SalMar
Annual Report 2016

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KSALEM MEDIA GROUP, INC. /DE/ - SALMFiled: March 10, 2017 (period: December 31, 2016)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. 20549 FORM 10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016 OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 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, 2016, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $76,710,413 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 24, 2017 Common Stock, $0.01 par value per share 20,455,572 shares Class B Outstanding at February 24, 2017 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Common Stock, $0.01 par value per share 5,553,696 shares DOCUMENTS INCORPORATED BY REFERENCE Document Parts Into Which Incorporated Proxy 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 10, 2017Powered 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 PAGEPART IItem 1.Business3Item 1A.Risk Factors22Item 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 Operations49Item 7A.Quantitative and Qualitative Disclosures About Market Risk84Item 8.Financial Statements and Supplementary Data86Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure141Item 9A.Controls and Procedures141Item 9B.Other Information144 PART III Item 10.Directors, Executive Officers and Corporate Governance144Item 11.Executive Compensation144Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters144Item 13.Certain Relationships and Related Transactions and Director Independence144Item 14.Principal Accounting Fees and Services144 PART IV Item 15.Exhibits and Financial Statement Schedules144Item 16.Form 10-K Summary145 Signatures153 Exhibit Index155 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, is fromthe Fall 2016 Radio Market Survey Schedule & Population Rankings published by Nielsen Audio (“Nielsen”). According to the Radio Market Survey, thepopulation estimates are based upon the 2010 U.S. Bureau Census estimates updated and projected to January 1, 2017 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” from timeto time in both written reports (including this report) and oral statements, within the meaning of federal and state securities laws. Disclosures that use wordssuch as the company “believes,” “anticipates,” “estimates,” “expects,” “intends,” “will,” “may,” “intends,” “could,” “would,” “should” “seeks” “predicts,” or“plans” and similar expressions are intended to identify forward-looking statements, as defined under the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these forward-looking statements, which reflect our expectations based upon data available to the company as of thedate of this report. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Theserisks, 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”). 2Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 multimedia company specializing in Christian and conservative content, with media properties comprisingradio broadcasting, digital media, and publishing. Effective February 19, 2015, we changed our name from Salem Communications Corporation to SalemMedia Group, Inc. Salem was formed in 1986 as a California corporation and was reincorporated in Delaware in 1999. Our content is intended for audiencesinterested in Christian and family-themed programming and conservative news talk. Our filings with the Securities and Exchange Commission (“SEC”) areavailable under the Investor Relations section of our website at www.salemmedia.com. Any information found our website is not a part of, or incorporated byreference into, this or any report of Salem filed with, or furnished to the SEC. SEGMENT INFORMATION We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which also qualify as reportable segments. Our operating segmentsreflect how our chief operating decision makers, which we define as a collective group of senior executives, assess the performance of each operating segmentand determine the appropriate allocations of resources to each segment. We continually review our operating segment classifications to align withoperational changes in our business and may make changes as necessary. We measure and evaluate our operating segments based on operating income and operating expenses that do not include allocations of costs related tocorporate functions, such as accounting and finance, human resources, legal, tax and treasury, which are reported as unallocated corporate expenses in ourconsolidated statements of operations included in this annual report on Form 10-K. We also exclude costs such as amortization, depreciation, taxes andinterest expense. During the third quarter of 2016, we reclassed Salem Consumer Products, our e-commerce business that sells books, DVD’s and editorial content developedby our on-air personalities, from our Digital Media segment to our Broadcast segment. This reclassification was to consolidate all revenue and expensesgenerated by on-air hosts, which includes broadcast programs and e-commerce product sales, to better assess the financial performance of each networkprogram. This reclassification did not impact the reporting units used to test non-amortizable assets for impairment. All prior periods presented are updated toreflect this new composition of our operating segments. Refer to Note 20 – Segment Data in the notes to our consolidated financial statements contained inItem 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 to thesevalues 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 talk to beconsidered the market leader for all audiences, programmers and advertisers. Our integrated multimedia platform includes traditional forms of media, such asradio broadcasting, print magazines and book publishing as well as emerging forms of media, such as websites and digital publications. We continuallypursue expansion of our media platform as the marketplace evolves while aggressively managing operating costs and cash flows. Expansion opportunities forour media platform include increasing the strength and reach of our broadcast signals, investing in and building Internet websites, promoting our authors andon-air talent, and increasing the distribution and page views for our print and digital content. Our national presence in each of these mediums providesadvertisers and programmers with a powerful and integrated platform to reach audiences throughout the United States without compromising the sense ofcommunity 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 advertising from national and local customers. We produce and sponsor a number of community events that we believe areimportant in building our brand identity. We also believe that our active community involvement, including remote broadcasts, client events, concerts andtie-ins to major events, builds station awareness and listener loyalty. We promote our station websites on-air and at community events to direct participants toour websites specifically designed for each of our radio stations. Our audiences can access our entire library of digital content and online publications fromany of our station websites. To operate our broadcast entities efficiently, we assemble market clusters, or multiple radio stations operating within the same geographic market. Severalbenefits are achievable when operating market clusters. First, we are able to offer advertisers and programmers access to multiple audiences by providingairtime on each radio station in that market when advantageous. Second, we realize cost and operating efficiencies by consolidating sales, technical andadministrative support, promotional functions and other shared overhead costs such as rent, when possible. Third, the addition of new radio stations intoexisting markets allows us to leverage our hands-on knowledge of that market to increase our appeal to new audiences and advertisers. 3Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Radio Network® and Salem Media Representatives™ Our broadcasting operation includes our national network 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 and News Talkstations. SRN delivers programming via satellite to approximately 2,900 affiliated radio stations throughout the United States, including several of ourSalem-owned stations. We also own and operate SRN News Network (“SNN”), Today’s Christian Music (“TCM”) and Singing News Network (formerly SolidGospel Network), which are radio networks that produce and distribute talk, news and music programming to radio stations throughout the United States,including several of our Salem-owned stations. Salem Media RepresentativesTM (“SMR”) is our national advertising sales firm with offices in nine U.S. cities. SMR specializes in placing nationaladvertising on religious and other format commercial radio stations. SMR sells commercial airtime to national advertisers on our radio stations and throughour 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 Salem stations in national buys covering multiplemarkets. 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, provides 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 publishing operating segment is comprised of three businesses: (1) RegneryPublishing is a traditional book publisher that has published dozens of bestselling books by leading conservative authors and personalities, including AnnCoulter, Newt Gingrich, David Limbaugh, Ed Klein, Mark Steyn and Dinesh D'Souza; (2) Salem Author Services, our self-publishing services for authorsthrough Xulon Press and Hillcrest Media; and (3) Salem Publishing™ which produces and distributes five print magazines and one digital magazine. Audience Growth The continued success of our business is dependent upon our ability to reach a growing audience. We seek growth opportunities through increases in thestrength and number of our broadcast signals, increases in the number of page-views on our digital platform, increases in book sales and increases in oursubscriber base for digital content and print magazines. To accomplish this, we produce content that we believe is both compelling and of high commercialvalue based on our market testing and understanding of our audience. 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 can achieve growth in ratings and page turns that weconvert into advertising revenues. To maximize results, we cross-promote our content on each of our media platforms to enhance our brand names and reachour targeted audiences. We believe that the growth of our media platform and audience provides advertisers with effective methods to reach a growingaudience. 4Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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 that allows us to reach listeners from our day and night signals. During the year ended December 31, 2016, weacquired or entered into agreements to acquire several FM translators and FM translator construction permits. Construction permits provide authority toconstruct new FM translators or make changes in our existing facilities. We believe that securing these FM translators and construction permits allows us toincrease our audience by providing enhanced coverage and reach in existing AM broadcast markets. FM translators allow our AM stations to be heard on FMand expand the listenership of our FM HD channels with the potential to create new stations using the HD-2, HD-3 and HD-4 channel capacity. We continueto build or purchase websites that allow our audiences to view our content online or through digital streaming. Our digital content is available on numerousiPhone® and Android applications. Each of our radio stations, as well as several of our websites, have iPhone® and Android applications that can be used toview our content or digital streaming 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 that serve Christian and family-themed audiences as well as sponsor and support events that are important to this group. We believe that ourongoing active involvement and our strong relationships within the Christian community provide us with a unique competitive advantage that significantlyimproves the marketability of our media platform to advertisers and programmers targeting such communities. Our sponsored events include listener rallies,speaking tours, pastor appreciation events and concerts such as our Celebrate Freedom® Music Festivals and Fishfest®. Local events such as these connectus with our audience and enable us to create an enhanced awareness and name recognition in each of our markets. With this involvement, we can increase theeffectiveness of developing and improving our programming, which can contribute to a greater audience share and higher ratings over time. Corporate Structure Management of our operations is largely decentralized with operational vice presidents and general managers located throughout the United States. Webelieve that this decentralization encourages each general manager and vice president to apply innovative techniques for improving and growing theiroperations locally in ways that may be transferable to benefit other markets and operations. 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 oversees several markets on a regional basis. Our digital andpublishing operations vice presidents and general managers are also located throughout the United States in locations in which each of our entities operates. All of our operations receive executive leadership and oversight from our corporate staff. Corporate staff members have experience and expertise in, amongother things, accounting and finance, treasury, risk management, insurance, information technology, human resources, legal, engineering, real estate, strategicdirection and other support functions designed to provide resources to local management. Corporate staff also oversee the placement and rate negotiations fornational block programming on our stations. Centralized oversight of national programming is necessary because several of our key programming partnerspurchase times in multiple radio markets. Recent Events During the year ended December 31, 2016, we completed or entered into the following transactions: Debt On December 30, 2016, we paid $5.0 million in principal on our term loan of $300.0 million (“Term Loan B”), and paid interest due as of that date. Werecorded a $12,000 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and $33,000 in bank loan fees associated withthis principal prepayment. On November 30, 2016, we paid $1.0 million in principal on our Term Loan B, and paid interest due as of that date. We recorded a $2,500 pre-tax loss on theearly retirement of long-term debt related to the unamortized discount and $6,900 in bank loan fees associated with this principal prepayment. On September 30, 2016, we paid $2.3 million in principal on our Term Loan B, of which $1.5 million was an early prepayment of principal, and paid interestdue as of that date. We recorded a $3,900 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and $14,000 in bank loanfees associated with this principal prepayment. 5Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 June 30, 2016, we paid $1.2 million in principal on our Term Loan B, of which $0.4 million was an early prepayment of principal, and paid interest due asof that date. We recorded a $1,300 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and $3,400 in bank loan feesassociated with this principal prepayment. On March 31, 2016, we paid the quarterly installment due of $0.8 million in principal on our Term Loan B and paid interest due as of that date. On March 17, 2016, we paid $0.8 million in principal on our Term Loan B and paid interest due as of that date. We recorded a $2,500 pre-tax loss on theearly retirement of long-term debt related to the unamortized discount and $6,700 in bank loan fees associated with this principal repayment. Equity During the year ended December 31, 2016, 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 7, 2016 December 19, 2016 December 31, 2016 $0.0650 $1,678 September 9, 2016 September 19, 2016 September 30, 2016 $0.0650 $1,679 June 2, 2016 June 16, 2016 June 30, 2016 $0.0650 $1,664 March 10, 2016 March 22, 2016 April 5, 2016 $0.0650 $1,657 The actual declaration 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 and legal requirements, and other factors. The currentpolicy of our Board of Directors is to review all relevant factors on a quarterly basis to determine the appropriate amount, if any, to allocate toward a cashdistribution with the general principle of using approximately 20% of Adjusted EBITDA less cash paid for capital expenditures, less cash paid for incometaxes, and less cash paid for interest. Adjusted EBITDA is a non-GAAP financial measure defined in Item 6, Selected Financial Data included in this annualreport on Form 10-K. Broadcast Acquisitions We acquired or entered agreements to acquire several FM Translators or FM Translator construction permits during the year. The FCC permits AM and FMradio stations to operate FM Translators. The FCC began an AM Revitalization program, or “AMR,” that included several initiatives intended to benefit AMbroadcasters. One of these benefits, intended to promote the use of FM Translators by AM broadcasters, allows an AM station to relocate one FM translator upto 250 miles from its authorized site and operate the translator on any non-reserved band FM channel in the AM station’s market, subject to coverage andinterference rules (“250 Mile Window”). On February 23, 2017, the FCC amended its rules to allow an AM station using a rebroadcasting FM translator tolocate the FM translator anywhere within the AM station’s daytime service contour or anywhere within a 25-mile radius of the transmitter, even if the contourextends farther than 25 miles from the transmitter. This rule change, when it becomes effective, will be particularly useful for finding a location for thesetranslators. On January 29, 2016, the FCC opened a one-time only 250 Mile Window during which only Class C and Class D AM broadcast stations could participate.This window closed on July 28, 2016. A second window opened on July 29, 2016, allowing Class A and Class B AM broadcast stations to participate inaddition to any Class C and Class D AM broadcast station that did not participate in the first 250 Mile Window. The second 250 Mile Window closed onOctober 31, 2016. During these filing windows, qualifying AM stations were able to apply for one new FM translator station, in the non-reserved FM band tobe used solely to re-broadcast the AM station’s AM signal to provide fill-in and/or nighttime service. The FM translator must rebroadcast the related AMstation for at least four years, not counting any periods of silence. Construction permits provide authority to construct new FM Translators or make changes in existing facilities. We believe that securing these FM Translatorsallows us to increase our listening audience by providing enhanced coverage and reach of our existing AM broadcasts that can be heard on FM or expand thelistenership of FM HD channels with the potential to create new stations using the HD-2, HD-3 and HD-4 channel capacity. Our broadcast acquisitions during the year ended December 31, 2016 include the following: On December 31, 2016, we closed on the acquisition of an FM translator in Aurora, Florida for $50,000 in cash. The FM translator will be used byour WHIM-AM radio station in Miami, Florida. On December 31, 2016, we closed on the acquisition of an FM translator in Port St. Lucie, Florida for $50,000 in cash. The FM translator will beused by our WLCC-AM radio station in Tampa, Florida. On December 14, 2016, we closed on the acquisition of an FM translator in Rhinelander, Wisconsin for $50,000 in cash. The FM translator will beused by our WWTC-AM radio station in Minneapolis, Minnesota. On December 8, 2016, we closed on the acquisition of an FM translator in Little Fish Lake Valley, California for $44,000 in cash. The FM translatorwill be used by our KFIA-AM radio station in Sacramento, California. 6Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 December 1, 2016, we closed on the acquisition of an FM translator in Lake Placid, Florida for $35,000 in cash. The FM translator will be usedby our WTLN-AM radio station in Orlando, Florida. On November 22, 2016, we closed on the acquisition of two FM translator construction permits in Lahaina, Hawaii and Kihei, Hawaii for $110,000in cash. The FM translators will be used by our KHNR-AM and KGU-AM radio stations in Honolulu, Hawaii. On November 22, 2016, we closed on the acquisition of an FM translator in Crested Butte, Colorado for $38,500 in cash. The FM translator will beused by our KZNT-AM radio station in Colorado Springs, Colorado. On November 21, 2016, we closed on the acquisition of an FM translator in Dansville, New York for $75,000 in cash. The FM translator will be usedby our WMCA-AM radio station in New York, New York. On November 21, 2016, we closed on the acquisition of an FM translator in Carbondale, Pennsylvania for $75,000 in cash. The FM translator will beused by our WPGP-AM radio station in Pittsburgh, Pennsylvania. On November 11, 2016, we closed on the acquisition of an FM translator construction permit in Kingsville, Texas for $50,000 in cash. The FMtranslator will be used by our KNTH-AM radio station in Houston, Texas. On November 7, 2016, we closed on the acquisition of an FM translator in Sebring, Florida for $77,000 in cash. The FM translator will be used byour WKAT-AM radio station in Miami, Florida. On October 20, 2016, we closed on the acquisition of radio station KXFN-AM in St. Louis, Missouri for $190,000 in cash. The station was dark uponclosing and launched in December 2016. On October 20, 2016, we closed on the acquisition of three FM translator construction permits for $155,000 in cash. The FM translator constructionpermits were based in Angola, Indiana, Cofax, Indiana and Battle Creek, Michigan and will be used by WHK-AM and WHKW-AM, our radiostations in Cleveland, Ohio and WSDZ-AM our radio station in St. Louis, Missouri. On October 19, 2016, we closed on the acquisition of an FM translator construction permit in Palm Coast, Florida for $65,000 in cash from a relatedparty. The FM translator will be used by our WTWD-AM radio station in Tampa, Florida. On October 12, 2016, we closed on the acquisition of an FM translator in Lake City, Florida for $65,000 in cash from a related party. The FMtranslator will be used by our WBZW-AM radio station in Orlando, Florida. On June 24, 2016, we entered into a Local Marketing Agreement (“LMA”) to operate radio station KTRB-AM in San Francisco, Californiabeginning on July 1, 2016. On December 15, 2016, we entered into a new LMA to operate this station with East Bay Broadcasting, LLC, a relatedparty. On June 20, 2016, we closed on the acquisition of an FM translator in the Columbus, Ohio market for $0.3 million in cash. The FM translator is usedin our Columbus, Ohio market. On June 10, 2016, we closed on the acquisition of an FM translator in Amherst, New York for $60,000 in cash. The FM translator is used in ourPittsburgh, Pennsylvania market. On June 8, 2016, we closed on the acquisition of a construction permit for an FM translator construction permit in Charlotte, Michigan for $50,000in cash. The FM translator will be used in our Detroit, Michigan market. On June 3, 2016, we closed on the acquisition of a construction permit for an FM translator in Atwood, Kentucky for $88,000 in cash. The FMtranslator will be used in our Columbus, Ohio market. On May 13, 2016, we closed on the acquisition of a construction permit for an FM translator in Kerrville, Texas for $50,000 in cash. The FMtranslator will be used in our Houston, Texas market. On May 2, 2016, we closed on the acquisition of an FM translator in Lincoln, Maine for $100,000 in cash. The FM translator is used in our Boston,Massachusetts market. On April 29, 2016, we closed on the acquisition of a construction permit for an FM translator in Emporia, Kansas for $25,000 in cash. The FMtranslator will be relocated to Omaha, Nebraska, for use by our KCRO-AM radio station. Acquisitions — Digital Media On December 1, 2016, we acquired ChristianConcertAlerts.com for $0.2 million, of which $0.1 million was paid in cash upon close and theremaining $50,000 is due in two installments within the next year. On October 17, 2016, we purchased Historyonthenet.com and Authentichistory.com for $0.1 million in cash. 7Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 13, 2016, we acquired Mike Turner’s line of investment products, including TurnerTrends.com, other domain names and related assetsfor $0.4 million in cash and the assumption of $0.1 million in deferred subscription liabilities. As part of the purchase agreement, we may pay up toan additional $0.1 million in contingent earn-out consideration over the next twelve months based on the achievement of certain revenuebenchmarks. On April 1, 2016, we acquired the Retirement Watch newsletter and websites for $0.1 million in cash and the assumption of $0.6 million in deferredsubscription liabilities. On March 8, 2016, we acquired King James Bible mobile applications for $4.0 million, of which $2.7 million was paid in cash upon close and $1.3million is due in deferred installments within one year from the closing date. Throughout the year ended December 31, 2016, we acquired other domain names and assets associated within our digital media operating segmentfor approximately $3,000 in cash. Acquisitions — Publishing On August 1, 2016, we acquired the assets of Hillcrest Media Group, Inc. for $3.5 million and the assumption of $1.0 million in deferred revenueliabilities. We paid $3.3 million in cash upon close with the remaining $0.2 million due within 90 days upon the finalization of deferred revenueobligations. Throughout the year ended December 31, 2016, we acquired other domain names and assets associated within our publishing operating segment forapproximately $3,000 in cash. A summary of our business acquisitions and asset purchases for the year ended December 31, 2016, none of which were individually or in the aggregate,material to our consolidated financial position as of the respective date of acquisition, is as follows: Acquisition Date Description Total Consideration (Dollars in thousands) December 31, 2016 FM translator, Aurora, Florida (asset purchase) $50 December 31, 2016 FM translator, Port St. Lucie, Florida (asset purchase) 50 December 14, 2016 FM translator, Rhinelander, Wisconsin (asset purchase) 50 December 8, 2016 FM translator, Little Fish Lake Valley, California (asset purchase) 44 December 1, 2016 FM translator, Lake Placid, Florida (asset purchase) 35 December 1, 2016 Christian Concerts Alerts, LLC (asset purchase) 150 November 22, 2016 FM translator construction permit, Kihei, Hawaii (asset purchase) 55 November 22, 2016 FM translator construction permit, Lahaina, Hawaii (asset purchase) 55 November 22, 2016 FM translator, Crested Butte, Colorado (asset purchase) 39 November 21, 2016 FM translator, Dansville, New York (asset purchase) 75 November 21, 2016 FM translator, Carbondale, Pennsylvania (asset purchase) 75 November 11, 2016 FM translator construction permit, Kingsville, Texas (asset purchase) 50 November 7, 2016 FM translator, Sebring, Florida (asset purchase) 77 October 20, 2016 KXFN-AM, St. Louis, Missouri (business acquisition) 190 October 20, 2016 FM translator construction permit, Angola, Indiana (asset purchase) 50 October 20, 2016 FM translator construction permit, Cofax, Indiana (asset purchase) 55 October 20, 2016 FM translator construction permit, Battle Creek, Michigan (asset purchase) 50 October 19, 2016 FM translator construction permit Palm Coast, Florida purchased from a related party (asset purchase) 65 October 17, 2016 Historyonthenet.com and Authentichistory.com (asset purchase) 85 October 12, 2016 FM translator Lake City, Florida purchased from a related party (asset purchase) 65 September 13, 2016 Mike Turner’s investment products and domain names (business acquisition) 416 August 1, 2016 Hillcrest Media Group, Inc. (business acquisition) 3,515 June 20, 2016 FM translator, Columbus, Ohio (asset purchase) 345 June 10, 2016 FM translator, Amherst, New York (asset purchase) 60 June 8, 2016 FM translator construction permit, Charlotte, Michigan (asset purchase) 50 June 3, 2016 FM translator construction permit, Atwood, Kentucky (asset purchase) 88 May 13, 2016 FM translator construction permit, Kerrville, Texas (asset purchase) 50 May 2, 2016 FM translator, Lincoln, Maine (asset purchase) 100 April 29, 2016 FM translator construction permit, Emporia, Kansas (asset purchase) 25 April 1, 2016 Retirement Watch (business acquisition) 100 March 8, 2016 King James Bible mobile applications (business acquisition) 4,000 Various Purchases of other domain names and assets (asset purchases) 6 $10,120 8Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 4 - Acquisitions and Recent Transactions in the notes to our consolidated financial statements contained in Item 8 of this annual report on Form10-K for additional information and details related to our acquisition activity. Divestitures In November 2016, we entered an agreement with Word Broadcasting Network to transfer the operation of our Louisville radio stations (WFIA-AM;WFIA-FM; WGTK-AM) under a 24 month Time Brokerage Agreement (“TBA”) effective as of January 3, 2017. We received $0.5 million of cashfrom Word Broadcasting Network associated with an option for them to purchase these stations. On September 1, 2016, we received $0.7 million in cash associated with a land easement granted in our South Carolina market. On June 10, 2016, we received $2.5 million in cash from the National Park Service in exchange for its claim under eminent domain for our tower sitein Miami, Florida. We recognized a pre-tax gain of $1.9 million from this claim and entered into a limited terms of use agreement with the NationalPark Service to broadcast from the tower site for the next twenty years for a nominal fee. Pending Transaction(s) We are programming radio station KHTE-FM, Little Rock, Arkansas, under a 36 month TBA that began on April 1, 2015. The TBA is extendable forup to 48 months. We have the option to acquire the station for $1.2 million in cash during the TBA period. FM translators or FM translator construction permits purchase agreements pending as of the year-end December 31, 2016 include the following: Date APAEntered Permit orID Authorized Site - Current PurchasePrice EscrowDeposits Date Closed Market (Dollars in thousands) 7/25/2016 K283CA Festus, Missouri * 40 8 - St. Louis, Missouri7/26/2016 K294CP Roseburg, Oregon * 45 9 3/01/2017 Portland, Oregon7/26/2016 K276FZ Eaglemount, Washington * 40 8 - Portland, Oregon8/25/2016 K278BH Astoria, Oregon 33 7 1/16/2017 Seattle, Washington9/22/2016 K260CG Mohave Valley, Arizona* 20 2 1/6/2017 Phoenix, Arizona10/07/2016 K279CM Quartz Site, Arizona * 20 2 - To be determined* Indicates that the purchase is for an FM translator construction permit. Radio Stations We own and/or operate 118 radio stations in 40 markets, including 73 stations in 23 of the top 25 markets, consisting of 34 FM radio stations and 84 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 commercialradio broadcaster in the United States as measured by number of radio stations overall and the third largest operator as measured by number of stations in thetop 25 markets. We also program the Family Talk™ Christian-themed talk format station on SiriusXM Channel 131. Our five main formats are (1) Christian Teaching and Talk, (2) News Talk, (3) Contemporary Christian Music, (4) Spanish Language Christian Teaching andTalk and (5) Business. Christian Teaching and Talk. We currently program 40 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 more than 30 years on-air. Over thelast five years, block programming revenue has generated 40% to 43% 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. 9Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. News Talk. We currently program 32 of our radio stations in a News Talk format. Our research shows that our News Talk format is highly complementary toour core Christian Teaching and Talk format. As programmed by Salem, both of these formats express conservative views and family values. Our News Talkformat also provides for the opportunity to leverage syndicated talk programming produced by SRN to radio stations throughout the United States.Syndication of our programs allows Salem to reach audiences 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® in mostmarkets. Through the CCM format, we are able to bring listeners the words of inspirational recording artists, set to upbeat contemporary music. Our musicformat, 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 underserved in terms of radio coverage, particularly in larger markets, and that ourstations fill an otherwise void area in listener choices. Spanish Language Christian Teaching and Talk. We currently program eight 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 while Christian Teaching and Talk stations are primarily 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. 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 Business KTRB-AM LMA News TalkDallas-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 TalkPhiladelphia, 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 Operated by a third party under a TBA 10Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Detroit, 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 1998 Other WWTC-AM 2001 News Talk KYCR-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 1994 Christian Teaching and Talk KNUS-AM 1996 News Talk KBJD-AM (6) 1999 Spanish Language Christian Teaching and Talk KDMT-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 Talk KXFN-AM 2016 OtherPortland, 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 TalkSan Antonio, TX 25 KSLR-AM 1994 Christian Teaching and Talk KLUP-AM 2000 News Talk KRDY-AM 2014 Spanish Language Christian Teaching and TalkPittsburgh, PA 26 WORD-FM 1993 Christian Teaching and Talk WPIT-AM 1993 Christian Teaching and Talk WPGP-AM 2015 News TalkSacramento, CA 27 KFIA-AM 1995 Christian Teaching and Talk KTKZ-AM 1997 News Talk KSAC-FM 2002 Business KKFS-FM 2006 Contemporary Christian MusicOrlando, FL 31 WORL-AM 2006 News Talk WTLN-AM 2006 Christian Teaching and Talk WBZW-AM 2006 Business WDYZ-AM 2015 Spanish Christian Teaching and TalkCleveland, OH 32 WHKW-AM 2000 Christian Teaching and Talk WFHM-FM 2001 Contemporary Christian Music WHK-AM 2005 News TalkColumbus, OH 36 WRFD-AM 1987 Christian Teaching and Talk WTOH-FM 2013 News TalkNashville, TN 42 WBOZ-FM (8) 2000 Contemporary Christian Music WFFH-FM (8) 2002 Contemporary Christian Music WFFI-FM (8) 2002 Contemporary Christian Music 11Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Louisville, KY 54 WFIA-FM 1999 Operated by a third party under a TBA WGTK-AM 2000 Operated by a third party under a TBA WFIA-AM 2001 Operated by a third party under a TBAGreenville, SC 58 WGTK-FM 2013 News Talk WRTH-FM 2014 Classic Hits WLTE-FM 2014 Classic HitsHonolulu, HI 62 KAIM-FM 2000 Contemporary Christian Music KGU-AM 2000 Business KHCM-AM 2000 Operated by a third party under a TBA 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 News Talk KCRO-AM 2005 Christian Teaching and TalkSarasota-Bradenton, FL 73 WLSS-AM 2005 News TalkLittle Rock, AR 85 KDIS-FM 2014 Christian Teaching and Talk KKSP-FM 2015 Contemporary Christian Music KHTE-FM LMA News TalkColorado Springs, CO 89 KGFT-FM 1996 Christian Teaching and Talk KBIQ-FM 1996 Contemporary Christian Music KZNT-AM 2003 News TalkOxnard-Ventura, CA 119 KDAR-FM 1974 Christian Teaching and TalkYoungstown-Warren, OH 129 WHKZ-AM 2001 Christian Teaching and TalkWarrenton, VA 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 2016 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 an 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 that the most recent licenserenewal was granted subject to the resolution of AM expanded band dual operating authority issues in MB Docket No. 07-294.(6)KBJD(AM) is an expanded band AM station paired with KRKS(AM). The licenses for these stations include a condition that the most recent licenserenewal was granted subject to the resolution of AM expanded band dual operating authority issues in MB Docket No. 07-294.(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. Revenues generated from each of our radio stations, networks, e-commerce sites for on-air host materials, advertising firms and radio station websites,including banner and digital advertisements are reported as broadcast revenue in our consolidated financial statements included in Item 8 of this annualreport on Form 10-K. Our broadcasting revenue includes radio advertising or spot revenue, programming revenue, e-commerce sales of content created by ouron-air hosts, event revenue, digital revenue from station websites and email blasts, and network advertising revenue. The principal source of our networkrevenue is from the sale of advertising time. Our e-commerce sites that generate broadcast revenues include the following: ·SRNStore.com·Salem Consumer Products Advertising Revenue. We recognize advertising and commission revenue from radio stations as the spots air or are delivered. For the year ended December31, 2016, we derived 31.7% of our net broadcast revenue, or $64.0 million, from the sale of local spot advertising and 6.6% of our net broadcast revenue, or$13.4 million, from the sale of national spot advertising. 12Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Programming Revenue. We recognize programming revenue as the programs air. For the year ended December 31, 2016, we derived 24.4% and 18.3% of ournet broadcast revenue, or $49.3 million and $37.0 million, respectively, from the sale of national and local block programming time, respectively. We derivenational program revenue primarily from geographically diverse, well-established non-profit religious and educational organizations that purchase time onour stations in a large number of markets in the United States. National program producers typically purchase 121/2, 25 or 50-minute blocks of time on aMonday 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, 2016 was $17.7 million, or 8.8% of netbroadcast revenue. Digital Media Our digital media-based businesses provide Christian, conservative, investing and health-themed content, e-commerce, 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, purchasing or demonstrating an interest in our advertisers' products or services. We also generaterevenue from digital subscriptions, streaming, downloads and product sales through our church product sites. Revenue is recognized upon digital delivery orpage views, downloads and upon shipment of products. Revenue from this operating segment is reported as Digital Media revenue on our consolidatedstatements of operations included in Item 8 of this annual report on Form 10-K. We own and operate numerous websites including: Salem Web Network™ Christian Content Websites: 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 our block programming radio business. 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 games. Crosswalk.com® offers compelling, editorial-driven, biblically-based, lifestyle and devotional content to Christians who take seriously theirrelationship with Christ. GodTube.com is a video viewing 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. Jesus.org offers a comprehensive database of biblical answers to the most common questions about the life and work of Jesus Christ. 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. 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. 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 provides information and insight on Christian music. ChristianHeadlines.com reports the news of importance to the Christian audience with a headlines blog, Christian worldview commentary, andfeatures 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. 13Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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 U.S. politics, global news, sports, entertainment, media, andbreaking news. RedState.com is the leading conservative, political news blog for right of center activists. Human Events.com is a conservative opinion website that provides news and commentary on issues of interest to the conservative community. BearingArms.com is a clearinghouse for news and resources on Second Amendment issues, gun control, self-defense and firearms. 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 investing websites and publications: Eagle Financial Publications provides market analysis and investment strategies for individual subscribers to newsletters from investorcommentators. www.DividendInvestor.com offers stock screening tools and dividend information for individual subscribers to obtain dividend information anddata. 