contribution plan (the “401(k) Plan”), which covers all eligible employees (as defined in the 401(k) Plan). Participants areallowed to make non-forfeitable contributions up to 60% of their annual salary, but may not exceed the annual maximum contribution limitationsestablished by the Internal Revenue Service. The plan previously allowed for a company match of 50% on the first 3% of the amounts contributed by eachparticipant and 25% on the next 3% contributed but does not match participants’ contributions in excess of 6% of their compensation per pay period. Thecompany match was temporarily suspended in July 2008 as part of an extensive cost-reduction program. The company match was reinstated effective January1, 2012 under new terms that allow for a company match of 50% on the first 5% of the amounts contributed by each participant. During the years endingDecember 31, 2015, 2014 and 2013, the company contributed and expensed $1.9 million, $1.7 million and $1.4 million, respectively, into the 401(k) Plan. NOTE 15. EQUITY TRANSACTIONS We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation-Stock Compensation.” As a result, $0.8million, $1.6 million and $1.8 million of non-cash stock-based compensation expense has been recorded to additional paid-in capital for the years endedDecember 31, 2015, 2014, and 2013, respectively. 129 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. While we intend to pay regular quarterly distributions, the actual declaration of such future distributions and the establishment of the per share amount,record dates, and payment dates are subject to final determination by our Board of Directors and dependent upon future earnings, cash flows, financialrequirements, and other factors. The current policy of the Board of Directors is to review each of these factors on a quarterly basis to determine the appropriateamount, if any, to allocate toward a cash distribution with the general principle of using approximately 20% of free cash flow. Free cash flow is a non-GAAPfinancial measure defined in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations included with this annualreport on Form 10-K. The following table shows distributions that have been declared and paid since January 1, 2013: Announcement Date Payment Date Amount Per Share Cash Distributed (in thousands) December 1, 2015 December 29, 2015 $0.0650 $1,656 September 1, 2015 September 30, 2015 $0.0650 $1,655 June 2, 2015 June 30, 2015 $0.0650 $1,654 March 5, 2015 March 31, 2015 $0.0650 $1,647 December 2, 2014 December 29, 2014 $0.0650 $1,646 September 2, 2014 September 30, 2014 $0.0625 $1,579 May 27, 2014 June 30, 2014 $0.0600 $1,514 March 6, 2014 March 31, 2014 $0.0575 $1,444 November 20, 2013 December 27, 2013 $0.0550 $1,376 September 12, 2013 October 4, 2013 $0.0525 $1,308 May 30, 2013 June 28, 2013 $0.0500 $1,240 March 18, 2013 April 1, 2013 $0.0500 $1,234 Based on the number of shares of Class A and Class B currently outstanding, and the currently approved distribution amount, we expect to pay totalannual distributions of approximately $6.6 million for the year ended December 31, 2016. NOTE 16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED): The following table sets forth selected financial results of the company on a quarterly basis. March 31 June 30 September 30 December 31 2014 2015 2014 2015 2014 2015 2014 2015 (Dollars in thousands, except per share data) Total revenue $62,344 $61,856 $68,637 $67,293 $69,608 $67,491 $65,947 $69,147 Operating income 5,331 5,703 7,491 9,254 8,847 8,800 6,947 9,265 Net income beforediscontinuedoperations 431 295 1,263 3,523 3,743 2,077 38 5,255 Net income $431 $295 $1,263 $3,523 $3,743 $2,077 $38 $5,255 Basic earnings pershare $0.02 $0.01 $0.05 $0.14 $0.14 $0.08 $— $0.20 Basic earnings pershare fromcontinuingoperations $0.02 $0.01 $0.05 $0.14 $0.14 $0.08 $— $0.20 Diluted earningsper share $0.02 $0.01 $0.05 $0.14 $0.14 $0.08 $— $0.20 Diluted earningsper share fromcontinuingoperations $0.02 $0.01 $0.05 $0.14 $0.14 $0.08 $— $0.20 Weighted averageshares outstanding– basic 25,064,982 25,346,499 25,172,696 25,429,127 25,536,397 25,459,962 25,573,162 25,471,342 Weighted averageshares outstanding– diluted 25,881,811 25,921,118 25,950,600 25,829,493 26,265,957 25,907,651 26,226,332 25,893,015 130 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 17. SEGMENT DATA FASB ASC Topic 280, “Segment Reporting,” requires companies to provide certain information about their operating segments. We have two reportablesegments, radio broadcasting and digital media. Digital media (formerly “Internet and e-commerce”) became a reportable segment as of the first quarter of2011 upon the realization of organic and acquisition-related revenue growth. Our acquisition of Eagle Publishing on January 10, 2014, which includedRegnery Publishing, Eagle Financial Publications, Eagle Wellness, Human Events and Red State, resulted in operational changes in our business and arealignment of our operating segments. We now have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing. We changed the composition of our operating segments to reflect management’s view of the operating results for each segment during the fourth quarterof 2014. Under our new composition, digital revenue generated by our broadcast stations is now reported under broadcast operating revenue, as the stationsales team and general manager are responsible for this digital revenue under their bonus and commission structure. Digital revenue from our broadcaststations was previously reported as Internet and e-Commerce revenue. E-book revenue is now reported under Publishing revenue as sales goals and bonusesfor Eagle Regnery Publishing are inclusive of sales of e-books. The sale of e-books was previously reported as Internet & e-commerce revenue. Additionally,we have allocated specific corporate departments, such as engineering, broadcast operations, digital and publishing within their respective operatingsegments. Corporate expenses as revised include unallocated expenses, such as accounting and finance, human resources, and other shared functions. Our operating segments reflect how our chief operating decision makers, which we define as a collective group of senior executives, assesses theperformance of each operating segment and determines the appropriate allocations of resources to each segment. Our operating segments do not all meet thequantitative thresholds to qualify as reportable segments; however, we have elected to disclose the results of these non-reportable operating segments as webelieve this information is useful to readers of our financial statements. We continue to review our operating segment classifications to align with operationalchanges in our business and may make future changes as necessary. We measure and evaluate our operating segments based on operating income and operating expenses that do not include allocations of costs related tocorporate functions, such as accounting and finance, human resources, legal, tax and treasury; nor do they include costs such as amortization, depreciation,taxes or interest expense. Changes to our operating segments did not impact the reporting units used to test non-amortizable assets for impairment. All priorperiods presented are updated to reflect the new composition of our operating segments. Segment performance, as we define it in accordance with the FASB’s guidance relating to segment reporting, is not necessarily comparable to othersimilarly titled captions of other companies. The table below presents financial information for each operating segment as of December 31, 2015, 2014 and2013 based on the new composition of our operating segments: Broadcast Digital Media Publishing UnallocatedCorporate Consolidated (Dollars in thousands) Year