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 Salem Church Products are websites that offer resources for churches and ministries in the areas of church media, worship, children’s and youthministry, preaching and teaching and employment. Eagle Wellness – Newport Natural Health (“NNH”) is an e-commerce website that offers health advice and nutritional products. NNH providesinsightful health advice and is a trusted source of high quality nutritional supplements from Leigh Erin Connealy, MD, who is the medical directorof one of the largest medical practices in the country where she practices integrative medicine. 14Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Publishing Our publishing operating segment is comprised of three businesses: (1) book publishing, (2) self-publishing services and (3) print and digital magazines. Regnery Publishing, with nearly a 70-year history, is one of the nation's leading publishers of conservative books. Having published many of the seminalworks of the early conservative movement, Regnery today continues as a leading publisher in the conservative space, with leading authors including AnnCoulter, Dinesh D'Souza, Newt Gingrich, David Limbaugh, Ed Klein and Mark Steyn. Salem's book publishing business also includes Salem Author Services, comprised of Xulon Press™ and Hillcrest Media, which offer print-on-demand self-publishing services for authors. Xulon Press™ publishes books for Christian authors while Hillcrest Media publishes books for all general market genres. 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 publications: ·Singing News®·Homecoming® The Magazine·YouthWorker Journal™·Preaching Magazine™·FaithTalk Magazine™ COMPETITION We operate in a highly competitive broadcast and media business. We compete for audiences, advertisers and programmers with other radio broadcasters,broadcast and cable television operators, 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. We compete for advertising revenue with other commercial religious format stations as well as general format radio stations. Our competition for advertisingdollars includes other radio stations as well as broadcast television, cable television, newspapers, magazines, direct mail, online and billboard advertising,some of which may be controlled by horizontally integrated companies. Several factors can materially affect competitive advantage, including, but notlimited to audience ratings, program content, management talent and expertise, sales talent and experience, audience characteristics, signal strength, and thenumber and characteristics of other radio stations in the same market. Christian and Family-Themed Radio. The segment of this industry that focuses on Christian and family themes is also a highly competitive business. Thefinancial success of each of our radio stations that focuses on Christian Teaching and Talk is dependent, to a significant degree, upon its ability to generaterevenue from the sale of block program time to national and local religious and educational organizations. We compete for this program revenue with anumber 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. 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 delivers 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. 15Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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 online 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, customer service,suitability of format and subject matter, author reputation, price, timely availability of both new titles and revisions of existing books, digital availability ofpublished products, and timely delivery of products to customers. Print magazines compete for readers and advertisers with other print publications,including those that also address themes of interest to church leadership and the Christian audience. Salem Author Services, comprised of Xulon Press™ andHillcrest Media competes for authors with other 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, whichacts 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 these orother rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of “short” (less than the maximum) licenserenewal terms or, for particularly egregious violations, the denial of a license renewal application, the revocation of a license or the denial of FCC consent toacquire additional broadcast properties. For further information concerning the nature and extent of federal regulation of broadcast stations you should referto 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 to theFCC. 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 may raisevarious 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 license wouldserve the public interest, convenience and necessity, or if a petition to deny raises a “substantial and material question of fact” as to whether the grant of therenewal application would be prima facie inconsistent with the public interest, convenience and necessity. In addition, during certain periods when a renewalapplication is pending, the transferability of the applicant’s license is restricted. The following table sets forth information with respect to each of our radio stations for which we hold the license. Stations that we operate under an LMA orTBA are not reflected on this table. A broadcast station’s market may be different from its community of license. The coverage of an AM radio station ischiefly a function of the power of the radio station’s transmitter, less dissipative power losses and any directional antenna adjustments. For FM radio stations,signal coverage area is chiefly a function of the Effective Radiated Power (“ERP”) of the radio station’s antenna and the Height Above Average Terrain(“HAAT”) of the radio station’s antenna. 16Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Market(1) Station CallLetters OperatingFrequency Expiration Date ofLicense FCCClass Height AboveAverageTerrain (in feet) Power(in Kilowatts) Day/ Night New York, NY WMCA-AM 570 June 2022 B N/A 5 / 5 WNYM-AM 970 June 2022 B N/A 50 / 5 Los Angeles, CA KKLA-FM 99.5 December 2021 B 2,959 10 KRLA-AM 870 December 2021 B N/A 50 / 3 KFSH-FM 95.9 December 2021 A 328 6 Chicago, IL WYLL-AM 1160 December 2020 B N/A 50 / 50 WIND-AM 560 December 2020 B N/A 5 / 5 San Francisco, CA KFAX-AM 1100 December 2021 B N/A 50 / 50 KDOW-AM 1220 December 2021 D N/A 5 / 0.145 Dallas-Fort Worth, TX KLTY-FM 94.9 August 2021 C 1,667 100 KWRD-FM 100.7 August 2021 C 1,988 98 KSKY-AM 660 August 2021 B N/A 20 / 0.7 KTNO-AM 1440 August 2021 B N/A 50 / 0.35 KEXB-AM 620 August 2021 B N/A 5 / 4.5 Houston-Galveston, TX KNTH-AM 1070 August 2021 B N/A 10 / 5 KKHT-FM 100.7 August 2021 C 1,952 100 KTEK-AM 1110 August 2021 D N/A 2.5 Washington, D.C. WAVA-FM 105.1 October 2019 B 604 74 WAVA-AM 780 October 2019 D N/A 12 WWRC-AM 1260 October 2019 B N/A 35 / 5 Atlanta, GA WNIV-AM 970 April 2020 D N/A 5 / 0.039 WLTA-AM 1400 April 2020 C N/A 1 / 1 WAFS-AM 1190 April 2020 D N/A 25 WFSH-FM 104.7 April 2020 C1 1,657 24 WGKA-AM 920 April 2020 B N/A 14 / 049 WDWD-AM 590 April 2020 B N/A 12 / 4.5 Philadelphia, PA WFIL-AM 560 August 2022 B N/A 5 / 5 WNTP-AM 990 August 2022 B N/A 50 / 10 Boston, MA WEZE-AM 590 April 2022 B N/A 5 / 5 WROL-AM 950 April 2022 B N/A 5 / 0.09 WWDJ-AM 1150 April 2022 B N/A 5 / 5 WBIX-AM 1260 April 2022 B N/A 5 / 5 Miami, FL WKAT-AM 1360 February 2020 B N/A 5 / 1 WHIM-AM 1080 February 2020 B N/A 50 / 10 WZAB-AM 880 February 2020 B N/A 4 / 5 WOCN-AM 1450 February 2020 B N/A 1 / 1 Detroit, MI WDTK-AM 1400 October 2020 C N/A 1 / 1 WLQV-AM 1500 October 2020 B N/A 50 / 10 Seattle-Tacoma, WA KGNW-AM 820 February 2022 B N/A 50 / 5 KLFE-AM 1590 February 2022 B N/A 20 / 5 KNTS-AM 1680 February 2022 B N/A 10 / 1 KKOL-AM 1300 February 2022 B N/A 50 / 47 Phoenix, AZ KKNT-AM 960 October 2021 B N/A 5 / 5 KPXQ-AM 1360 October 2021 B N/A 50 / 1 KXXT-AM 1010 October 2021 B N/A 15 / 0.25 Minneapolis-St. Paul, MN KKMS-AM 980 April 2021 B N/A 5 / 5 KDIZ-AM 1570 April 2021 B N/A 3.8 / 0.23 WWTC-AM 1280 April 2021 B N/A 5 / 5 KYCR-AM 1440 April 2021 B N/A 5 / 0.5 San Diego, CA KPRZ-AM 1210 December 2021 B N/A 20 / 10 KCBQ-AM 1170 December 2021 B N/A 50 / 2.9 Denver-Boulder, CO KRKS-FM 94.7 April 2021 C 984 100 KRKS-AM 900 April 2021 B N/A 6.5 / 0.39 KNUS-AM 710 April 2021 B N/A 5 / 5 KBJD-AM 1650 April 2021 B N/A 10 / 1 KDMT-AM 1690 April 2021 B N/A 10 / 1 Tampa, FL WTWD-AM 910 February 2020 B N/A 5 / 5 WTBN-AM 570 February 2020 B N/A 5 / 5 WLCC-AM 760 February 2020 B N/A 10 / 1 WGUL-AM 860 February 2020 B N/A 5 / 1.5 WWMI-AM 1380 February 2020 B N/A 9.8 / 6.5 St. Louis, MO WSDZ-AM 1260 December 2020 B N/A 20 / 5 KXFN-AM 1380 December 2021 B N/A 5 / 1 17Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Portland, OR KPDQ-FM 93.9 February 2022 C1 1,270 52 KPDQ-AM 800 February 2022 B N/A 1 / 0.5 KFIS-FM 104.1 February 2022 C2 1,266 6.9 KRYP-FM 93.1 February 2022 C3 1,270 1.6 KDZR-AM 1640 February 2022 B N/A 10 / 1 Riverside-San Bernardino, CA KTIE-AM 590 December 2021 B N/A 2.5 / 0.96 San Antonio, TX KSLR-AM 630 August 2021 B N/A 5 / 4.3 KLUP-AM 930 August 2021 B N/A 5 / 1 KRDY-AM 1160 August 2021 B N/A 10 / 1 Pittsburgh, PA WORD-FM 101.5 August 2022 B 528 43 WPIT-AM 730 August 2022 D N/A 5 / 0.024 WPGP-AM 1250 August 2022 B N/A 5 / 5 Sacramento, CA KFIA-AM 710 December 2021 B N/A 25 / 1 KTKZ-AM 1380 December 2021 B N/A 5 / 5 KSAC-FM 105.5 December 2021 B1 1,010 2.55 KKFS-FM 103.9 December 2021 A 328 6 Orlando, FL WORL-AM 660 February 2020 B N/A 3.5 / 1 WTLN-AM 950 February 2020 B N/A 12 / 5 WBZW-AM 1520 February 2020 B N/A 5 / 0.35 WDYZ-AM 990 February 2020 B N/A 50 / 14 Cleveland, OH WHKW-AM 1220 October 2020 B N/A 50 / 50 WFHM-FM 95.5 October 2020 B 620 31 WHK-AM 1420 October 2020 B N/A 5 / 5 Columbus, OH WRFD-AM 880 October 2020 D N/A 23 WTOH-FM 98.9 October 2020 A 505 2.6 Nashville, TN WBOZ-FM 104.9 August 2020 A 328 6 WFFH-FM 94.1 August 2020 A 453 3.2 WFFI-FM 93.7 August 2020 A 755 1.15 Louisville, KY WFIA-FM 94.7 August 2020 A 394 3.3 WGTK-AM 970 August 2020 B N/A 5 / 5 WFIA-AM 900 August 2020 D N/A 0.93 / 0.162 Greenville, SC WGTK-FM 94.5 December 2019 0 1,489 100 WRTH-FM 103.3 December 2019 0 495 2.7 WLTE-FM 95.9 December 2019 A 233 6 Honolulu, HI KHNR-AM 690 February 2022 B N/A 10 / 10 KAIM-FM 95.5 February 2022 C 1,854 100 KGU-AM 760 February 2022 B N/A 10 / 10 KHCM-FM 97.5 February 2022 C1 46 80 KHCM-AM 880 February 2022 B N/A 2 / 2 KGU-FM 99.5 February 2022 C 1,965 100 KKOL-FM 107.9 February 2022 C 1,965 100 Omaha, NE KGBI-FM 100.7 June 2021 C0 1,014 100 KOTK-AM 1420 June 2021 B N/A 1 / 0.33 KCRO-AM 660 June 2021 D N/A 1 / 0.054 Sarasota-Bradenton, FL WLSS-AM 930 February 2020 B N/A 5 / 3 Little Rock, AR KDIS-FM 99.5 June 2020 0 312 6 KKSP-FM 93.3 June 2020 0 698 22 Colorado Springs, CO KGFT-FM 100.7 April 2021 C 2,218 78 KBIQ-FM 102.7 April 2021 C 2,280 72 KZNT-AM 1460 April 2021 B N/A 5 / 0.54 Oxnard-Ventura, CA KDAR-FM 98.3 December 2021 B1 1,289 1.5 Youngstown-Warren, OH WHKZ-AM 1440 October 2020 B N/A 5 / 5 Warrenton, Virginia WRCW-AM 1250 October 2019 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 expanded bandstation 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. 18Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 FM translators for which we are the licensee and/or operate. Station Operating Expiration FCC Height AboveAverage Power (inKilowatts) Power (inKilowatts) Market Call Letters Frequency Date of License Class Terrain (in feet) Day Night Boston WROL / W262CV 100.3 February 2017 D 164 0.05 0.05 Cleveland WHK / W260CY 99.9 April 2017 D 164 0.099 0.099 Cleveland WHKW / W262CY 100.3 April 2017 D 731 0.25 0.25 Colorado Springs KZNT / K266CK 101.1 March 2019 D 731 0.15 0.15 Colorado Springs KZNT / K266CK 101.1 May 2017 D -191 0.15 0.15 Columbus WRFD / W283CL 104.5 October 2020 D -191 0.099 0.099 Columbus WTOH / W240CX 95.9 October 2020 D 545 0.099 0.099 Dallas-Ft. Worth KTNO / K273BJ 102.5 August 2021 D 696 0.08 0.08 Detroit WDTK / W268CN 101.5 October 2020 D 434 0.085 0.085 Detroit WLQV / W224CC 92.7 October 2020 D 914 0.25 0.25 Greenville WGTK / W245CH 96.9 December 2019 D 923 0.125 0.125 Greenville WGTK / W275BJ 102.9 December 2019 D 1,364 0.099 0.099 Honolulu KGU / K236CR 95.1 December 2016 D 1,390 0.25 0.25 Honolulu KHNR / K239CD 94.3 March 2017 D 204 0.05 0.05 Houston KNTH / K277DE 103.3 June 2017 D 204 0.099 0.099 Houston KTEK / K241CM 96.1 January 2017 D 514 0.25 0.25 Louisville WJIE / W297BV 1007.3 August 2020 D 542 0.15 0.15 Miami WHIM / W298AM 97.7 October 2019 D 286 0.15 0.15 Miami WKAT / W272DS 102.3 August 2019 D 603 0.099 0.099 Miami WOCN / W270CV 101.9 February 2019 D 603 0.099 0.099 Minneapolis WWTC / K298CO 107.5 November 2019 D N/A 0.08 0.08 Minneapolis WWTC / K298CO 107.5 July 2017 D 176 0.085 0.085 New York WMCA / W272DX 102.3 November 2019 D 176 0.25 0.25 Omaha KCRO / K293CJ 106.5 June 2021 D 585 0.125 0.125 Omaha KOTK / K233CO 94.5 June 2021 D 462 0.099 0.099 Orlando WDYZ / W268CT 101.5 October 2019 D 315 0.25 0.25 Orlando WORL / W288CJ 105.5 May 2019 D 323 0.05 0.05 Orlando WTLN / W235CR 94.9 August 2019 D 439 0.099 0.099 Orlando WORL / W288CJ 105.5 February 2020 D 434 0.25 0.25 Orlando WTLN / W235CJ 94.9 February 2020 D 439 0.15 0.15 Orlando WTLN / W235CR 94.9 February 2020 D 434 0.15 0.15 Pittsburgh WPGP / W233CS 92.5 August 2019 D 434 0.099 0.099 Pittsburgh WPIT / W243BW 96.5 March 2019 D N/A 0.099 0.099 Pittsburgh WPIT / W243BW 96.5 June 2022 D 528 0.08 0.08 Pittsburgh WPIT / W243BW 96.5 May 2017 D 528 0.085 0.085 Portland KDZR / K232FM 96.7 TBD D 528 0.25 0.25 Portland KPDQ / K294CP 106.3 TBD D 1,307 0.125 0.125 Sacramento KFIA / K245AR 105.7 TBD D 1,307 0.099 0.099 San Diego KCBQ / K260CG 96.1 August 2017 D 291 0.25 0.25 San Diego KPRZ / K279CM 106.1 TBD D 1,760 0.05 0.05 Seattle KGNW / K281CQ 104.1 September 2019 D 846 0.099 0.099 Seattle KGNW / K281CQ 104.1 February 2022 D 1,248 0.25 0.25 St. Louis KXFN / K283CA 95.9 TBD D 1,248 0.15 0.15 St. Louis WSDZ / K236CS 96.7 June 2017 D 501 0.15 0.15 Tampa WLCC / W282CI 104.3 August 2019 D 501 0.099 0.099 Tampa WTWD / W271CY 102.1 April 2017 D 417 0.099 0.099 Tampa/Sarasota WLSS / W229BR 93.7 February 2020 D 271 0.08 0.08 Tampa/Sarasota WLSS / W276CR 103.1 February 2020 D 212 0.085 0.085 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. 19Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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 owned orvoted by aliens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations. Under the Communications Act, thereare limitations on the licensee of a broadcast license, that is held by any corporation that is controlled, directly or indirectly, by any other corporation morethan 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, although the FCC has recently adoptedstreamlined waiver procedures for requests to exceed the statutory limits. Multiple Ownership: The Communications Act and FCC rules also generally restrict the common ownership, operation or control of radio broadcast stationsserving the same local market, of a radio broadcast station and a television broadcast station serving the same local market, and of a radio broadcast stationand a daily newspaper serving the same local market. The FCC also restricts the number of television stations an entity may own both in local markets andnationwide. Our current ownership of radio broadcast stations complies with the FCC’s multiple ownership rules; however, these rules may limit the number of additionalstations 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. The FCC isalso required by the Communications Act to review its broadcast ownership rules every four years. During 2009, the FCC held a series of hearings designed toevaluate possible changes to its rules. In May 2010, the FCC formally initiated its 2010 quadrennial review of its media ownership rules with the issuance ofa Notice of Inquiry (“NOI”). The NOI was intended to assist the Commission in establishing a framework within which to analyze whether its mediaownership rules remain “necessary in the public interest as a result of competition,” due to the dramatic changes occurring in the media marketplace.Numerous parties filed comments and reply comments in response to the NOI. In June and July 2011, the FCC released to the public eleven economic studiesrelated to its media ownership rules. In December 2011, the FCC issued a Notice of Proposed Rulemaking (“NPRM”) seeking comment on proposed rulechanges 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 consolidated its 2010 quadrennial review with the 2014 quadrennial review of the ownership rules. On August 25, 2016, the FCC released a SecondReport and Order to close the 2010 and 2014 Quadrennial Review proceedings. The FCC decided to retain its local radio ownership rules withoutmodification. The FCC, however, recently filed a motion requesting that the Third Circuit Court of Appeals hold in abeyance the consolidated cases pendingbefore it in connection with the broadcast ownership rules, because it intends to act on a Petition for Reconsideration of the Second Report and Order, whichcould result in changes to the local radio ownership rules. We can make no determination as to what effect, if any, any such rule changes will have on us. Attribution: Because of these multiple and cross-ownership rules, a purchaser of voting stock of the company that acquires an “attributable” interest in thecompany 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. 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 daily newspaper by being anofficer, director, partner, member, or stockholder of a company that owns that station or newspaper. Whether that interest is cognizable under the FCC’sownership rules is determined by the FCC’s attribution rules. If an interest is attributable, the FCC treats the person or entity who holds that interest as an“owner” of the radio station, television station or daily newspaper in question, and therefore subject to the FCC’s ownership rules. On December 22, 2011, theFCC issued an NPRM to seek comment on specific proposed changes to its ownership rules. In the NPRM, the FCC tentatively concluded to maintain itslocal radio ownership rules largely intact. Comments and Reply Comments have been received by the FCC in connection with the NPRM (2010 quadrennialreview). In March 2014, the FCC issued an FNPRM seeking comment on specific proposed changes to its ownership rules in connection with the 2010 and2014 quadrennial reviews of the broadcast ownership rules. On August 25, 2016, the FCC released a Second Report and Order to close the 2010 and 2014Quadrennial Review proceedings. In the Second Report and Order, the FCC readopted its Television Joint Sales Agreement (JSA) Attribution Rule adopted inthe Report and Order in this proceeding, which makes certain television JSAs attributable. No other changes were made to the attribution rules. 20Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Changes. As noted above, in May 2010, the FCC formally initiated its 2010 quadrennial review of its media ownership rules with the issuance of aNOI. The NOI is intended to assist the Commission in establishing a framework within which to analyze whether its media ownership rules remain “necessaryin the public interest as a result of competition,” due to the dramatic changes occurring in the media marketplace. Numerous parties have filed comments andreply comments in response to the NOI. In June and July 2011, the FCC released to the public eleven economic studies related to its media ownership rules.On December 22, 2011, the FCC issued an NPRM in the 2010 quadrennial review to seek comment on specific proposed changes to its ownership rules. Inthe 2010 quadrennial review NPRM, the FCC tentatively concluded to maintain its local radio ownership rules largely intact. Comments and ReplyComments were received by the FCC in connection with the NPRM. In March 2014, the FCC issued an FNPRM seeking comment on specific proposedchanges to its ownership rules in connection with the 2010 and 2014 quadrennial reviews of the broadcast ownership rules and consolidated its 2010quadrennial review with the 2014 quadrennial review of the ownership rules. On August 25, 2016, the FCC released a Second Report and Order to close the2010 and 2014 Quadrennial Review proceedings. The FCC decided to retain its local radio ownership rules without modification. The FCC, however,recently filed a motion requesting that the Third Circuit Court of Appeals hold in abeyance the consolidated cases pending before it in connection with thebroadcast ownership rules, because it intends to act on a Petition for Reconsideration of the Second Report and Order, which could result in changes to thelocal radio ownership rules. We can make no determination as to what effect, if any, such changes might have on us. Federal Antitrust Considerations. The Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”), which evaluate transactions to determinewhether those transactions should be challenged under the federal antitrust laws, are also active in their review of radio station acquisitions, particularlywhere 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 require theparties 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 not 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, individually 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 15.1% of our total net broadcasting advertising revenue for the yearended December 31, 2016, 14.7% of our total net broadcasting advertising revenue for the year ended December 31, 2015 and 14.3% for the year endedDecember 31, 2014. Our Dallas radio stations generated 20.8% of our total net broadcasting advertising revenue for the year ended December 31, 2016,24.5% of our total net broadcasting advertising revenue for the year ended December 31, 2015 and 24.0% for the year ended December 31, 2014. Because substantial portions of our broadcast advertising revenues are derived from our Los Angeles and Dallas markets, our ability to generate revenues inthose markets could be adversely affected by local or regional economic downturns in these areas. EMPLOYEES As of February 2, 2017, we employed 1,590 employees of which 1,214 are full time and 376 are part time. These employees consist of 1,153 employees inradio broadcasting, 181 employees in digital media entities, 136 employees in publishing, and 120 corporate 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. 21Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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 general economicconditions, geopolitical events, competition, technological obsolescence and employee relations. The risks described below, along with risks not currentlyknown to us or that we currently believe are immaterial, may impair our business operations and liquidity in unfavorable ways. We operate in a continuallychanging business environment in which new risk factors emerge from time to time. We can neither predict new risk factors, nor can we assess the impact, ifany, 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, financialcondition 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 stockholder 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, 2016, 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 83.8% in aggregate of the voting power of our capital stock including all ofthe outstanding shares of our Class B Common Stock, each share of which is entitled to ten votes on matters subject to a stockholder vote. 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 our other security holders in a material manner. RISKS ASSOCIATED WITH BUSINESS OPERATIONS ECONOMIC CONDITIONS We may be adversely and acutely affected by deteriorating economic conditions. 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;•Reductions in donations to ministries, which could negatively impact their ability to purchase and pay for block programming time;•We may be unable to find suitable replacements for ministries which can no longer purchase and pay for block programming; 22Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. •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 the 2008economic recession, an individual business sector (such as the automotive industry) that tends to spend more on advertising than other sectors, might beforced 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 and our relationship with advertisers and block programmers. Maintaining a positive reputation is critical to our ability to attract and maintain relationships with advertisers, block programmers and our audience. As acompany that focuses on, among other things, Christian and family-themed content, in particular, damage to our reputation could therefore cause significantharm to our business and prospects. Harm to our reputation can arise from numerous sources, including, among others, employee misconduct, litigation orregulatory action, failure to deliver minimum standards of service and quality, compliance failures and unethical behavior. Negative publicity regarding us,whether or not true, may also result in harm to our business 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 are vulnerableto poor perception. Any damage to our reputation could harm our ability to attract and retain advertisers, customers and content creators, which couldmaterially and adversely affect our financial condition and results of operations. 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. 23Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. KEY EMPLOYEES Our business is dependent upon the performance of key employees, on-air talent and program hosts, as well as our ability to attract new employees. 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. Notwithstanding that we have entered into employment agreements with such individuals, theloss of the services of such key individuals could have a material adverse effect upon us. Further, Mr. Epperson has radio interests unrelated to our operationsthat will continue to impose demands on his time and Mr. Atsinger has an interest in an aviation business unrelated to our operations that will continue toimpose demands on his time. Our success is highly dependent upon the retention of these and other key employees throughout our organization. In addition,we are dependent upon our 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 on both anational level and in their respective local markets. Several of our on-air personalities have a presence that extends beyond our radio platforms into otherstrategic areas. Although we have entered into long-term agreements with some of our executive officers, key on-air talent and program hosts to protect ourinterests 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 strong relationships with our authors and other creative talent, as well as to develop relationships with new creative talent, ourbusiness 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 and othercreative 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. Since the economic recession of 2008 and 2009, we have experienced a stabilization of advertising revenue. This stabilization excludes the beneficial impactof political advertising as such impact varies 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, 2016, 2015 and 2014, 38.3%, 39.2% and40.0% 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 15.1% and 20.8%, respectively, of our total net broadcasting advertising revenue for the year ended December31, 2016, 14.7% and 24.5%, respectively, of our total net broadcasting advertising revenue for the year ended December 31, 2015 and 14.3% and 24.0%,respectively, for the year ended December 31, 2014. 24Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 revenues and net operating income may not be sufficient to utilize deferred tax assets that could offset future taxable income. As of December 31, 2016, we had deferred tax assets of $79.5 million, net of valuation allowances of $4.5 million, on our consolidated balance sheetincluded in this annual report on Form 10-K. We expect to utilize these deferred tax assets to reduce consolidated income tax liabilities over future periods.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 allow theiruse. 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, which wouldhave a material adverse effect on our results of operations and financial position. 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 require activemanipulation by the end user and is capable of automatically measuring radio, television, Internet, satellite radio and satellite television signals that areencoded for the service by the broadcaster. The PPM offers a number of advantages over the traditional diary ratings collection system including ease of use,more reliable ratings data and shorter time periods between when advertising runs and when audience listening or viewing habits can be reported. PPM datacan fluctuate when changes are made to the “panel” (a group of individuals holding PPM devices) and in markets where we subscribe to Nielsen under thePPM, our ratings tend to fluctuate even when there are no significant programming or competitive changes in the market. As a result, all of our stations aresusceptible to inconsistencies in ratings that may or may not accurately reflect the actual number of listeners at any given time, which, in turn, may result inadverse effects on our advertising revenues in markets where such revenues are ratings-sensitive. 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, 2016, we had deferred tax assets of $79.5 million, net of valuation allowances of $4.5 million, on our consolidated balance sheetincluded in this offering memorandum. We expect to utilize these deferred tax assets to reduce consolidated income tax liabilities over future periods.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 allow theiruse. 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, which wouldhave a material adverse effect on our results of operations and financial position. 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 radio stations that previously broadcasted in formats other than our primary formats. We continue to program some of these stations innon-primary formats and we re-program others to one of our primary formats. During, and for a period after, the conversion of a radio station’s format, theradio station typically generates operating losses. The magnitude and duration of these losses depend on a number of factors, including the promotional andmarketing costs associated with attracting listeners and advertisers to our radio station’s new format and the success of these efforts. There is no guarantee thatthe 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 inattracting the listener and advertiser base we anticipate, we may not recoup associated operating costs or achieve profitability for these newly-acquired radiostations. 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 for42.7% of our net broadcast revenue for the year ended December 31, 2016, 41.9% of our net broadcast revenue for the year ended December 31, 2015 and41.0% of our net broadcast revenue for the year ended December 31, 2014. 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. 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 as withother media sources including broadcast and cable television, newspapers and magazines, national and local digital services, outdoor advertising, direct mail,online marketing and media companies, social media platforms, web-based blogs, and mobile devices. We face intense competition from a wide range ofcompetitors, 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 online 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. Salem Author Services, comprised of Xulon Press™ and Hillcrest Media, competes for authors with other self-publishers. 25Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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 is 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 may beable to monetize this traffic or otherwise retain consumers. Our failure to do so could result in decreases in customers and related advertising revenue, whichcould 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 vast majorityof book publishing revenues. Due to this concentration of book publication sales, it may be difficult for us to compete effectively in the market, which couldadversely 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. If we are unable to successfully develop and execute promotionalstrategies for new books that respond to customer trends, including trends related to demand for eBooks, or other technological changes, Regnery Publishingand Salem as a whole may suffer accordingly. 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 advertising revenueis largely dependent upon the number of users actively visiting our websites. We also must increase user engagement with our advertisers in order to increaseour advertising revenues. Additionally, digital advertising techniques are evolving, and if our technology and advertisement serving techniques do notevolve to meet the needs of advertisers, our advertising revenue could decline. Changes in our business model, advertising inventory or initiatives could alsocause a decrease in our advertising revenue. Because digital media is a concentrated growth area for us, any decrease in revenues in these areas could affectour business, financial condition and results of operations. Digital advertisements are reportedly becoming a means to distribute viruses over the Internet. If this practice continues, it could result in consumersbecoming less inclined to click through digital advertisements, which could adversely affect the demand for digital advertising. Additionally, we do not havelong-term agreements with most of our digital advertisers. Any termination, change or decrease in our advertising relationships could have a material adverseeffect on our revenues and profitability. If we do not maintain or increase our advertising revenues, our business, results of operations and financial conditioncould be materially and adversely affected. 26Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. If the methodologies of Internet search engines' 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. Ourability 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 several 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. POTENTIAL LEGAL LIABILITIES As a creator and a distributor of multimedia 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, both employees and non-employees, to produce original programs, articles and content for our radioprograms, websites and print publications. We face potential liability based on a variety of theories, including defamation, negligence, unlawful practice of alicensed profession, copyright, trademark infringement, or other legal theories based on the nature, creation or distribution of this information, and undervarious laws, including the Lanham Act and the Copyright Act of 1976. We may also be exposed to similar liability in connection with content that we donot create but that is posted to our owned and operated websites and to our network of customer websites by users and other third parties through forums,comments, personas and other social media features. In addition, it is also possible that visitors to our owned and operated websites and to our network ofcustomer websites could make claims against us for losses incurred in reliance upon information provided on our owned and operated websites or ournetwork of customer websites. These claims, whether brought in the United States or abroad, could divert management time and attention away from ourbusiness and result in significant costs to investigate and defend, regardless of the merit of these claims. If we become subject to these or similar types ofclaims and are not successful in our defense, we may be forced to pay substantial damages. While we run our content through a rigorous quality controlprocess, including an automated plagiarism program, there is no guarantee that we will avoid future liability and potential expenses for legal claims based onthe content of the materials that we create or distribute. Should the content distributed through our owned and operated websites and our network of customerwebsites violate the intellectual property rights of others or otherwise give rise to claims against us, we could be subject to substantial liability, which couldhave 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 the information wepublish in our financial newsletters. While we strive to minimize such risks, it is possible that we could be subject to investigations and potentialenforcement actions by the SEC or civil liability for securities fraud to subscribers who invest on the basis of information provided in our financialnewsletters and related materials or by the independent financial commentators who provide newsletter content. For example, subscribers may take legalaction against us if they rely on published information or market analysis that contains an error or on market strategies that do not perform as described.Additionally, a company may claim that we have made a defamatory statement about it, its employees or its financial position. The authors of our newslettersalso rely on a variety of outside parties as sources for some of the information we use in our published data. These sources include securities exchanges, fundcompanies, hedge funds, transfer agents, and other data providers. Accordingly, in addition to possible exposure for publishing incorrect information thatresults directly from our own errors, we could face liability based on inaccurate data provided to us by others or based upon the actions of the authors.Defending civil claims or being subject to SEC investigations or enforcement actions based on the information we publish in our financial newsletters couldbe expensive and time-consuming and could adversely impact our business, operating results, and financial condition. 27Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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, illnessor injury. Most of our wellness products contain combinations of ingredients, and there is little long-term experience with the effect of these combinations. Inaddition, interactions of these wellness products with other products, prescription medicines and over-the-counter drugs have not been fully explored orunderstood and may have unintended consequences. While our third party manufacturers perform tests in connection with the formulations of our wellnessproducts, 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 have amaterial 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 a seriousadverse event may increase our costs through higher insurance premiums and deductibles, and may make it more difficult to secure adequate insurancecoverage in the future. In addition, our product liability insurance may fail to cover future product liability claims, which, if adversely determined, couldsubject us to substantial monetary damages. 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 media technologiesand services. We cannot make assurances that we will have the resources to acquire new technologies or to introduce new services that could compete withthese new technologies. Various new media technologies and services are currently being developed or introduced, including but not limited to: •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 podcasts and downloads of portions of our programming; however, we cannot assure you thatthis arrangement will be successful or enable us to adapt effectively to these new media technologies. We cannot predict the effect, if any, that competitionarising from new technologies or regulatory change(s) may have on the radio broadcast industry or on our financial condition and results of operations. New technologies may increase competition with our broadcasting and printing operations. Our broadcasting and printing businesses 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. 28Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 printing business also faces increasing competition from the Internet, eBook reader devices, tablets and other new technologies. These new technologiesand alternative media platforms compete with our printed books and magazines for audience share and advertising revenues. We must continue to expand ourpublishing businesses from traditional publishers to new digital technologies. We may make significant investments in new products and services that maynot be profitable, or whose profitability may be significantly lower than we have experienced. Success and continued growth depends greatly on developingnew products and the means to deliver them in an environment of rapid technological change. 