Ended December 31, 2015 Net revenue $196,090 $45,855 $23,842 $— $265,787 Operating expenses 140,230 35,969 24,774 15,146 216,119 Net operating income (loss) before depreciation,amortization, impairments, change in estimated fairvalue of contingent earn-out consideration (gain) losson the sale or disposal of assets $55,860 $9,886 $(932) $(15,146) $49,668 Depreciation 7,659 3,158 637 963 12,417 Amortization 91 4,690 542 1 5,324 Impairment of goodwill 439 — — — 439 Change in estimated fair value of contingent earn-outconsideration — (478) (1,237) — (1,715)(Gain) loss on the sale or disposal of assets 219 11 (58) 9 181 Net operating income (loss) from continuingoperations $47,452 $2,505 $(816) $(16,119) $33,022 Year Ended December 31, 2014 Net revenue $192,923 $46,862 $26,751 $— $266,536 Operating expenses 138,564 36,232 26,143 17,092 218,031 Net operating income (loss) before depreciation,amortization, impairments and (gain) loss on the saleor disposal of assets $54,359 $10,630 $608 $(17,092) $48,505 Depreciation 7,923 3,052 529 1,125 12,629 Amortization 98 4,885 1,212 1 6,196 Impairment of indefinite-lived long-term assets otherthan goodwill — — 34 — 34 Impairment of goodwill — — 45 — 45 Change in estimated fair value of contingent earn-outconsideration — 325 409 — 734 (Gain) loss on the sale or disposal of assets 231 25 (5) — 251 Net operating income (loss) from continuingoperations $46,107 $2,343 $(1,616) $(18,218) $28,616 Year Ended December 31, 2013 Net revenue $188,544 $35,156 $13,234 $— $236,934 Operating expenses 129,857 25,741 14,280 16,081 185,959 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Net operating income (loss) before depreciation,amortization, impairment and (gain) loss on the sale ordisposal of assets $58,687 $9,415 $(1,046) $(16,081) $50,975 Depreciation 7,934 2,904 444 1,166 12,448 Amortization 154 2,654 6 — 2,814 Impairment of indefinite-lived long-term assets otherthan goodwill — — 1,006 — 1,006 Impairment of goodwill — — 438 — 438 (Gain) loss on the sale or disposal of assets (274) — — 10 (264)Net operating income (loss) from continuingoperations $50,873 $3,857 $(2,940) $(17,257) $34,533 131 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Broadcast DigitalMedia Publishing UnallocatedCorporate Consolidated (Dollars in thousands) As of December 31, 2015 Inventories, net $— $505 $388 $— $893 Property and equipment, net 88,788 7,033 1,742 7,920 105,483 Broadcast licenses 393,031 — — — 393,031 Goodwill 3,581 19,930 1,044 8 24,563 Other indefinite-lived intangible assets — — 833 — 833 Amortizable intangible assets, net 492 9,599 1,385 5 11,481 As of December 31, 2014 Inventories, net $— $222 $350 $— $572 Property and equipment, net 81,948 7,111 1,941 8,227 99,227 Broadcast licenses 385,726 — — — 385,726 Goodwill 3,955 19,677 1,044 8 24,684 Other indefinite-lived intangible assets — — 833 — 833 Amortizable intangible assets, net 583 9,884 1,926 2 12,395 The table below presents financial information for each operating segment as of December 31, 2014 and 2013 with a comparison of the results under theprior composition of our operating segments as compared to the new composition: Year Ending December 31, 2013 2014 As ReportedOriginal As UpdatedNew As updatedOriginal As Reported New (Dollars in thousands) Revenues by Segment: Net Broadcast Revenue $183,697 $188,544 $187,815 $192,923 Net Digital Media Revenue 40,906 35,156 55,519 46,862 Net Publishing Revenue 12,331 13,234 23,202 26,751 Total Net Revenue $236,934 $236,934 $266,536 $266,536 Operating expenses by segment: Broadcast Operating Expenses $122,862 $129,857 $130,875 $138,564 Digital Media Operating Expenses 28,378 25,741 41,067 36,232 Publishing Operating Expenses 13,289 14,280 23,052 26,143 Unallocated Corporate Expenses 21,430 16,081 23,037 17,092 $185,959 $185,959 $218,031 $218,031 Net operating income (loss) before depreciation, amortization,impairments and (gain) loss on the sale or disposal of assets $50,975 $50,975 $48,505 $48,505 NOTE 18. SUBSEQUENT EVENTS On March 10, 2016, we announced a quarterly equity distribution in the amount of $0.0650 per share on Class A and Class B common stock. The equitydistribution will be paid on April 5, 2016 to all Class A and Class B common stockholders of record as of March 22, 2016. On March 8, 2016, we acquired King James Bible mobile applications for $4.0 million of which $2.7 million of cash, was paid upon close, $0.3 millionis due upon finalization of banking arrangements for revenue receipts, $0.4 million is due 90 days from the closing date, and three deferred payments of $0.2million each are due 180, 270 and 360 days from the close, respectively. On March 2, 2016, we entered into a related party lease with trusts created for the benefit of Edward G. Atsinger III, Chief Executive Officer, and StuartW. Epperson, Chairman of the Board. The lease is for real property used to operate radio station KNUS-AM in Denver, Colorado. Our Nominating andCorporate Governance Committee reviewed the lease and lease terms and determined that the terms of the transaction were no less favorable to Salem thanthose that would be available in a comparable transaction in arm’s length dealings with an unrelated third party. On February 22, 2016, we entered an APA to acquire an FM Translator in Amherst, New York for $60,000 in cash. The transaction is expected to close inthe first half of 2016. On January 27, 2016, we entered an APA to acquire a construction permit for an FM Translator in Charlotte, Michigan for $50,000 in cash. Thetransaction is expected to close in the first half of 2016. On January 27, 2016, we entered an APA to acquire a construction permit for an FM Translator in Kerrville, Texas for $50,000 in cash. The transaction isexpected to close in the first half of 2016. On January 25, 2016, we entered an APA to acquire an FM Translator in Lincoln, Maine for $100,000 in cash. The transaction is expected to close in thefirst half of 2016. On January 25, 2016, we entered an APA to acquire a construction permit for an FM Translator in Atwood, Kentucky for $88,000 in cash. The transactionis expected to close in the first half of 2016. 132 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On January 25, 2016, we entered an APA to acquire a construction permit for an FM Translator in Emporia, Kansas for $25,000 in cash. The transaction isexpected to close in the first half of 2016. On December 15, 2015, we entered an APA to acquire an FM Translator in Columbus, Ohio for $0.4 million in cash. The transaction is expected to closein the first half of 2016. Subsequent events reflect all applicable transactions through the date of the filing. 