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 the deliveryand storage of digital content. These technological advancements have driven changes in consumer behavior and have empowered consumers to seek morecontrol over when, where and how they consume digital content. Content owners are increasingly delivering their content directly to consumers over theInternet, often without charge, and innovations in distribution platforms have enabled consumers to view such Internet-delivered content on televisions andportable devices. There is a risk that our responses to these changes and strategies to remain competitive, including distribution of our content 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 to spend on ourproducts disproportionately to the costs associated with generating literary content. Our failure to protect and exploit the value of our content, whileresponding to and developing new technology and business models to take advantage of advancements in technology and the latest consumer preferences,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. Any damageto or failure of our systems, or those of third parties that we rely upon (e.g., co-location providers for data servers, storage devices, and network access) couldresult in interruptions in our service, which could reduce our revenue and profits. Our systems are also vulnerable to damage or interruption from earthquakes,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 of ourapplications 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 any defectsin third-party software because the development and maintenance of the software is not within our control. Accordingly, our business could be adverselyaffected in the event of any errors in this software. There can be no assurance that any third-party licensors will continue to make their software available to uson acceptable terms, to invest the appropriate levels of resources in their software to maintain and enhance its capabilities, or to remain in business. Anyimpairment in our relationship with these third-party licensors could harm our ability to maintain and expand the reach of our service, increase listener hoursand sell advertising, each of which could harm our business, financial condition and results of operations. 29Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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 all necessarylicenses and permission to use this third-party content and software continues to increase. Although we attempt to avoid infringing known proprietary rightsof third parties in our broadcasting efforts, we expect that we may be subject to legal proceedings and claims for alleged infringement from time to time in theordinary course of business. Any claims relating to the infringement of third-party proprietary rights, even if not meritorious, could result in 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, partiesmaking claims may be able to obtain an injunction, which could prevent us from broadcasting all or certain portions of individual radio broadcastscontaining content owned by third parties. We also rely on software that we license from third parties, including software that is integrated with internallydeveloped software and used to perform key broadcasting and accounting functions. We could lose the right to use this software or it could be made availableto us only on commercially unreasonable terms. Although we believe that alternative software is available from other third-party suppliers or internaldevelopments, 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-effectivemanner their products in response to changing customer needs, industry standards or technological developments could result in limitations or delays inbroadcasting or accounting for programming by us until equivalent software can be developed internally or identified, licensed and integrated, which wouldharm our business. 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 products andservices, the more computing power we will need. In the future, we may spend substantial amounts to purchase or lease data centers and equipment, upgradeour technology and network infrastructure to handle increased traffic on our owned and operated websites and roll out new products and services. Thisexpansion could be expensive and complex and could result in inefficiencies or operational failures. If we do not implement this expansion successfully, or ifwe experience inefficiencies and operational failures during its implementation, the quality of our products and services and our users' experience coulddecline. This could damage our reputation and lead us to lose current and potential customers and advertisers. The costs associated with these adjustments toour architecture could harm our operating results. Cost increases, loss of traffic or failure to accommodate new technologies or changing businessrequirements could harm our business, financial condition and results of operations. Cyber security and privacy breaches may hurt our business, damage our reputation, increase our 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, andunauthorized persons. Such attacks could result in disruption to our operations, loss or disclosure of, or damage to, our or any of our customer’s or vendor’sdata or confidential information. Security measures may also be breached due to employee error, malfeasance, or otherwise. Additionally, outside parties mayattempt to fraudulently induce employees, customers or vendors to disclose sensitive information in order to gain access to our data and informationtechnology systems. Any such breach could result in significant legal and financial exposure, damage to our reputation, loss of competitive advantage, and aloss of confidence in the security of our information technology systems that could potentially have an impact on our operations. Because the techniquesused to obtain unauthorized access, disable or degrade, or sabotage our information technology systems change frequently and often are not recognized untillaunched, 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 systems andprocesses 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 to complywith federal, state, or international privacy related or data protection laws and regulations could result in proceedings against us by governmental entities orothers. Although we have insurance coverage for protecting against cyber security risks, it may not be sufficient to cover all possible claims and losses thatcould have a material adverse effect on our business. 30Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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. 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 we may see the imposition ofnew and 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 providers 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 external securitybreach 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-ins.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. 31Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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. We spent $10.1 million, $17.3 million and $18.7million on acquisitions during the years ended December 31, 2016, 2015 and 2014, respectively. We expect to make additional acquisitions of radio stations,FM transmitters, digital businesses and publishing businesses. Acquisitions involve risks and uncertainties, including difficulties in integrating acquiredoperations and in realizing expected opportunities; diversions of management resources and loss of key employees; challenges with respect to operating newbusinesses; debt incurred in financing such acquisitions; and other unanticipated problems and liabilities. There can be no assurance that we will be able tosuccessfully integrate the operations or management of acquired radio stations and businesses and realize anticipated revenue synergies, or the operations ormanagement of stations and businesses that may be acquired in the future. Continued acquisitions will require us to manage a larger and likely more geographically diverse region of radio stations, digital portfolios and publishingportfolios than historically has been the case. Our inability to integrate and manage newly-acquired radio stations, digital businesses or publishing entitiessuccessfully 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 the acquisitionof 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 our station operatingincome or yield other anticipated benefits. Acquisitions in markets in which we already own stations may not increase our station operating income due tosaturation of audience demand. Acquisitions in smaller markets may have less potential to increase operating revenues. With respect to our acquisitionstrategy 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 in reduced operatingincome from our businesses. Our failure to execute our acquisition strategy successfully in the future could limit our ability to continue to grow in terms ofnumber 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 on thepresent 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 two ormore 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, joint arrangementswith other stations in a market relating to programming, advertising sales and station operations. We believe that radio stations that elect to take advantage ofthese clustering opportunities may have lower operating costs and may be able to offer advertisers more attractive rates and services. The future developmentof our business in new markets, as well as the maintenance of our business growth in those markets in which we do not currently have radio station clusters,may be negatively impacted by competitors who are taking or may take advantage of these clustering opportunities by operating multiple radio stationswithin markets. 32Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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 on ourweb 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. 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 of thisequipment, as well as our ability to protect the equipment from damage, destruction or theft, directly impacts our ability to transmit programming. Losses tothis 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 regulated bygovernmental 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 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, 2016 consisted 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 the upcomingyear. 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-livedintangible assets use significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuringfair value including assumptions about risk. If actual future results are less favorable than the assumptions and estimates we used, we are subject to futureimpairment 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 2016, we recognized an impairment charge of $6.5 million associated with the value of broadcast licensesin our Cleveland, Dallas, Detroit and Portland clusters that was largely attributable to increases in the risk free interest rate and corporate borrowing ratesduring the year ended December 31, 2016 as compared to the prior year. We also recognized an impairment charge of $0.5 million associated with the valueof mastheads in our magazine publishing segment due to declining revenue forecasts that we believe are indicative of trends in the magazine publishingindustry as a whole. 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) due to a reduction of projected net revenues. During our annual testing in the fourthquarter of 2014, we recognized impairment charges of $79,000 associated with mastheads and goodwill within our magazine publishing segment, largely dueto continual declines in revenues that were not offset with cost reductions from the decrease in the number of publications printed. The growth of digital-onlypublications, which are often free or significantly less than a print magazine has hindered the ability of the publishing industry to recover from the economicrecession that began in 2008. We believe that the impairments are indicative of trends in the industry as a whole and are not unique to our company oroperations. 33Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 the impairment charges we have recognized are non-cash in nature and do not violate covenants relating to our senior secured credit facility, they areindicative 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. 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 Exchange Act, the listing requirements of the NASDAQ Global Select Market, and other applicablesecurities rules and regulations. Compliance with these rules and regulations results in a higher level of legal and financial compliance costs. Compliance candivert the time and attention of management from revenue-generating activities. Moreover, because these laws, regulations and standards are subject tovarying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuinguncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail toaddress 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, includingby competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not resultin litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management andharm our business and operating results. We have identified a material weakness in our internal control over financial reporting, which could, if not sufficiently remediated, result in materialmisstatements in our consolidated financial statements. 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. As disclosed in Item 9A of this report in November 2016, management identified a control deficiency with respect to the precision of the review of thecalculation of our valuation allowance for certain deferred tax assets and concluded that such deficiency constituted a material weakness in internal controlover financial reporting. Our management has reviewed and revised its policies and procedures with respect to controls over the review and verification of the accuracy of thecalculation of the valuation allowance for certain deferred tax assets to ensure that all reasonable steps are taken to correct this material weakness. Ourmanagement has enhanced the precision of the controls, including hiring a Tax Director, however, the deficiency will not be considered remediated untilinternal controls are operational for a period of time and tested, and management concludes that such controls are operating effectively. Based on ourassessment, we consider that the material weakness related to the precision of the review of the calculation of the provision for income taxes not to have beenfully remediated and is still present as of December 31, 2016 as the remedial measures have not operated effectively for a sufficient period of time formanagement to conclude, through testing, that the applicable controls have operated effectively. Accordingly, based on its assessment, management has concluded that our internal control over financial reporting was not effective as of December 31,2016, and we have received an adverse opinion from our independent registered public accounting firm on our internal control over financial reporting as ofDecember 31, 2016. Because of the material weakness in internal control over financial reporting, our management has not been able to conclude that ourdisclosure controls and procedures were effective as of December 31, 2016. We cannot assure you that any remediation plan can resolve the material weakness identified in our internal control over financial reporting. If we are unableto fully remediate such material weakness or fail to maintain effective internal control over financial reporting in the future, investors may lose confidence inthe accuracy and completeness of our financial reports and the trading price of our Class A common stock could be negatively affected. Additionally, wecould become 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 substances forwhich there is a long history of human consumption. However, there is little long-term experience with human consumption of certain product ingredients orcombinations of ingredients in concentrated form. Although we believe all of our wellness products fall within the generally known safe limits for daily dosesof 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. 34Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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 regulation andmust operate in accordance with strict manufacturing requirements referred to as Current Good Manufacturing Practices (“CGMP’s”) for dietary supplements.Our wellness products are manufactured on a purchase order basis only and manufacturers can terminate their relationships with us at any time. These thirdparty manufacturers may be unable to satisfy our supply requirements, manufacture our wellness products on a timely basis and in compliance with 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 these critical needsand legal requirements would delay or reduce wellness product shipments and adversely affect our revenues, as well as jeopardize our relationships with ourcustomers. In the event any of our third party manufacturers were to become unable or unwilling to continue to provide us with products in required volumesand at suitable quality levels, we would be required to identify and obtain acceptable replacement manufacturing sources. There is no assurance that wewould be able to obtain alternative manufacturing sources on a timely basis. Additionally, all of our third party manufacturers source the raw materials for ourproducts, and if we were to use alternative manufacturers, we may not be able to duplicate the exact taste and consistency profile of the product from theoriginal manufacturer. An extended interruption in the supply of our products would result in decreased product sales and our revenues would likely decline.We believe that we can meet our current supply and manufacturing requirements with our current suppliers and manufacturers or with available substitutesuppliers and manufacturers. 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 to monitor theproduction of products by these third parties. We rely exclusively, without independent verification, on certificates of analysis regarding wellness productcontent provided by our third party suppliers and limited safety testing they perform. We cannot be assured that all of the third parties involved in themanufacturing of our products are complying with government health and safety standards, and even if our wellness products meet these standards, theycould otherwise become contaminated. Errors in the manufacture of our wellness products and the occurrence of contamination could result in productrecalls, significant legal exposure, adverse publicity, decreased revenues and loss of distributors and endorsers. We also cannot be assured that these outsidemanufacturers will continue to supply wellness products to us reliably in the compositions we require. Any of these failures or occurrences could negativelyaffect 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. 35Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 was consolidated into the FCC’s 2014 quadrennial review ofbroadcast ownership rules, which commenced in spring of 2014. The local radio ownership rule, the radio/television cross-ownership rule andnewspaper/broadcast cross-ownership rule are among the broadcast ownership rules considered in the 2010 and 2014 quadrennial reviews. The FCCinstructed its Media Bureau to complete the combined 2010 and 2014 reviews by June 30, 2016. On August 25, 2016, the FCC released a Second Report andOrder to close the 2010 and 2014 Quadrennial Review proceedings. The FCC decided to retain its local radio ownership rules without modification. TheFCC, however, recently filed a motion requesting that the Third Circuit Court of Appeals hold in abeyance the consolidated cases pending before it inconnection with the broadcast ownership rules, because it intends to act on a Petition for Reconsideration of the Second Report and Order, which could resultin changes to the local radio ownership rules. We cannot predict the impact of possible modifications to the FCC’s local radio multiple ownership rules on our business operations. Likewise, we cannotpredict whether there will be a change in the antitrust laws, Communications Act or other laws governing the ownership or operation of radio stations, orwhether the FCC, U.S. Department of Justice (“DOJ”) or Federal Trade Commission (“FTC”) will modify their regulations and policies governing or affectingthe acquisition of additional radio stations in a market. In addition, we cannot predict whether a private party will challenge acquisitions we propose in thefuture. These events could adversely affect our ability to implement 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. TheFTC 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 delay thegrant 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 incident. While we do not anticipate these increased penalties to impact us as significantly assome 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 they say,there is always the possibility that information may be reported that is inaccurate or even in violation of certain indecency rules promulgated by the FCC. 36Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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, we apply forrenewal 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 to denialby 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. 