133 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures designed to ensure that information required tobe disclosed in our reports pursuant to the Exchange Act, is recorded accurately, processed, summarized and reported within the time periods specified in theSEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls andprocedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance ofachieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controlsand procedures. As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with theparticipation of senior management, including our Chief Executive Officer and our Chief Financial Officer, of our disclosure controls and procedures, as suchterm is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this report. Based on thisevaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective at thereasonable assurance level as of the end of the period covered by this report. (b) Management’s Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintainingadequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with theparticipation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal controlover financial reporting as of December 31, 2015 based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committeeof Sponsoring Organizations of the Treadway Commission using the 2013 framework. Based on our evaluation under that framework and applicable Securities and Exchange Commission rules, our management concluded that our internalcontrol over financial reporting was effective as of December 31, 2015. (c) Attestation Report of Registered Public Accounting Firm. The effectiveness of our internal control over financial reporting as of December 31, 2015has been audited by SingerLewak LLP, an independent registered public accounting firm, as stated in their report which is included herein. (d) Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during our fourthfiscal quarter for 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 134 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and StockholdersSalem Media Group, Inc. We have audited Salem Media Group, Inc. and subsidiaries’ (collectively, the “Company”) internal control over financial reporting as of December 31, 2015,based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission in 2013. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over FinancialReporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal controlover financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteriaestablished in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsof the Company as of December 31, 2015 and 2014 and the related consolidated statements of operations, stockholders’ equity and cash flows for each of thethree years in the period ended December 31, 2015, and our report dated March 11, 2016 expressed an unqualified opinion. /s/ SingerLewak LLP Los Angeles, CaliforniaMarch 11, 2016 135 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 9B. OTHER INFORMATION. Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information required by this item is incorporated by reference to our Definitive Proxy Statement under the heading “DIRECTORS ANDEXECUTIVE OFFICERS OF THE REGISTRANT,” expected to be filed within 120 days of our fiscal year end. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated by reference to our Definitive Proxy Statement under the heading “EXECUTIVECOMPENSATION,” expected to be filed within 120 days of our fiscal year end. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information required by this item is incorporated by reference to our Definitive Proxy Statement under the heading “SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS” expected to be filed within 120 days of our fiscalyear end. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. The information required by this item relating to “Certain Relationships and Related Party Transactions” is incorporated by reference to our Definitive ProxyStatement under the heading “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” expected to be filed within 120 days of our fiscal year end. The information required by this item relating to “Director Independence” is incorporated by reference to our Definitive Proxy Statement under theheading “DIRECTOR INDEPENDENCE” expected to be filed within 120 days of our fiscal year end. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The information required by this item is incorporated by reference to our Definitive Proxy Statement under the heading “PRINCIPAL ACCOUNTINGFEES AND SERVICES,” expected to be filed within 120 days of our fiscal year end. 136 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Additions Balance at Charged to Deductions Beginning of Cost and Bad Debt Balance at Description Period Expense Write-offs End of Period Year Ended December 31, 2013 Allowance for Doubtful Accounts 8,926 3,456 (1,573) 10,809 Year Ended December 31, 2014 Allowance for Doubtful Accounts andSales Returns 10,809 3,026 (1,108) 12,727 Year Ended December 31, 2015 Allowance for Doubtful Accounts andSales Returns 12,727 1,733 (981) 13,479 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) 1. Financial Statements. The financial statements required to be filed hereunder are included in Item 8. 2. Financial Statement Schedule. The following financial statement schedule for the years ended December 31, 2013, 2014 and 2015 is filed as part of thisreport and should be read in conjunction with the consolidated financial statements. SALEM MEDIA GROUP, INC.Schedule II – Valuation & Qualifying Accounts (Dollars in thousands) All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not requiredunder the related instructions or are inapplicable, and therefore have been omitted. 3. Exhibits. EXHIBIT LIST ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith3.01 Amended and Restated Certificateof Incorporation of the Company. 8-K 333-41733-29 04/14/99 3.1 3.02 Certificate of Amendment ofCertificate of Incorporation of theCompany 8-K 000-26497 02/23/15 3.1 3.03 Second Amended and RestatedBylaws of the Company 8-K 000-26497 02/23/15 3.3 4.01 Specimen of Class A commonstock certificate. S-1/A 333-76649 Declared Effective06/30/99 4.09 4.02Indenture, dated as of December 1,2009, among SalemCommunications Corporation, thesubsidiary guarantors party theretoand The Bank of New YorkMellon Trust Company, N.A., asTrustee and Collateral Agent. 8-K 000-26497 12/03/09 4.1 137 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith4.03 Form of 9.625% Senior SecuredSecond Lien Notes due 2016 (filedas part of Exhibit 4.21). 8-K 000-26497 12/03/09 4.2 4.04 Second Lien Security Agreement,dated as of December 1, 2009,among Salem CommunicationsCorporation, the subsidiaryguarantors party thereto and TheBank of New York Mellon TrustCompany, N.A., as CollateralAgent. 8-K 000-26497 12/03/09 4.3 4.05 Registration Rights Agreement,dated as of December 1, 2009,among Salem CommunicationsCorporation, the subsidiaryguarantors party thereto and TheBank of New York Mellon TrustCompany, N.A., as CollateralAgent and Banc of AmericaSecurities LLC, as Representativeof the Initial Purchasers. 8-K 000-26497 12/03/09 4.4 4.06 Third Supplemental Indenture,dated as of November 30, 2009,among Salem CommunicationsHolding Corporation, thesubsidiary guarantors party theretoand The Bank of New YorkMellon Trust Company, N.A., asTrustee. 8-K 000-26497 12/03/09 4.5 10.01 Employment Agreement, datedJuly 1, 2013 between SalemCommunications HoldingCorporation and Edward G.Atsinger III. 8-K 000-26497 03/11/13 99.1 10.02 Employment Agreement, datedJuly 1, 2013 between SalemCommunications HoldingCorporation and Stuart W.Epperson. 10-Q 000-26497 08/09/13 10.02.07 138 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith10.03 Employment Agreement datedJanuary 1, 2014 between SalemCommunications HoldingCorporation and Evan D. Masyr. 8-K 000-26497 12/17/13 99.5 10.04 Employment Agreement datedJanuary 1, 2014 between SalemCommunications HoldingCorporation and David Santrella. 8-K 000-26497 12/17/13 99.3 10.05 Employment Agreement datedJanuary 1, 2014 between SalemCommunications HoldingCorporation and Francis W.Wright. 8-K 000-26497 12/17/13 99.2 10.06 Employment Agreement, effectiveas of September 15, 2014, betweenSalem Communications HoldingCorporation and David A.R.Evans. 