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 of Composers,Authors and Publishers (“ASCAP”), and SESAC, Inc. (“SESAC”). 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 13, 2015, legislation was introduced to Congress under the “Fair Play, Fair Pay Act” (H.R. 1733 – 114th Congress) that would require terrestrialradio broadcasters to pay a royalty to record labels and performing artists for use of their recorded songs. The proposed legislation would add an additionallayer of royalties to be paid directly to the record labels and artists. As of the date of this report, this bill has not been passed. It is currently unknown whatproposed legislation, if any, will become law, 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. New lawsmay 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 is limitedthrough legislation or any industry development, we may be unable to provide effective technologies and services to customers and we may lose customersand 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. 37Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 receive, process and store large amounts of personal user data on our owned and operated websites and from our freelance content creators. Our privacyand data security policies govern the collection, use, sharing, disclosure and protection of this data. The storing, sharing, use, disclosure and protection ofpersonal information and user data are subject to federal, state and international privacy laws, the purpose of which is to protect the privacy of personalinformation that is collected, processed and transmitted in or from the governing jurisdiction. If requirements regarding the manner in which certain personalinformation and other user data are processed and stored change significantly, our business may be adversely affected, impacting our financial condition andresults of operations. In addition, we may be exposed to potential liabilities as a result of differing views on the level of privacy required for customer andother user data we collect. Our failure or the failure of various third-party vendors and service providers to comply with applicable privacy policies orapplicable laws and regulations or any compromise of security that results in the unauthorized release of personal information or other user data couldadversely affect our business, financial condition and results of operations. 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, userprivacy, data collection and protection, copyrights, electronic contracts, sales procedures, automatic subscription renewals, credit card processing procedures,customer protections, broadband Internet access and content restrictions. We cannot guarantee that we have been or will be fully compliant in everyjurisdiction, as it is not entirely clear how existing laws and regulations governing issues such as privacy, taxation and consumer protection apply to theInternet. Moreover, as Internet commerce continues to evolve, increasing regulation by federal, state and foreign agencies becomes more likely. The adoptionof any laws or regulations that adversely affect the popularity or growth in use of the Internet, including laws limiting Internet neutrality, could decreaselistener demand for our service offerings and increase our cost of doing business. Future regulations, or changes in laws and regulations or their existinginterpretations or applications, could also hinder our operational flexibility, raise compliance costs and result in additional historical or future liabilities forus, 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 affect broadcastfacilities differently than other uses. We are subject to such laws and regulations relating to the use, storage, disposal, emission and release of hazardous andnon-hazardous substances and employee health and safety, as well as zoning restrictions that may affect, among other things, the ability for us to improve orrelocate our radio broadcasting facilities. Historically, we have not incurred significant expenditures to comply with these laws; however, existing laws, andthose that may be applied in the future, or a finding of a violation of such laws or liability, could require us to make significant expenditures and otherwiselimit 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 laws andregulation by one or more federal agencies, including the FDA, FTC, U.S. Consumer Product Safety Commission, United States Department of Agricultureand Environmental Protection Agency. These activities are also regulated by various state, local and international laws and agencies of the states andlocalities in which our wellness products are sold. Government regulations may prevent or delay the introduction, or require the reformulation, of ourwellness products, which could result in lost revenues and increased costs to us. For instance, the FDA 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 maynot accept the evidence of safety for any new dietary ingredient that we may wish to market, may determine that a particular dietary supplement or ingredientpresents an unacceptable health risk based on the required submission of serious adverse events or other information, and may determine that a particularclaim or statement of nutritional value that we use to support the marketing of a dietary supplement is an impermissible drug claim, is not substantiated, or isan 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. 38Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 find feweracceptable acquisition opportunities. In addition, the purchase price of possible acquisitions could require additional debt or equity financing on our part.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 existing seniorsecured credit facility at any time is dependent upon, among other factors, our ability to satisfy financial covenants. Our future operating performance will besubject to financial, economic, business, competitive, regulatory and other factors, many of which are beyond our control. Accordingly, we cannot make anyassurances that our future cash flows or borrowing capacity will be sufficient to allow us to complete future acquisitions or implement our business plan,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, 2016, we and our subsidiary guarantors had approximately $263.0 million outstanding on our Term Loan B and $0.5 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, competitive andother 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 imposing significantrestrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential businessopportunities as they arise. These covenants place restrictions on our ability to, among other things: •incur additional debt;•declare or pay dividends, redeem stock or make other equity distributions to stockholders;•make investments; 39Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. •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 certain capitalexpenditures. 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 to enableus 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 be able torefinance any of our indebtedness on commercially reasonable terms, or at all. Without this financing, we could be forced to sell assets or secure additionalfinancing to make up for any shortfall in our payment obligations under unfavorable circumstances. In addition, we may not be able to sell assets quicklyenough 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 46,000 square foot office building. Broadcasting We own or lease multiple properties throughout the United States from which we operate our radio stations and related facilities. These properties includeoffices and studios, transmitter locations, antenna sites and tower sites. A radio station studio is typically located in an office in a downtown or businessdistrict. Transmitter, antenna and tower sites are located in areas that provide maximum market coverage. Our SRN and SMR offices, Salem Consumer Products, and our Dallas radio station studios and offices are located in the Dallas, Texas metropolitan area,where we own an approximately 43,000 square foot office building. We also own office buildings in Honolulu, Hawaii; Tampa, Florida; and Orlando, Floridafrom which our radio stations studios and offices operate. Our national radio network operates from various offices and studios. These studios may be used togenerate programming or programming can also be relayed from a remote point of origination. Our network leases satellite transponders used in the deliveryof its programming. We lease certain property from our principal stockholders or trusts and partnerships created for the benefit of the principal stockholders and their families.These leases are described in Note 16 – Related Party Transactions in the notes to our consolidated financial statements contained in Item 8 of this annualreport on Form 10-K. All such leases have cost of living adjustments. Based upon our management’s assessment and analysis of local market conditions forcomparable properties, we believe such leases have terms that are as favorable as, or more favorable, to the company than those that would have beenavailable from unaffiliated parties. 40Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 current lease agreements range from one to thirty years remaining on the lease term. While none of our owned or leased properties is individually material to our operations, if we were required to relocate any of our broadcast towers, the costwould be significant. Significant costs are due to the moving and reconstruction of the tower as well as the limited number of sites in any geographic area thatpermit a tower of reasonable height to provide adequate market coverage. These limitations are due to zoning and other land use restrictions, as well asFederal Aviation Administration and FCC regulations. Digital Media Our digital media entities operate from office buildings and also require data storage centers. Salem Web Network operates from leased office facilities inRichmond, Virginia and Nashville, Tennessee. Townhall Media operates from a leased facility in Washington, D.C. that is also used by our radio stations inthat market. Eagle Financial Publications operates from a leased office in Washington, D.C. that is also used by Eagle Wellness and Gene Smart. Fulfillmentof wellness inventory is managed by a third party in New Holland, Pennsylvania. Our current lease agreements range from one to nine years remaining on thelease term. Publishing Salem Publishing operates from leased office facilities in Nashville, Tennessee. Salem Author Services, comprised of Xulon Press and Hillcrest Media,operates from leased facilities in Orlando, Florida. Regnery Publishing operates from leased facilities in Washington, D.C. with inventory fulfillmentmanaged by a third party in Jackson, Tennessee. Our current lease agreements range from one to two 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. Such mattersare subject to many uncertainties and outcomes that are not predictable with assurance. We maintain insurance that may provide coverage for such matters.Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. Webelieve, 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. In April 2016, pursuant to a counterclaim to a collection suit initiated by Salem, an award was issued against Salem for breach of contract and attorney fees.While we have filed an appeal against the award as well as a malpractice lawsuit against the lawyer that represented Salem in the suit, we recorded a legalreserve of $0.5 million as of March 31, 2016. This reserve represents the total possible loss contingency without third-party recoveries from our appeal,malpractice lawsuit or insurance claims. There have been no changes in our estimates as of the date of this filing. 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 2, 2017, the company hadapproximately 47 stockholders of record (not including the number of persons or entities holding stock in nominee or street name through various brokeragefirms) and 20,275,480 outstanding shares of its Class A common stock and two stockholders of record and 5,553,696 outstanding shares of its Class Bcommon 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. 2015 2016 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr High (mid-day) $7.97 $6.75 $6.85 $6.50 $6.06 $8.17 $8.10 $6.64 Low (mid-day) $5.50 $4.38 $5.26 $4.53 $3.60 $5.84 $5.68 $5.00 There is no established public trading market for the company’s Class B common stock. 41Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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 and legal requirements, and other factors. The reduction orelimination of equity distributions may negatively affect the market price of our common stock. The following table shows the equity distributions that have been declared and paid to all stockholders of record of our Class A and Class B common stockduring the years ended December 31, 2016 and 2015. AnnouncementDate Record Date Payment Date Amount Per Share Cash Distributed (in thousands) December 7, 2016 December 19, 2016 December 31, 2016 $0.0650 $1,678 September 9, 2016 September 19, 2016 September 30, 2016 $0.0650 $1,679 June 2, 2016 June 16, 2016 June 30, 2016 $0.0650 $1,664 March 10, 2016 March 22, 2016 April 5, 2016 $0.0650 $1,657 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 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, financial andlegal requirements, and other factors. The current policy of the Board of Directors is to review each of these factors on a quarterly basis to determine theappropriate amount, if any, to allocate toward a cash distribution with the general principle of using approximately 20% of Adjusted EBITDA less cash paidfor capital expenditures, less cash paid for income taxes, and less cash paid for interest. Adjusted EBITDA is a non-GAAP financial measure defined in Item 6,Selected Financial Data included in this annual report on Form 10-K. Based on the number of shares of Class A and Class B common stock currently outstanding we expect to pay total annual equity distributions ofapproximately $6.8 million in 2017. 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 – NMSequity index and the Bloomberg Broadcast and Cable Radio Index for a five year period commencing December 31, 2011 and ending December 31, 2016.Our Class B common stock is not publicly traded and is not registered under the Exchange Act. The graph assumes that the value of an investment in ourClass A common stock and each index was $100 on December 31, 2010 and that any dividends were reinvested. Stockholder returns over the indicatedperiod are not indicative of future stockholder returns. 42Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 stock price performance graph above shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, exceptto the extent that the company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. 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, 2016 and December 31, 2015, 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, 2014,December 31, 2013 and December 31, 2012 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) thechange in composition of our operating segments as of December 2014 to include digital revenue generated by our broadcast stations within broadcastoperating revenue and (2) the inclusion of Salem Consumer Products within broadcast operating revenue. These changes were to conform to how our chiefoperating decision makers, which we define as a collective group of senior executives, assess the performance of each operating segment and determine theappropriate allocations of resources to each segment. All prior periods presented are updated to reflect this new composition of our operating segments. Referto Note 20 – Segment Data in the notes to our consolidated financial statements contained in Item 8 of this annual report on Form 10-K for additionalinformation. 43Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 that our financial results are not comparable from year to year due to acquisitions and dispositions of radio stations, digital media operations,publishing entities, asset impairments and other non-recurring significant events: Year Ended December 31, 2012 2013 2014 2015 2016 (Dollars in thousands, except share and per share data) Statement of Operations Data: Net broadcast revenue $189,169 $189,892 $194,094 $197,184 $202,016 Net digital media revenue 26,637 33,808 45,691 44,761 46,777 Net publishing revenue 13,373 13,234 26,751 23,842 25,528 Total revenue 229,179 236,934 266,536 265,787 274,321 Operating expenses: Broadcast operating expenses 127,551 130,713 139,206 140,819 146,283 Digital media operating expenses 21,811 24,885 35,590 35,380 36,290 Publishing operating expenses 13,339 14,280 26,143 24,774 26,209 Unallocated corporate expenses 14,396 16,081 17,092 15,146 14,994 Depreciation and amortization 14,647 15,262 18,825 17,741 17,276 Change in the estimated fair value of contingentearn-out consideration — — 734 (1,715) (689)Impairment of long-lived assets 6,808 — — — 700 Impairment of indefinite-lived long-term assetsother than goodwill 88 1,006 34 — 7,041 Impairment of goodwill — 438 45 439 32 Impairment of amortizable intangible assets — — — — 8 (Gain) loss on the sale or disposal of assets 49 (264) 251 181 (1,901)Total operating expenses 198,689 202,401 237,920 232,765 246,243 Operating income from continuing operations 30,490 34,533 28,616 33,022 28,078 Other income (expense): Interest income 106 68 45 8 6 Interest expense, net of capitalized interest (24,911) (16,892) (15,993) (15,429) (14,938)Change in fair value of interest rate swaps — 3,177 (2,702) (1,273) 285 Gain on bargain purchase — — — 1,357 95 Loss on early retirement of long-term debt (1,088) (27,795) (391) (41) (87)Net miscellaneous income and expenses 79 18 665 201 6 Total other expense, net (25,814) (41,424) (18,376) (15,177) (14,633)Income from continuing operations before incometaxes 4,676 (6,891) 10,240 17,845 13,445 Provision for (benefit from) income taxes 153 (4,192) 4,765 6,695 4,572 Income (loss) from continuing operations 4,523 (2,699) 5,475 11,150 8,873 Loss from discontinued operations, net of tax (95) (37) — — — Net income (loss) $4,428 $(2,736) $5,475 $11,150 $8,873 Basic earnings (loss) per share data: Earnings (loss) per share Class A and Class B commonstock from continuing operations $0.18 $(0.11) $0.21 $0.43 $0.34 Loss per share from discontinued operations — — — — — Net earnings (loss) per share Class A and Class Bcommon stock $0.18 $(0.11) $0.21 $0.43 $0.34 Diluted earnings (loss) per share data: Earnings (loss) per share Class A and Class B commonstock from continuing operations $0.18 $(0.11) $0.21 $0.43 $0.34 Loss per share from discontinued operations — — — — — Net earnings (loss) per share Class A and Class Bcommon stock $0.18 $(0.11) $0.21 $0.43 $0.34 Distributions per share $0.14 $0.21 $0.24 $0.26 $0.26 Basic weighted average Class A and Class B commonshares outstanding 24,577,605 24,938,075 25,336,809 25,426,732 25,669,538 Diluted weighted average Class A and Class Bcommon shares outstanding 24,986,966 24,938,075 26,081,175 25,887,819 26,034,990 Year Ended December 31, 2012 2013 2014 2015 2016 (Dollars in thousands) Balance Sheet Data: Cash and cash equivalents $380 $65 $33 $98 $130 Broadcast licenses 373,720 381,836 385,726 393,031 388,517 Other intangible assets, net including goodwill 33,009 32,035 37,912 36,877 40,353 Total assets 562,181 575,113 583,159 596,166 590,268 Long-term debt (including current portion) 268,980 290,793 277,505 274,755 261,674 Stockholders’ equity 206,069 201,785 203,994 209,821 213,846 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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.Cash flows related to: Operating activities $31,077 $28,735 $41,925 $36,130 $38,866 Investing activities (19,066) (17,737) (21,734) (29,183) (15,493)Financing activities (11,697) (11,276) (20,223) (6,882) (23,341)Non-GAAP Financial Measures: Station Operating Income (1) $61,618 $59,179 $54,888 $56,365 $55,733 Station Operating Income margin (2) 32.6% 31.2% 28.3% 28.6% 27.6%Digital Media Operating Income (3) $4,826 $8,923 $10,101 $9,381 $10,487 Publishing Operating Income (Loss) (4) $34 $(1,046) $608 $(932) $(681)Adjusted EBITDA (5) $53,450 $52,824 $50,081 $50,439 $51,127 44Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. (1)We define non-GAAP Station Operating Income as net broadcast revenue less broadcast operating expenses.