8-K 000-26497 09/19/14 99.1 10.07.01 Antenna/tower/studio leasebetween Common GroundBroadcasting, Inc. (KKMS-AM/Eagan, Minnesota) andMessrs. Atsinger and Eppersonexpiring in 2016. S-4 333-41733-29 01/29/98 10.05.04 10.07.02 Antenna/tower lease (KFAX-FM/Hayward, California) andSalem Broadcasting Company, apartnership consisting of Messrs.Atsinger and Epperson, expiringin 2013. S-4 333-41733-29 01/29/98 10.05.06 10.07.03 Antenna/tower lease betweenInspiration Media, Inc. (KGNW-AM/Seattle, Washington) andMessrs. Atsinger and Eppersonexpiring in 2012. S-4 333-41733-29 01/29/98 10.05.08 139 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith10.07.04 Antenna/tower lease betweenInspiration Media, Inc. (KLFE-AM/Seattle, Washington) and TheAtsinger Family Trust and StuartW. Epperson Revocable LivingTrust expiring in 2014. S-4 333-41733-29 01/29/98 10.05.09 10.07.05 Antenna/tower/studio leasebetween Pennsylvania MediaAssociates, Inc. (WNTP-AM/WFIL-AM/Philadelphia,Pennsylvania) and The AtsingerFamily Trust and Stuart W.Epperson Revocable Living Trustexpiring 2014. S-4 333-41733-29 01/29/98 10.05.11.02 10.07.06 Antenna/tower lease between NewInspiration Broadcasting Co., Inc.:as successor in interest to Radio1210, Inc. (KPRZ-AM/SanMarcos, California) and TheAtsinger Family Trust expiring in2028. S-4 333-41733-29 01/29/98 10.05.12 10.07.07 Antenna/tower lease betweenSalem Media of Texas, Inc.(KSLR-AM/San Antonio, Texas)and Atsinger FamilyTrust/Epperson Family LimitedPartnership expiring 2009. 10-K 000-26497 03/30/00 10.05.13 10.07.08 Antenna/tower lease betweenSalem Media of Colorado, Inc.(KNUS-AM/Denver-Boulder,Colorado) and Messrs. Atsingerand Epperson expiring 2016. S-4 333-41733-29 01/29/98 10.05.15 10.07.09 Antenna/tower lease betweenSalem Media of Colorado, Inc. andAtsinger Family Trust/EppersonFamily Limited Partnership(KRKS-AM/KBJD-AM/Denver,Colorado) expiring 2009. 10-K 000-26497 03/30/00 10.05.16 140 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith10.07.10 Antenna/tower lease betweenSalem Media of Oregon, Inc.(KPDQ-AM/FM/Portland,Oregon), and Messrs. Atsinger andEpperson expiring 2012. S-4 333-41733-29 01/29/98 10.05.17.02 10.07.11 Antenna/tower lease betweenSalem Media of Pennsylvania, Inc.(WORD-FM/WPIT-AM/Pittsburgh, Pennsylvania) andThe Atsinger Family Trust andStuart W. Epperson RevocableLiving Trust expiring 2013. S-4 333-41733-29 01/29/98 10.05.18 10.07.12 Antenna/tower lease betweenSalem Media of Texas, Inc.(KSLR-AM/San Antonio, Texas)and Epperson-Atsinger 1983Family Trust expiring 2017. S-4 333-41733-29 01/29/98 10.05.19 10.07.12.01 Amendment to Lease toAntenna/tower lease betweenSalem Media of Texas, Inc.(KSLR-AM/San Antonio, TX) andEpperson-Atsinger 1983 FamilyTrust expiring 2017. 10-K 000-26497 03/17/08 10.06.13.01 10.07.12.02 Second Amendment to Lease toAntenna/tower lease betweenSalem Media of Texas, Inc.(KSLR-AM/San Antonio, TX) andEpperson-Atsinger 1983 FamilyTrust expiring 2017. 10-K 000-26497 03/17/08 10.06.13.02 10.07.13 Antenna/tower lease betweenSouth Texas Broadcasting, Inc.(KNTH-AM/Houston-Galveston,Texas) and Atsinger Family Trustand Stuart W. Epperson RevocableLiving Trust expiring 2015. S-4 333-41733-29 01/29/98 10.05.20 10.07.14 Antenna/tower lease between NewInspiration Broadcasting Co., Inc.successor in interest to VistaBroadcasting, Inc. (KFIA-AM/Sacramento, California) andThe Atsinger Family Trust andStuart W. Epperson RevocableLiving Trust expiring 2016. S-4 333-41733-29 10/29/98 10.05.21 141 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith10.07.15 Antenna/tower lease betweenInspiration Media of Texas, Inc.(KTEK-AM/Alvin, Texas) and theAtsinger Family Trust and TheStuart W. Epperson RevocableLiving Trust expiring 2018. 10-K 000-26497 03/31/99 10.05.23 10.07.16 Studio building lease betweenSalem Radio Properties, Inc. andThomas H. Moffit Jr. 10-K 000-26497 03/31/06 10.05.24 10.07.17 Antenna/tower lease betweenPennsylvania Media AssociatesInc. (WTLN-AM/ Orlando,Florida) and Atsinger Family Trustand Stuart W. Epperson, revocableliving trust expiring 2045. 10-K 000-26497 03/16/07 10.05.25 10.07.18 Lease Agreement, dated April 8,2008, between Inspiration Media,Inc. (KDOW-AM/Palo Alto, CA)and Principal Shareholdersexpiring 2023. 8-K 000-26497 04/14/08 10.06.20 10.07.19 Lease Agreement, dated April 8,2008, between New InspirationBroadcasting Company, Inc.(KFAX-AM/San Francisco, CA)and Principal Shareholdersexpiring 2023. 8-K 000-26497 04/14/08 10.06.21 10.07.20 Lease Agreement, dated April 8,2008, between Inspiration Media,Inc. (KLFE-AM/Seattle, WA) andPrincipal Shareholders expiring2023 8-K 000-26497 04/14/08 10.06.22 10.07.21 Lease Agreement, dated April 8,2008, between South TexasBroadcasting, Inc. (KNTH-AM/Houston, TX) and PrincipalShareholders expiring 2023. 8-K 000-26497 04/14/08 10.06.23 142 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith10.07.22 Lease Agreement, dated April 8,2008, between Salem Media ofOregon, Inc. (KPDQ-AM/Portland,OR) and Principal Shareholdersexpiring 2023. 8-K 000-26497 04/14/08 10.06.24 10.07.23 Lease Agreement, dated April 8,2008, between Common GroundBroadcasting, Inc. (KPXQ-AM/Glendale, AZ) and PrincipalShareholders expiring 2023. 8-K 000-26497 04/14/08 10.06.25 10.07.24 Lease Agreement, dated April 8,2008, between Salem Media ofTexas, Inc. (KSLR-AM/SanAntonio, TX) and PrincipalShareholders expiring 2023. 8-K 000-26497 04/14/08 10.06.26 10.07.25 Lease Agreement, dated April 8,2008, between PennsylvaniaMedia Associates, Inc. (WFIL-AMand WNTP-AM/Philadelphia, PA)and Principal Shareholdersexpiring 2023. 8-K 000-26497 04/14/08 10.06.27 10.08.01 Asset Purchase Agreement, datedAugust 18, 2006, by and betweenCaron Broadcasting, Inc. andChesapeake-PortsmouthBroadcasting Corporation (WJGR-AM, Jacksonville, Florida, andWZNZ-AM, Jacksonville, Florida). 10-Q 000-26497 11/09/06 10.06.02 10.08.02 Asset Purchase Agreement, datedSeptember 14, 2006, by andbetween Caron Broadcasting, Inc.and Chesapeake-PortsmouthBroadcasting Corporation(WZAZ-AM, Jacksonville,Florida). 10-Q 000-26497 11/09/06 10.06.03 143 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith10.08.03 Local Programming andMarketing Agreement, datedSeptember 14, 2006, by andbetween Caron Broadcasting, Inc.and Chesapeake-PortsmouthBroadcasting Corporation (WJGR-AM, Jacksonville, Florida, andWZNZ-AM, Jacksonville, Florida). 10-Q 000-26497 11/09/06 10.06.04 10.08.04 Local Programming andMarketing Agreement, datedSeptember 14, 2006, by andbetween Caron Broadcasting, Inc.and Chesapeake-PortsmouthBroadcasting Corporation(WZAZ-AM, Jacksonville,Florida). 10-Q 000-26497 11/09/06 10.06.05 10.09.01 Amended and Restated 1999Stock Incentive Plan (as amendedand restated through June 3,2009). 8-K 000-26497 06/09/09 10.08.04.01 10.09.02 Form of stock option grant forAmended and Restated 1999Stock Incentive Plan. 10-K 000-26497 03/16/05 10.08.02 10.09.03 Form of restricted stock optiongrant for Amended and Restated1999 Stock Incentive Plan. 10-Q 000-26497 11/09/05 10.01 10.10 Management Services Agreementby and among Salem and SalemCommunications HoldingCorporation, dated August 25,2000 (incorporated by reference topreviously filed exhibit 10.11). 10-Q 000-26497 05/15/01 10.11 10.11 Intercreditor Agreement dated asof December 1, 2009, amongSalem CommunicationsCorporation, the subsidiaryguarantors party thereto, Bank ofAmerica, N.A., as first lien agentand control agent and theCollateral Agent. 8-K 000-26497 12/03/09 10.1 144 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith10.12.01 Credit Agreement, dated as ofDecember 1, 2009, by and amongSalem CommunicationsCorporation, as the borrower,Bank of America, N.A., asAdministrative Agent, SwinglineLender, L/C Issuer and a Lender,the other Lenders party thereto,Banc of America Securities LLC,as Joint Lead Arranger and SoleBook Manager, Barclays Capitaland ING Capital LLC, as JointLead Arrangers, Barclays Capital,as Syndication Agent, and INGCapital LLC, as DocumentationAgent. 8-K 000-26497 12/03/09 10.2 10.12.02 Amendment No. 1 and Waiver toCredit Agreement dated as ofNovember 1, 2010, among SalemCommunications Corporation,Bank of America, N.A., asAdministrative Agent, Swing LineLender and L/C Issuer, and eachlender party thereto. 8-K 000-26497 11/14/10 99.2 10.12.03 Second Amendment to the CreditAgreement dated as of November15, 2011 by and between SalemCommunications Corporation andWells Fargo Bank, N.A. 8-K 000-26497 11/21/11 10.1 10.13 First Lien Security Agreement,dated as of December 1, 2009, byand among SalemCommunications Corporation, thesubsidiary guarantors party theretoand Bank of America, N.A., asAdministrative Agent. 8-K 000-26497 12/03/09 10.3 145 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith10.14 Increase Joinder dated as ofNovember 1, 2010 among SalemCommunications Corporation,Wells Fargo Bank, NationalAssociation, the Guarantors partythereto, and Bank of America,N.A., as Administrative Agent. 8-K 000-26497 11/4/10 99.1 10.15 Affiliate Line of Credit, dated as ofNovember 17, 2011 betweenSalem CommunicationsCorporation and Edward G.Atsinger III. 10-K 000-26497 03/9/12 10.16 10.16 Affiliate Line of Credit, dated as ofNovember 17, 2011 betweenSalem CommunicationsCorporation and Stuart W.Epperson. 10-K 000-26497 03/9/12 10.16 10.17.01 Affiliate Line of Credit dated as ofMay 1, 2012 between SalemCommunications Corporation andRoland S. Hinz. 10-Q 000-26497 08/09/12 10.19 10.17.02 Amended and Restated AffiliateLine of Credit, dated as ofSeptember 12, 2012 betweenSalem CommunicationsCorporation and Roland S. Hinz. 8-K 000-26497 09/17/12 99.1 10.18.01 Business Loan Agreement dated asof May 21, 2012 between SalemCommunications Corp. and FirstCalifornia Bank. 10-Q 000-26497 08/09/12 10.20.01 10.18.02 Promissory Note dated May 21,2012 between SalemCommunications Corporation andFirst California Bank. 10-Q 000-26497 08/09/12 10.20.02 10.18.03 Subordination Agreement dated asof May 21, 2012 between SalemCommunications Corporation,First California Bank and WellsFargo Bank, National Association. 10-Q 000-26497 08/09/12 10.20.03 146 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith10.18.04 Subordination Agreement dated asof May 21, 2012 between SalemCommunications Corporation,Edward G. Atsinger III and WellsFargo Bank, National Association. 10-Q 000-26497 08/09/12 10.20.04 10.18.05 Subordination Agreement dated asof May 21, 2012 between SalemCommunications Corporation,Stuart W. Epperson and WellsFargo Bank, National Association. 10-Q 000-26497 08/09/12 10.20.05 10.18.06 Subordination Agreement dated asof May 21, 2012 between SalemCommunications Corporation,Roland Hinz and Wells FargoBank, National Association. 10-Q 000-26497 08/09/12 10.20.06 10.18.07 Commercial Guaranty dated May21, 2012 between SalemCommunications Corporation,Atsinger Family Trust and FirstCalifornia Bank. 10-Q 000-26497 08/09/12 10.20.07 10.18.08 Commercial Guaranty dated May21, 2012 between SalemCommunications Corporation,Edward G. Atsinger III and FirstCalifornia Bank. 10-Q 000-26497 08/09/12 10.20.08 10.18.09 Commercial Guaranty dated May21, 2012 between SalemCommunications Corporation,The Stuart W. EppersonRevocable Living Trust underagreement dated January 14, 1993,as amended and First CaliforniaBank. 10-Q 000-26497 08/09/12 10.20.09 10.18.10 Commercial Guaranty dated May21, 2012 between SalemCommunications Corporation,Stuart W. Epperson and FirstCalifornia Bank. 10-Q 000-26497 08/09/12 10.20.10 147 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith10.19.01 Credit Agreement, dated as ofMarch 14, 2013, by and amongSalem CommunicationsCorporation, as the borrower,Wells Fargo Bank, NationalAssociation, as AdministrativeAgent, Swing Line Lender andL/C Issuer and the other Lendersparty thereto, Wells FargoSecurities, LLC, SunTrustRobinson Humphrey, Inc., andRabobank, N.A., as Joint LeadArrangers and Joint Bookrunners,SunTrust Bank, as SyndicationAgent, and Rabobank, N.A. asDocumentation Agent. 8-K 000-26497 03/14/13 10.1 10.19.02 Security Agreement, dated as ofMarch 14, 2013, by and amongSalem CommunicationsCorporation, as Borrower and theGuarantors party thereto and WellsFargo Bank, National Association,as Administrative Agent. 8-K 000-26497 03/14/13 10.2 10.20 Separation and General ReleaseAgreement with Frank Wright - - - - 14 Code of Ethics - - - - X21 Subsidiaries Salem Media Group,Inc. - - - - X23.1 Consent of SingerLewak LLP,Independent Registered PublicAccounting Firm. - - - - X23.2 Consent of Bond & Pecaro, Inc.,dated January 8, 2015. - - - - X23.4 Consent of Noble FinancialCapital Markets Capital Marketsdated March 4, 2015. - - - - X 148 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Exhibit Description Form File No. Date of FirstFiling ExhibitNumber FiledHerewith31.1 Certification of Edward G.Atsinger III Pursuant to Rules 13a-14(a) and 15d-14(a) under theExchange Act. - - - - X31.2 Certification of Evan D. MasyrPursuant to Rules 13a-14(a) and15d-14(a) under the ExchangeAct. - - - - X32.1 Certification of Edward G.Atsinger III Pursuant to 18 U.S.C.Section 1350. - - - - X32.2 Certification of Evan D. MasyrPursuant to 18 U.S.C. Section1350. - - - - X101 The following financialinformation from the AnnualReport on Form 10K for the fiscalyear ended December 31, 2015,formatted in XBRL (ExtensibleBusiness Reporting Language)and furnished electronicallyherewith: (i) the ConsolidatedBalance Sheets (ii) ConsolidatedStatements of Operations (iii) theConsolidated Statement ofStockholders’ Equity (iv) theConsolidated Statements of CashFlows (v) the Notes to theConsolidated FinancialStatements. - - - - X 149 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. SALEM MEDIA GROUP, INC.March 11, 2016 By:/s/ EDWARD G. ATSINGER III Edward G. Atsinger III Chief Executive OfficerMarch 11, 2016 By:/s/ EVAN D. MASYR Evan D. Masyr Executive Vice President and Chief Financial Officer 150 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated. Signature Title Date /s/ EDWARD G. ATSINGER III Chief Executive Officer Edward G. Atsinger III (Principal Executive Officer) March 11, 2016 /s/ EVAN D. MASYR Executive Vice President and Chief Financial Officer Evan D. Masyr (Principal Financial Officer and Principal Accounting Officer) March 11, 2016 /s/ STUART W. EPPERSON Chairman Stuart W. Epperson March 11, 2016 /s/ ROLAND S. HINZ Director Roland S. Hinz March 11, 2016 /s/ JONATHAN VENVERLOH Director Jonathan Venverloh March 11, 2016 /s/ RICHARD A. RIDDLE Director Richard A. Riddle March 11, 2016 /s/ JAMES KEET LEWIS Director James Keet Lewis March 11, 2016 /s/ ERIC HALVORSON Director Eric Halvorson March 11, 2016 151 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT INDEX Exhibit Number Description of Exhibits21 Subsidiaries of Salem Media Group Incorporated.23.1 Consent of SingerLewak LLP, Independent Registered Public Accounting Firm.23.2 Consent of Bond & Pecaro, Inc. 23.4 Consent of Noble Financial Capital Markets31.1 Certification of Edward G. Atsinger III Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.31.2 Certification of Evan D. Masyr Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.32.1 Certification of Edward G. Atsinger III Pursuant to 18 U.S.C. Section 1350.32.2 Certification of Evan D. Masyr Pursuant to 18 U.S.C. Section 1350.101 The following financial information from the Annual Report on Form 10-K for the fiscal year ended December 31, 2015, formatted inXBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Balance Sheets (ii)Consolidated Statements of Operations (iii) the Consolidated Statement of Stockholders’ Equity (iv) the Consolidated Statements of CashFlows (v) the Notes to the Consolidated Financial Statements. 152 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 14 Section 9 – Code of Ethics General Principles Salem Media Group, Inc. (“Salem”) was founded with Judeo/Christian principles and continues to operate with respect for and adherence to them. It isbecause of those principles that Salem is committed to maintaining the highest business ethics and standards. We also believe that abiding by theseprinciples is the best way to preserve the integrity of the Company and the manner in which we are perceived by our shareholders, customers, co-workers,suppliers, competitors and the communities in which we operate. Accordingly, it is the policy of this Company that its directors, employees and business units conduct the business of the Company with honesty andintegrity and in strict compliance with both the letter and the spirit of all applicable laws, rules and regulations. No director or employee should assume thatthe Company’s interest ever requires any other course of conduct. Much of this Code of Ethical Conduct outlines legal requirements. However, compliance with our Code is more than simply compliance with the law. It alsomeans compliance with the highest standards of business and personal ethics. The following policies may go beyond the strict requirements of the law andstill not address all situations you might encounter. Accordingly, the Code of Ethical Conduct should be considered only a part of a larger process thatincludes adherence to corporate policies, open communication between employees and supervisors and, above all else, the integrity and good judgment ofall Salem employees and directors. Here are some general principles of business conduct to which you are expected to adhere: ·Compliance With Applicable Laws – You must abide by the letter and the spirit of all applicable laws and regulations and act in such a manner thatthe full disclosure of all facts related to any activity will always reflect favorably upon the Company.·Loyalty To Salem – You should not put yourself in a position where your personal interests or relationships conflict or appear to conflict with thebest interests of the Company. This means that you should avoid doing anything that would compromise or appear to compromise the Company oryourself.·Observance Of Moral And Ethical Standards – You must adhere to the highest moral and ethical standards of conduct in all business activities, andact in such a manner as to enhance the standing of the Company as a vigorous and ethical competitor.·Respect for the Competitive Business Environment – You must conduct yourself in a manner that reflects an understanding for the competitiveenvironment in which the Company operates and in recognition that the Company distinguishes itself from its competitors on the basis of itscommitment to quality, excellence and service. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. How We Solve Ethics Problems at Salem Some ethics issues we face are “black and white”. If the question involves a matter of law, our course is clear and unambiguous -- we follow the law. But oftenthe questions are not so clear-cut. They present us with difficult choices. It is impossible, of course, to prepare in advance for all possible problems. So, thebest course of action is to understand clearly the way to solve such problems. If you are faced with a difficult ethical choice, keep these steps in mind: ·Get all the facts.·Determine what specifically you are being asked to do.·Discuss the matter with all who are involved, including your supervisor. Make sure each one is fully informed.·Determine if any proposed outcome is fair by focusing on who might be wronged by your action: our shareholders, our customers, the Company’sinterests, or other employees. In many cases, the best course of ethical purpose is also the one that seem fairest to all concerned.·Review every aspect of the issue with your supervisor. In the rare case where it may not be appropriate to discuss an ethics issue with yoursupervisor, you should discuss it with his or her manager or with an attorney in the Corporate Legal Department. Specific Areas of Concern Trade The Company is committed to free and open competition in the marketplace. Strict adherence to the antitrust, competition, and trade laws of the UnitedStates is absolutely required. The laws in this area are complex and difficult to interpret. They also have application to a very broad range of corporate activities. The list of prohibitedactivities set forth below is not intended to be exhaustive and are only a general guide to compliance with such laws. You should consult with the CorporateLegal Department prior to taking action concerning a matter about which there is any question. You should not: ·Agree or attempt to agree with a competitor of the Company with respect to any of the following: prices; terms of sale (including discounts or creditterms); division of markets, sales territories, or customers; or the boycotting of third parties. Note that these laws also prohibit concerted actions bycompetitors even when there is a beneficial objective (like increased safety or better accuracy of information), so you should not discuss or exchangesuch information, including through trade associations, with competitors or their representatives; ·Sell any product on the condition, understanding and/or agreement that the customer must purchase another product from the Company; or, ·Make false or misleading remarks about our products or services or the products or services of other companies, including Salem’s competitors. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Payola/Plugola (Section 317 and 507 of the Communications Act of 1936) Employees are not permitted to participate, directly or indirectly, in the practice of payola and/or plugola. ¨Payola: The direct and non-disclosed payment of money or other valuable consideration to influence program selections.¨Plugola: The indirect benefit flowing to persons responsible for program selection. Your obligations under Section 317 and 507 and our Company’s policy are as follows:Every employee is prohibited from accepting any money, service or other valuable consideration from any person other than the Company for broadcastingany material over a Company station or radio network unless such employee shall have first received written consent of the station’s or network’s GeneralManager after full disclosure. Every employee having any voice in the selection of broadcast matter is prohibited from the following: ·engaging in any outside business or economic activity that would create a conflict of interest in the selection of broadcast matter;·accepting any favors, loans, entertainment or other consideration from persons seeking the airing of any broadcast matter in return therefore; and·promoting over the air (except by means of an appropriate commercial announcement) any activity or matter in which the employee has a direct orindirect financial interest, unless such employee shall have first received written consent of the Business Unit’s General Manager after fulldisclosure. Your attention is also directed to the fact that Section 507 of the Communications Act of 1936, as amended, makes it a criminal offense, subject to a fine ofnot more than $10,000 or imprisonment of not more than one year, or both, if any employee fails to disclose to the Company any acceptance, or agreement toaccept from any person other than the Company, any money, service or other valuable consideration for the broadcast of any material over the station. Employees of the Company shall adhere to all federal and local regulations regarding payola and receipt of gifts. Employees may be required to sign astatement confirming their understanding of the FCC Payola/Plugola Policy. Violations can be reported (anonymously, if you prefer) to the Employee EthicsHelpline at (866) 224-2163 or www.SalemEthics.com. Conflicts of Interest and Gifts Circumstances that give rise to actual or apparent conflicts of interest in connection with personal and professional relationships are not always obvious.Conflicts arise despite the best intentions of any employee. Receipt of gifts and entertainment by you or any member of your immediate family may presentpotential conflicts of interest. While business courtesies are to be encouraged, Employees and their immediate families are not to accept gifts, except those ofnominal value, or any special discounts or loans from any person or firm doing, or seeking to do, business with Salem. The definition of gifts for purposes ofthis policy includes the acceptance of lavish entertainment, but does not extend to business lunches and dinners or other such minor amenities that areconsidered normal in the course of business. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. No rebates, kickbacks, discounts, commissions, reciprocal agreements or any other form of reward from any business or organization contracting with theCompany or its employees are allowed where it is apparent that the size or value of such gift or consideration is to influence the recipient’s decision to use orpurchase the donor’s services, supplies or products, or to provide some special service such as promotional broadcast time. Unless specifically authorized to do so by the Company, employees are not to give, offer or promise, directly or indirectly, anything of value to anyrepresentative of a customer, potential customer or financial institution in connection with any transaction or business it may have with the Company. Neither you, nor an immediate family member such as a spouse, may benefit personally from any purchase by or sale to the Company of goods or services, orderive personal gain from transactions involving the Company, except when that transaction and the personal interest involved have been fully disclosed toand approved by the Company in writing. In most cases, such approval must come from the head of the division in which you operate. You are required to make prompt disclosure to your supervisor of any situation which may involve an actual or apparent conflict of interest. Among othersituations, your involvement, or the involvement of family members with competitors, customers, or suppliers may, under certain circumstances, result in aconflict of interest. If in doubt as to whether a situation involves a present or potential actual or apparent conflict of interest, you or your supervisor shouldconsult the Corporate Legal Department. Primary Employment If you are a full time employee, your position with the Company must be your primary employment. Any outside employment, investment, or other source ofincome must be secondary and subordinate to your position with the Company, and must not in any event interfere in any way with the performance of yourduties as a Company employee. If you wish to engage in outside employment, you must obtain prior written approval from your General Manager. Government Investigations It is the policy of the Company to fully cooperate with any government investigation. However, a condition of this cooperation is that the Company beadequately represented in such investigations by its own legal counsel. Accordingly, if you obtain any knowledge that would lead you to reasonably believethat a government investigation or inquiry is underway. this information should be communicated immediately to your Vice President and to the CorporateLegal Department. Also, all requests, either oral or written, for access to our files or for other information of any nature should be referred immediately to the Corporate LegalDepartment. No information, either oral or written, or records or files of any nature, should be furnished to an outside investigator in connection with anysuch non-routine inquiry except upon prior advice of the Corporate Legal Department; provided, however, pursuant to the rules and regulations of theFederal Communications Commission, our radio station FCC Public Files must be open for inspection by the public and the FCC at all times, and these filesshould be made available for inspection immediately upon request. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Accurate Books and Records and SEC Filings All records, reports and other documents of the Company must be prepared accurately and truthfully. This applies both to everyday documents, such as timecards, expense reports and accounting entries, and to less routine documents or reports, such as cost estimates, contract proposals and other presentations tomanagement, customers, and the public. If you prepare such records, or represent or certify the accuracy of information in such records, you must be diligentin assuring their accuracy and integrity. All payments and other transactions must be properly authorized by management and be accurately and completely recorded on the books and records of theCompany in accordance with generally accepted accounting principles and established corporate accounting policies. It is against this Company’s policy toever make entries that intentionally conceal or disguise the true nature of any transaction. No undisclosed or unrecorded corporate funds shall be establishedfor any purpose, nor may Company funds be placed in any personal or non-corporate account. In addition, we rely on the integrity of the books and records of the Company in preparing the filings that we make with the Securities and ExchangeCommission. These SEC reports must provide full, fair, accurate, timely and understandable disclosure and fairly present our financial condition and resultsof operations. If you collect, provide or analyze information for or otherwise contribute in any way in preparing or verifying these reports, you should striveto ensure that our disclosures are accurate and transparent and that our reports contain all of the information about the Company that would be important toenable stockholders and potential investors to assess the soundness and risks of our business and finances and the quality and integrity of our accounting anddisclosures. Retention of Records Certain records received or generated at Salem must be retained for specific intervals; other records should be purged on a regular basis. Legal and regulatorypractices require the retention of certain records for various periods of time, particularly in the tax, personnel, FCC, contract, and corporate governance areas.In addition, when litigation or a governmental investigation or audit is pending or imminent, relevant records must not be altered or destroyed until thematter is closed. Direct all questions on record retention to the Corporate Legal Department, particularly if any litigation, investigation or administrative action involving theCompany or any of its officers, directors, suppliers, or customers is pending or threatened. Political Activity The Company encourages you to be involved in the political process. Good citizenship is fostered by taking part in activities on a local, regional, state andnational level. However, there is a difference between being politically active personally, and being politically active as a representative of the Company.Your political contributions must not be made with the Company's funds or be reimbursed by the Company. In addition, Company employees may not allowpersonal political efforts to infringe on their normal workday commitments to the Company (however, you may take time off to vote as long as youcoordinate it with your supervisor). Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Company is permitted to pay the costs of establishing and administrating a political action committee, and has done so in creating the Salem PoliticalAction Committee (SALPAC). SALPAC was established to allow employees and others to make contributions to political endeavors important to the interestsof the Company. Participation in SALPAC is not a requirement for employment and whether or not you participate will not directly affect your employmentwith the Company. If you are interested in learning more about SALPAC or would like to make a contribution to SALPAC, please contact the corporateAdministration Department. Copyrights / Company Software U.S. and international copyright laws prohibit the copying, distribution, use and display of a copyrighted work without the prior permission of the copyrightowner. These restrictions apply to software as well as written material, and extend to the making of derivative works or compilations of any copyrightedmaterial. Accordingly, you may not use copyrighted material for any business purpose without first obtaining an agreement permitting such use. Also, youmay not install copyrighted software on any computer system owned by the Company unless the Company has received a license to use such software forsuch use. No employee may make unauthorized copies of computer software programs in violation of copyright laws or the relevant software licenseagreement. Fair Employment Practices Our Company believes that its employees are one of its greatest assets. In order to achieve optimal productivity and effectiveness, Salem will assure that allfederal, state and local regulations relating to equal employment opportunity are practiced. All Salem business units and employees must comply uniformlyand completely with this policy and with state, federal and local EEO regulations. Failure to Comply These guidelines are not intended to be exhaustive. However, failure to comply with the standards contained in the Code or to promptly report to thecorporate legal department any failures to comply can have severe consequences for both the individuals involved and for the Company. In addition topotentially damaging Salem’s good name, trade and consumer relations, and business opportunities, conduct which violates the Code may also violatefederal, state and local laws. If so, the Company also may be subject to prosecution, fines and other penalties for the improper conduct of its employees. Violation of these policies could subject an individual involved to discipline, termination of employment, and civil prosecution. Also, such violations couldsubject the individuals involved to criminal prosecution, imprisonment and fines. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 21 SUBSIDIARIES OF SALEM MEDIA GROUP, INC. Name State of FormationAir Hot, Inc. DelawareBison Media, Inc. ColoradoCaron Broadcasting, Inc. OhioCommon Ground Broadcasting, Inc. OregonEagle Products, LLC DelawareInspiration Media, Inc. WashingtonInspiration Media of Texas, LLC TexasNew Inspiration Broadcasting Company, Inc. CaliforniaNI Acquisition Corporation CaliforniaPennsylvania Media Associates, Inc. PennsylvaniaReach Satellite Network, Inc. TennesseeSalem Consumer Products, Inc. DelawareSalem Communications Holding Corporation DelawareSalem Media Group, LLC DelawareSalem Media of Colorado, Inc. ColoradoSalem Media of Hawaii, Inc. DelawareSalem Media of Illinois, LLC DelawareSalem Media of Kentucky, Inc. KentuckySalem Media of Massachusetts, LLC MassachusettsSalem Media of New York, LLC DelawareSalem Media of Ohio, Inc. OhioSalem Media of Oregon, Inc. OregonSalem Media of Texas, Inc. TexasSalem Media of Virginia, Inc. VirginiaSalem Media Representatives, Inc. TexasSalem Publishing, Inc. TennesseeSalem Radio Network Incorporated DelawareSalem Radio Operations, LLC DelawareSalem Radio Properties, Inc. DelawareSalem Satellite Media, LLC DelawareSalem Web Network, LLC DelawareSCA License Corporation DelawareSCA-Palo Alto, LLC DelawareSouth Texas Broadcasting, Inc. TexasSRN News Network, Inc. TexasSRN Store, Inc. Texas Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement (Nos. 333-40494, 333-113794, 333-125056 and 333-182807) on Form S-8 and inRegistration Statement No. 333-86580 on Form S-3 of Salem Media Group, Inc. and subsidiaries of our reports dated March 11, 2016, relating to our audits ofthe consolidated financial statements, the financial statement schedule and internal control over financial reporting, which appear in this Annual Report onForm 10-K of Salem Media Group, Inc. and subsidiaries for the year ended December 31, 2015. /s/ SingerLewak LLPLos Angeles, CaliforniaMarch 11, 2016 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 23.2 [Bond & Pecaro, Inc. letterhead] March 9, 2016 VIA E-MAIL: evanm@salem.cc Mr. Evan D. MasyrSenior Vice President and Chief Financial OfficerSalem Media Group, Inc.4880 Santa Rosa Road #300Camarillo, CA 93012 Dear Mr. Masyr: Bond & Pecaro, Inc. hereby grants permission to Salem Media Group, Inc. to use the Bond & Pecaro, Inc. name and data from our work product as ofDecember 31, 2015 in public filings with the Securities and Exchange Commission. I hope that this letter is responsive to your needs at this time. Please do not hesitate to let us know if you need anything additional. Sincerely, /s/ Timothy S. Pecaro Timothy S. Pecaro cc.Jim Brown Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 23.4 [Noble Financial Capital Markets letterhead]March 9, 2016 Mr. Evan D. MasyrExecutive Vice President & Chief Financial OfficerSalem Media Group, Inc.4880 Santa Rosa RoadCamarillo, CA 93012 PERSONAL & CONFIDENTIAL Dear Mr. Masyr: This letter is to confirm that Salem Media Group, Inc. is granted permission to disclose through its annual 10K filing with the Securities and ExchangeCommission (“SEC”) on or about March 9, 2016, the name of “Noble Financial Capital Markets” in reference to Noble’s ASC 350 impairment analysis ofSalem’s goodwill and other intangible assets for its informational purposes only. Noble Financial Capital Markets /s/ Richard H. Giles Richard H. Giles Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 31.1 I, Edward G. Atsinger III, certify that: 1.I have reviewed this annual report on Form 10-K of Salem Media Group, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): (a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: March 11, 2016 /s/ EDWARD G. ATSINGER III Edward G. Atsinger III Chief Executive Officer Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 31.2 I, Evan D. Masyr, certify that: 1.I have reviewed this annual report on Form 10-K of Salem Media Group, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): (a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: March 11, 2016 /s/ EVAN D. MASYR Evan D. Masyr Executive Vice President and Chief Financial Officer Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned hereby certifies, in his capacity as Chief Executive Officer of Salem Media Group, Inc. (the “Company”), for purposes of 18 U.S.C. Section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on his knowledge: ·the Annual Report of the Company on Form 10-K for the period ended December 31, 2015 (the “Report”) fully complies with the requirements ofSection 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and ·the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 11, 2016 By: /s/ EDWARD G. ATSINGER III Edward G. Atsinger III Chief Executive Officer Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32.2 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned hereby certifies, in his capacity as Executive Vice President and Chief Financial Officer of Salem Media Group, Inc. (the “Company”), forpurposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on his knowledge: ·the Annual Report of the Company on Form 10-K for the period ended December 31, 2015 (the “Report”) fully complies with the requirementsof Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and ·the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Dated: March 11, 2016 By: /s/ EVAN D. MASYR Evan D. Masyr Executive Vice President and Chief Financial Officer Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 11, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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