(2)We define non-GAAP Station Operating Income margin as Station Operating Income as a percentage of net broadcast revenue.(3)We define non-GAAP digital media operating income as net digital media revenue less digital media operating expenses(4)We define non-GAAP publishing operating income as net publishing revenue less publishing operating expenses.(5)We define Non-GAAP Adjusted EBITDA as net income before interest, taxes, depreciation, and amortization (EBITDA) before gains or losses on thesale or disposal of assets, before changes in the estimated fair value of contingent earn-out consideration, before the change in fair value of interest rateswaps, before the impairment of long-lived assets, before net miscellaneous income and expenses, before loss on early retirement of debt and beforenon-cash compensation expense. NON-GAAP FINANCIAL MEASURES Management uses certain non-GAAP financial measures defined below in communications with investors, analysts, rating agencies, banks and others to assistsuch 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 financial measures should not be considered as a substitute for or superior to the most directly comparable financialmeasures as reported in accordance with GAAP. Item 10(e) of Regulation S-K defines and prescribes the conditions under which certain non-GAAP financial information may be presented in this report. Weclosely monitor EBITDA, Adjusted EBITDA, Station Operating Income (“SOI”), Same Station net broadcast revenue, Same Station broadcast operatingexpenses, Same Station Operating Income, Digital Media Operating Income, and Publishing Operating Income, all of which are non-GAAP financialmeasures. We believe that these non-GAAP financial measures provide useful information about our core operating results, and thus, are appropriate toenhance the overall understanding of our financial performance. These non-GAAP financial measures are intended to provide management and investors amore complete understanding of our underlying operational results, trends and performance. The performance of a radio broadcasting company is customarily measured by the ability of its stations to generate SOI. We define SOI as net 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 measures 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. We define Same Station net broadcast revenue as net broadcast revenue from our radio stations and networks that we own or operate in the same format on thefirst and last day of each quarter, as well as the corresponding quarter of the prior year. We define Same Station broadcast operating expenses as broadcastoperating expenses from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as thecorresponding quarter of the prior year. Same Station Operating Income includes those stations we own or operate in the same format on the first and last dayof each quarter, as well as the corresponding quarter of the prior year. Same Station Operating Income for a full calendar year is calculated as the sum of theSame Station-results for each of the four quarters of that year. We use Same Station Operating Income, a non-GAAP financial measure, both in presenting ourresults to stockholders and the investment community, and in our internal evaluations and management of the business. We believe that Same StationOperating Income provides a meaningful comparison of period over period performance of our core broadcast operations as this measure excludes the impactof new stations, the impact of stations we no longer own or operate, and the impact of stations operating under a new programming format. Our presentationof Same Station Operating Income is not intended to be considered in isolation or as a substitute for the most directly comparable financial measures reportedin accordance with GAAP. Our definition of Same Station net broadcast revenue, Same Station broadcast operating expenses and Same Station OperatingIncome is not necessarily comparable to similarly titled measures reported by other companies. 45Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 apply a similar methodology to our digital media and publishing group. Digital Media Operating Income is defined as net digital media revenue lessdigital media operating expenses. Publishing Operating Income is defined as net publishing revenue less publishing operating expenses. Digital MediaOperating Income and Publishing Operating Income are not measures of performance in accordance with GAAP. Our presentations of these non-GAAPfinancial performance measures are not to be considered a substitute for or superior to our operating results reported in accordance with GAAP. We believethat Digital Media Operating Income and Publishing Operating Income are useful non-GAAP financial measures to investors, when considered inconjunction with operating income (the most directly comparable GAAP financial measure), because they are comparable to those used to measureperformance of our broadcasting entities. We use this analysis as one of the key measures of operating efficiency, profitability and in our internal review. Thismeasurement does not purport to represent cash provided by operating activities. Our statement of cash flows presents our cash activity in accordance withGAAP and our income statement presents our financial performance in accordance with GAAP. Our definitions of Digital Media Operating Income andPublishing Operating Income are not necessarily comparable to similarly titled measures reported by other companies. We define EBITDA as net income before interest, taxes, depreciation, and amortization. We define Adjusted EBITDA as EBITDA before gains or losses on thesale or disposal of assets, before changes in the estimated fair value of contingent earn-out consideration, before gains on bargain purchases, before thechange in fair value of interest rate swaps, before impairments, before net miscellaneous income and expenses, before loss on early retirement of debt, before(gain) loss from discontinued operations and before non-cash compensation expense. EBITDA and Adjusted EBITDA are commonly used by the broadcastand media industry as important measures of performance and are used by investors and analysts who report on the industry to provide meaningfulcomparisons between broadcasters. EBITDA and Adjusted EBITDA are not measures of liquidity or of performance in accordance with GAAP and should beviewed as a supplement to and not a substitute for or superior to our results of operations and financial condition presented in accordance with GAAP. Ourdefinitions of EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures reported by other companies. For all non-GAAP financial measures, investors should consider the limitations associated with these metrics, including the potential lack of comparability ofthese measures from one company to another. We use non-GAAP financial measures to evaluate financial performance, develop budgets, manage expenditures, and determine employee compensation. Ourpresentation of this additional information is not to be considered as a substitute for or superior to the most directly comparable measures reported inaccordance with GAAP. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES: In the tables below, we present a reconciliation of net broadcast revenue, the most comparable GAAP measure, to Same Station net broadcast revenue, andbroadcast operating expenses, the most comparable GAAP measure to Same Station broadcast operating expense. We show our calculation of StationOperating Income and Same Station Operating Income, which is reconciled from net income, the most comparable GAAP measure in the table following ourcalculation of Digital Media Operating Income and Publishing Operating Income (Loss). Our presentation of these non-GAAP measures are not to beconsidered a substitute for or superior to the most directly comparable measures reported in accordance with GAAP. Year Ended December 31, 2012 2013 2014 2015 2016 (Dollars in thousands) Reconciliation of Net Broadcast Revenue to Same Station Net Broadcast Revenue Net broadcast revenue $189,169 $189,892 $194,094 $197,184 $202,016 Net broadcast revenue – acquisitions (1,310) (65) (1,551) (105) (2,522)Net broadcast revenue – format change (417) — — (107) (115)Net broadcast revenue – dispositions (103) — — — — Net broadcast revenue – Same Station $187,339 $189,827 $192,543 $196,972 $199,379 Reconciliation of Broadcast Operating Expenses to Same Station Broadcast Operating Expenses Broadcast operating expenses $127,551 $130,713 $139,206 $140,819 $146,283 Broadcast operating expenses – acquisitions (1,475) (136) (1,848) (140) (2,843)Broadcast operating expenses – format change (350) — — (192) (142)Broadcast operating expenses – dispositions (67) — — — — Broadcast operating expenses – Same Station $125,659 $130,577 $137,358 $140,487 $143,298 Reconciliation of Operating Income to Same Station Operating Income Station Operating Income $61,618 $59,179 $54,888 $56,365 $55,733 Station operating loss – acquisitions 165 71 297 35 321 Station operating income – format change (67) — — 85 27 Station operating income – dispositions (36) — — — — Station Operating Income – Same Station $61,680 $59,250 $55,185 $56,485 $56,081 46Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 table below, we present our calculations of Station Operating Income, Digital Media Operating Income and Publishing Operating Income. Ourpresentation of these non-GAAP performance indicators are not to be considered a substitute for or superior to the most directly comparable measuresreported in accordance with GAAP. Year Ended December 31, 2012 2013 2014 2015 2016 (Dollars in thousands) Calculation of Station Operating Income, Digital Media Operating Income and Publishing Operating Income (Loss) Net Broadcast revenue $189,169 $189,892 $194,094 $197,184 $202,016 Less Broadcast operating expenses (127,551) (130,713) (139,206) (140,819) (146,283)Station Operating Income $61,618 $59,179 $54,888 $56,365 $55,733 Net Digital Media revenue $26,637 $33,808 $45,691 $44,761 $46,777 Less Digital Media Operating expenses (21,811) (24,885) (35,590) (35,380) (36,290)Digital Media Operating Income $4,826 $8,923 $10,101 $9,381 $10,487 Net Publishing revenue $13,373 $13,234 $26,751 $23,842 $25,528 Less Publishing operating expenses (13,339) (14,280) (26,143) (24,774) (26,209)Publishing Operating Income (Loss) $34 $(1,046) $608 $(932) $(681) 47Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 table below, we present a reconciliation of net income, the most directly comparable GAAP measure to Station Operating Income, Digital MediaOperating Income and Publishing Operating Income (Loss). Our presentation of these non-GAAP performance indicators are not to be considered a substitutefor or superior to the most directly comparable measures reported in accordance with GAAP. Year Ended December 31, 2012 2013 2014 2015 2016 (Dollars in thousands) Reconciliation of Net Income (Loss) to Operating Income and Station Operating Income, Digital Media Operating Income and Publishing OperatingIncome (Loss) Net income (loss) $4,428 $(2,736) $5,475 $11,150 $8,873 Plus loss from discontinued operations 95 37 — — — Plus provision for (benefit from) income taxes 153 (4,192) 4,765 6,695 4,572 Plus net miscellaneous income and (expenses) (79) (18) (665) (201) (6)Plus gain on bargain purchase ― ― ― (1,357) (95)Plus loss on early retirement of long-term debt 1,088 27,795 391 41 87 Plus change in fair value of interest rate swaps ― (3,177) 2,702 1,273 (285)Plus interest expense, net of capitalized interest 24,911 16,892 15,993 15,429 14,938 Less interest income (106) (68) (45) (8) (6)Net operating income from continuing operations $30,490 $34,533 $28,616 $33,022 $28,078 Plus gain (loss) on the sale or disposal of assets 49 (264) 251 181 (1,901)Plus impairment of amortizable intangible assets — — — — 8 Plus impairment of goodwill — 438 45 439 32 Plus impairment of indefinite-lived long-term assetsother than goodwill 88 1,006 34 — 7,041 Plus impairment of long-lived assets 6,808 — — — 700 Change in the estimated fair value of contingentearn-out consideration — — 734 (1,715) (689)Plus depreciation and amortization 14,647 15,262 18,825 17,741 17,276 Plus unallocated corporate expenses 14,396 16,081 17,092 15,146 14,994 Combined Station Operating Income, Digital MediaOperating Income and Publishing Operating Income(Loss) $66,478 $67,056 $65,597 $64,814 $65,539 Station Operating Income $61,618 $59,179 $54,888 $56,365 $55,733 Digital Media Operating Income 4,826 8,923 10,101 9,381 10,487 Publishing Operating Income (Loss) 34 (1,046) 608 (932) (681) $66,478 $67,056 $65,597 $64,814 $65,539 In the table below, we present a reconciliation of Adjusted EBITDA to EBITDA to Net Income (Loss), the most directly comparable GAAP measure. EBITDAand Adjusted EBITDA are non-GAAP financial performance measures that are not to be considered a substitute for or superior to the most directly comparablemeasures reported in accordance with GAAP. Year Ended December 31, 2012 2013 2014 2015 2016 (Dollars in thousands) Reconciliation of Adjusted EBITDA to EBITDA to Net Income Net income (loss) $4,428 $(2,736) $5,475 $11,150 $8,873 Plus interest expense, net of capitalized interest 24,911 16,892 15,993 15,429 14,938 Plus provision for (benefit from) income taxes 153 (4,192) 4,765 6,695 4,572 Plus depreciation and amortization 14,647 15,262 18,825 17,741 17,276 Less interest income (106) (68) (45) (8) (6)EBITDA $44,033 $25,158 $45,013 $51,007 $45,653 Plus gain (loss) on the sale or disposal of assets 49 (264) 251 181 (1,901)Plus change in the estimated fair value of contingentearn-out consideration ― ― 734 (1,715) (689)Plus gain on bargain purchase ― ― ― (1,357) (95)Plus changes the fair value of interest rate swaps ― (3,177) 2,702 1,273 (285)Plus impairment of long-lived assets 6,808 ― ― ― 700 Plus impairment of indefinite-lived long-term assetsother than goodwill 88 1,006 34 ― 7,041 Plus impairment of goodwill ― 438 45 439 32 Plus impairment of amortizable intangible assets ― ― ― ― 8 Plus net miscellaneous income and expenses (79) (18) (665) (201) (6)Plus loss on early retirement of long-term debt 1,088 27,795 391 41 87 Plus loss from discontinued operations 95 37 ― ― ― Plus non-cash stock-based compensation 1,368 1,849 1,576 771 582 Adjusted EBITDA $53,450 $52,824 $50,081 $50,439 $51,127 48Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, digital and publishing businesses. Refer to Note 4 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 multimedia company with integrated operations including radio broadcasting, digital media, andpublishing. Salem was formed in 1986 as a California corporation and was reincorporated in Delaware in 1999. Our content is intended for audiencesinterested in Christian and family-themed programming and conservative news talk. We maintain a website at www.salemmedia.com. Our annual reports onForm 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports are available free of charge through our websiteas soon as reasonably practicable after those reports are electronically filed with or furnished to the SEC. The information on our website is not a part of orincorporated by reference into, this or any other report of the company filed with, or furnished to, the SEC. OVERVIEW We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which also qualify as reportable segments. Our operating segmentsreflect how our chief operating decision makers, which we define as a collective group of senior executives, assess the performance of each operating segmentand determine the appropriate allocations of resources to each segment. We continually review our operating segment classifications to align withoperational changes in our business and may make changes as necessary. During the third quarter of 2016 we reclassed Salem Consumer Products, our e-commerce business that sells books, DVD’s and editorial content developed byour on-air personalities, from Digital Media to Broadcast to assess the performance of each network program based on all revenue sources. Changes to ouroperating segments did not impact the reporting units used to test non-amortizable assets for impairment. All prior periods presented are updated to reflect thenew composition of our operating segments. Refer to Note 20 – Segment Data in the notes to our consolidated financial statements contained in Item 8 of thisannual report on Form 10-K for additional information. We measure and evaluate our operating segments based on operating income and operating expenses that exclude costs related to corporate functions, suchas accounting and finance, human resources, legal, tax and treasury. We also exclude costs such as amortization, depreciation, taxes and interest expensewhen evaluating the performance of our operating segments. Our principal sources of broadcast revenue include: ·the sale of block program time to national and local program producers;·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;·product sales and royalties for on-air host materials, including podcasts and programs;·the sale of banner advertisements on our station websites or on our mobile applications;·the sale of digital streaming advertisements on our station websites or on our mobile applications;·the sale of advertisements included in digital newsletters;·fees earned for creating custom web pages or social media promotions on behalf of our advertisers;·revenue from station events, including ticket sales and sponsorships; and·listener purchase programs, often called non-traditional revenue, where revenue is generated by promoting discounted goods and services to ourlisteners from special discounts and incentives offered to our listeners. The rates we are able to charge for broadcast air time and other advertisements are dependent upon several factors, including: ·audience share;·how well our stations and digital platform perform for our clients;·the size of the market and audience reached;·the number of impressions delivered;·the number of page views achieved;·the number of events held, the number of event sponsorships sold and the attendance at each event; 49Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 general economic conditions in each market; and·supply and demand on both a local and national level. Our principal sources of digital media revenue include: ·the sale of digital banner advertisements on our websites and mobile applications;·the sale of digital streaming advertisements on websites and mobile applications;·the support and promotion to stream third-party content on our websites;·the sale of advertisements included in digital newsletters;·the digital delivery of newsletters to subscribers;·the number of video and graphic downloads; and·the sale and delivery of 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 Radio Network®(“SRN”), SRN News Network (“SNN”), Today’s Christian Music (“TCM”), Singing News Network (formerly Solid Gospel Network), and Salem MediaRepresentativesTM (“SMR”). SRN, SNN, and Singing News Network are networks that develop, produce and syndicate a broad range of programmingspecifically targeted to Christian and family-themed talk stations, music stations and News Talk stations throughout the United States, including Salem-owned and operated stations. SMR, a national advertising sales firm with offices in nine U.S. cities, specializes in placing national advertising on religiousand other commercial radio stations. In December 2014, we merged Vista Media Representatives (“VMR”), our national advertising sales firm established fornon-Christian format stations, into SMR as our SMR and VMR sales teams consistently pursue advertising for all station formats. We currently program 40 of our stations with our Christian Teaching and Talk format, which is talk programming with Christian and family themes. We alsoprogram 32 News Talk stations, 13 Contemporary Christian Music stations, 13 Business format stations, and eight Spanish-language Christian Teaching andTalk stations. The business format features financial commentators, business talk, and nationally recognized Bloomberg programming. The business formatoperates similar to our Christian Teaching and Talk format as it features long-form block programming. Each of our radio stations has a website specificallydesigned 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 annual reporton Form 10-K. Broadcast revenues are impacted by the rates radio stations can charge for programming and advertising time, the level of airtime sold toprogrammers and advertisers, the number of impressions delivered or downloads made, and the number of events held, including the size of the event and thenumber 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 diary ratingscollection systems, including ease of use, more reliable ratings data, shorter time periods between when advertising runs and actual listening data, and littlemanipulation 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. As is typical in the radio broadcasting industry, our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertisingrevenue. This seasonal fluctuation in advertising revenue corresponds with quarterly fluctuations in the retail advertising industry. Additionally, weexperience increased demand for advertising during election years by way of political advertisements. Quarterly revenue from the sale of block programmingtime does not tend to vary significantly because program rates are generally set annually and are recognized on a per program basis. 50Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 cash flows from broadcasting are affected by transitional periods experienced by radio stations when, based on the nature of the radio station, our plansfor the market and other circumstances, we find it beneficial to change the station format. During this transitional period, when we develop a radio station’slistener 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 in lieuof 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 Listener PurchasePrograms. We minimize the use of barter agreements with our general policy being not to preempt airtime paid for in cash for airtime sold under a barteragreement. In each of the years ended December 31, 2016, 2015 and 2014, 97% of our broadcast revenue was sold for cash. Broadcast operating expenses include: (i) employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses such as 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 growth area for Salem and continues to be a focus of future development. Our digital media-based businessesprovide Christian, conservative, investing and health-themed content, e-commerce, audio and video streaming, and other resources digitally through the web.Salem Web Network™ (“SWN”) websites include Christian content websites: OnePlace.com, Christianity.com, Crosswalk.com®, GodVine.com,CrossCards.com, LighSource.com, Jesus.org, BibleStudyTools.com, iBelieve.com, CCMmagazine.com and ChristianHeadlines.com. Our conservativeopinion websites, collectively known as Townhall Media, include Townhall.com™, HotAir.com, Twitchy.com, HumanEvents.com, RedState.com, andBearingArms.com. We also issue digital newsletters, including Eagle Financial Publications, which provide market analysis and non-individualizedinvestment strategies from financial commentators on a subscription basis. Church product websites including WorshipHouseMedia.com, SermonSpice.com, SermonSearch.com, and ChurchStaffing.com offer downloads and serviceplatforms to pastors and other educators. Our web content is accessible through all of our radio station websites that feature content of interest to localaudiences throughout the United States. E-commerce includes Eagle Wellness and Gene Smart, which are online e-commerce sites offering complimentary health advice and sales of nutritionalproducts. The revenues generated from this segment are reported as digital media revenue in our consolidated statements of operations included in this annual reporton Form 10-K. Digital media revenues are impacted by the rates our sites can charge for advertising time, the level of advertisements sold, the number ofimpressions 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 on 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 by our Digital Media businesses include: (i) employee salaries, commissions and related employee benefits andtaxes, (ii) facility expenses such as rent and utilities, (iii) marketing and promotional expenses, (iv) royalties, (v) streaming costs, and (vi) cost of goods soldassociated with e-commerce sites. Publishing Our publishing operations include book publishing through Regnery Publishing, print magazines and our self-publishing services. Regnery Publishing haspublished 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. Books are sold in traditional printed form and as eBooks. Salem Publishing™ produces and distributes numerous Christian and conservative opinion print magazines, including: Homecoming® The Magazine,YouthWorker Journal™, Singing News®, FaithTalk Magazine™, and Preaching Magazine™ Salem Author Services includes Xulon Press™ and HillcrestMedia, which offer print-on-demand self-publishing services for authors. Xulon Press™ publishes books for Christian authors while Hillcrest Mediapublishes books for all general market publications. The revenues generated from this segment are reported as publishing revenue in our consolidated statements of operations included in this annual report onForm 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 the number andrate at which self-published books are made. Regnery Publishing revenue has been impacted by elections as they generate higher levels of interest anddemand for publications containing conservative and political based opinions. 51Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 primary operating expenses incurred by our Publishing businesses include: (i) employee salaries, commissions and related employee benefits and taxes,(ii) facility expenses such as rent and utilities, (iii) marketing and promotional expenses, (iv) printing and production costs, including paper costs, (v) cost ofgoods sold, and (vi) inventory reserves. KNOWN TRENDS AND UNCERTAINTIES Broadcast revenue growth remains challenged, which we believe is due to several factors, including increasing competition from other forms of contentdistribution and time spent listening by audio streaming services, podcasts and satellite radio. This increase in competition and mix of radio listening timemay lead advertisers to conclude that the effectiveness of radio has diminished. To minimize the impact of these factors, we continue to enhance our digitalassets to complement our broadcast content. We also support industry initiatives to increase the number of smartphones and other wireless devices thatcontain an enabled FM tuner as well as provide initiatives for wireless carriers in the United States to permit these FM tuners to receive the free over-the-airlocal radio stations. Our Broadcast revenues are particularly dependent on our Los Angeles and Dallas markets, which generated 11.9% and 11.0%, respectively, of our total netbroadcasting revenue for the year ended December 31, 2016. Revenues from print magazines, including advertising revenue and subscription revenues, are challenged both economically and by the increasing use ofother mediums that deliver comparable information. Book sales are contingent upon overall economic conditions and our ability to attract and retain authors.Because digital media has been a growth area for us, decreases in digital revenue streams could adversely affect our operating results, financial condition andresults of operations. Digital revenue is impacted by the nature and delivery of page views. We have experienced a shift in the number of page views fromdesktop devices to mobile devices. While mobile page views have increased dramatically, they carry a lower number of advertisements per page which aregenerally sold at lower rates. Digital media revenue is impacted by page views and the number of advertisements per page. Declines in desktop page viewsimpact revenue as mobile devices carry lower rates and less advertisement per page. To minimize the impact that any one of these areas could have, wecontinue to explore opportunities to cross-promote our brands and our content, and to strategically monitor costs. KEY FINANCIAL PERFORMANCE INDICATORS – SAME STATION DEFINITION In the discussion of our results of operations below, we compare our broadcast operating results between periods on an as-reported basis, which includes theoperating results of all radio stations and networks owned or operated at any time during either period and on a Same-Station basis. Same Station is a Non-GAAP financial measure used both in presenting our results to stockholders and the investment community as well as in our internal evaluations andmanagement of the business. We believe that Same Station Operating Income provides a meaningful comparison of period over period performance of ourcore broadcast operations as this measure excludes the impact of new stations, the impact of stations we no longer own or operate, and the impact of stationsoperating under a new programming format. Our presentation of Same Station Operating Income is not intended to be considered in isolation or as asubstitute for the most directly comparable financial measures reported in accordance with GAAP. Our definition of Same Station Operating Income is notnecessarily comparable to similarly titled measures reported by other companies Refer to “NON-GAAP FINANCIAL MEASURES” presented after our resultsof operation for a reconciliation of these non-GAAP performance measures to the most comparable GAAP measures. We define Same Station net broadcast revenue as net broadcast revenue from our radio stations and networks that we own or operate in the same format on thefirst and last day of each quarter, as well as the corresponding quarter of the prior year. We define Same Station broadcast operating expenses as broadcastoperating expenses from our radio stations and networks that we own or operate in the same format on the first and last day of each quarter, as well as thecorresponding quarter of the prior year. Same Station Operating Income includes those stations we own or operate in the same format on the first and last dayof each quarter, as well as the corresponding quarter of the prior year. Same Station Operating Income for a full calendar year is calculated as the sum of theSame Station results for each of the four quarters of that year. RESULTS OF OPERATIONS Year Ended December 31, 2016 compared to the year ended December 31, 2015 The following factors affected our results of operations and our cash flows for the year ended December 31, 2016 as compared to the prior year: Financing Throughout the year ended December 31, 2016, we repaid $11.0 million in principal from $274.0 million to $263.0 million on our term loan of $300.0million (“Term Loan B”) and paid interest through each repayment date compared to principal repayments of $2.0 million, from $276.0 million to $274.0million, plus interest through each repayment date during the prior year. 52Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 acquired or entered agreements to acquire several FM Translators or FM Translator construction permits during the year. The FCC permits AM and FMradio stations to operate FM Translators. The FCC began an AM Revitalization program, or “AMR,” that included several initiatives intended to benefit AMbroadcasters. One of these benefits, intended to promote the use of FM Translators by AM broadcasters, allows an AM station to relocate one FM translator upto 250 miles from its authorized site and operate the translator on any non-reserved band FM channel in the AM station’s market, subject to coverage andinterference rules (“250 Mile Window”). On February 23, 2017, the FCC amended its rules to allow an AM station using a rebroadcasting FM translator tolocate the FM translator anywhere within the AM station’s daytime service contour or anywhere within a 25-mile radius of the transmitter, even if the contourextends farther than 25 miles from the transmitter. This rule change, when it becomes effective, will be particularly useful for finding a location for thesetranslators. On January 29, 2016, the FCC opened a one-time only 250 Mile Window during which only Class C and Class D AM broadcast stations could participate.This window closed on July 28, 2016. A second window opened on July 29, 2016, allowing Class A and Class B AM broadcast stations to participate inaddition to any Class C and Class D AM broadcast station that did not participate in the first 250 Mile Window. The second 250 Mile Window closed onOctober 31, 2016. During these filing windows, qualifying AM stations were able to apply for one new FM translator station, in the non-reserved FM band tobe used solely to re-broadcast the AM station’s AM signal to provide fill-in and/or nighttime service. The FM translator must rebroadcast the related AMstation for at least four years, not counting any periods of silence. Construction permits provide authority to construct new FM Translators or make changes in existing facilities. We believe that securing these FM Translatorsallows us to increase our listening audience by providing enhanced coverage and reach of our existing AM broadcasts that can be heard on FM or expand thelistenership of FM HD channels with the potential to create new stations using the HD-2, HD-3 and HD-4 channel capacity. Our broadcast acquisitions during the year ended December 31, 2016 include the following: On December 31, 2016, we closed on the acquisition of an FM translator in Aurora, Florida for $50,000 in cash. The FM translator will be used byour WHIM-AM radio station in Miami, Florida. On December 31, 2016, we closed on the acquisition of an FM translator in Port St. Lucie, Florida for $50,000 in cash. The FM translator will beused by our WLCC-AM radio station in Tampa, Florida. On December 14, 2016, we closed on the acquisition of an FM translator in Rhinelander, Wisconsin for $50,000 in cash. The FM translator will beused by our WWTC-AM radio station in Minneapolis, Minnesota. On December 8, 2016, we closed on the acquisition of an FM translator in Little Fish Lake Valley, California for $44,000 in cash. The FM translatorwill be used by our KFIA-AM radio station in Sacramento, California. On December 1, 2016, we closed on the acquisition of an FM translator in Lake Placid, Florida for $35,000 in cash. The FM translator will be usedby our WTLN-AM radio station in Orlando, Florida. On November 22, 2016, we closed on the acquisition of two FM translator construction permits in Lahaina, Hawaii and Kihei, Hawaii for $110,000in cash. The FM translators will be used by our KHNR-AM and KGU-AM radio stations in Honolulu, Hawaii. On November 22, 2016, we closed on the acquisition of an FM translator in Crested Butte, Colorado for $38,500 in cash. The FM translator will beused by our KZNT-AM radio station in Colorado Springs, Colorado. On November 21, 2016, we closed on the acquisition of an FM translator in Dansville, New York for $75,000 in cash. The FM translator will be usedby our WMCA-AM radio station in New York, New York. On November 21, 2016, we closed on the acquisition of an FM translator in Carbondale, Pennsylvania for $75,000 in cash. The FM translator will beused by our WPGP-AM radio station in Pittsburgh, Pennsylvania. On November 11, 2016, we closed on the acquisition of an FM translator construction permit in Kingsville, Texas for $50,000 in cash. The FMtranslator will be used by our KNTH-AM radio station in Houston, Texas. On November 7, 2016, we closed on the acquisition of an FM translator in Sebring, Florida for $77,000 in cash. The FM translator will be used byour WKAT-AM radio station in Miami, Florida. On October 20, 2016, we closed on the acquisition of radio station KXFN-AM in St. Louis, Missouri for $190,000 in cash. The station was dark uponclosing and launched in December 2016. 53Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 October 20, 2016, we closed on the acquisition of three FM translator construction permits for $155,000 in cash. The FM translator constructionpermits were based in Angola, Indiana, Cofax, Indiana and Battle Creek, Michigan and will be used by WHK-AM and WHKW-AM, our radiostations in Cleveland, Ohio and WSDZ-AM our radio station in St. Louis, Missouri. On October 19, 2016, we closed on the acquisition of an FM translator construction permit in Palm Coast, Florida for $65,000 in cash from a relatedparty. The FM translator will be used by our WTWD-AM radio station in Tampa, Florida. On October 12, 2016, we closed on the acquisition of an FM translator in Lake City, Florida for $65,000 in cash from a related party. The FMtranslator will be used by our WBZW-AM radio station in Orlando, Florida. On June 24, 2016, we entered into a Local Marketing Agreement (“LMA”) to operate radio station KTRB-AM in San Francisco, Californiabeginning on July 1, 2016. On December 15, 2016, we entered into a new LMA to operate this station with East Bay Broadcasting, LLC, a relatedparty. On June 20, 2016, we closed on the acquisition of an FM translator in the Columbus, Ohio market for $0.3 million in cash. The FM translator is usedin our Columbus, Ohio market. On June 10, 2016, we closed on the acquisition of an FM translator in Amherst, New York for $60,000 in cash. The FM translator is used in ourPittsburgh, Pennsylvania market. On June 8, 2016, we closed on the acquisition of a construction permit for an FM translator construction permit in Charlotte, Michigan for $50,000in cash. The FM translator will be used in our Detroit, Michigan market. On June 3, 2016, we closed on the acquisition of a construction permit for an FM translator in Atwood, Kentucky for $88,000 in cash. The FMtranslator will be used in our Columbus, Ohio market. On May 13, 2016, we closed on the acquisition of a construction permit for an FM translator in Kerrville, Texas for $50,000 in cash. The FMtranslator will be used in our Houston, Texas market. On May 2, 2016, we closed on the acquisition of an FM translator in Lincoln, Maine for $100,000 in cash. The FM translator is used in our Boston,Massachusetts market. On April 29, 2016, we closed on the acquisition of a construction permit for an FM translator in Emporia, Kansas for $25,000 in cash. The FMtranslator will be relocated to Omaha, Nebraska, for use by our KCRO-AM radio station. Acquisitions – Digital Media On December 1, 2016, we acquired ChristianConcertAlerts.com for $0.2 million, of which $0.1 million was paid in cash upon close and theremaining $50,000 is due in two installments within the next year. On October 17, 2016, we purchased Historyonthenet.com and Authentichistory.com for $0.1 million in cash. On September 13, 2016, we acquired Mike Turner’s line of investment products, including TurnerTrends.com, other domain names and related assetsfor $0.4 million in cash and the assumption of $0.1 million in deferred subscription liabilities. As part of the purchase agreement, we may pay up toan additional $0.1 million in contingent earn-out consideration over the next twelve months based on the achievement of certain revenuebenchmarks. On April 1, 2016, we acquired the Retirement Watch newsletter and websites for $0.1 million in cash and the assumption of $0.6 million in deferredsubscription liabilities. On March 8, 2016, we acquired King James Bible mobile applications for $4.0 million, of which $2.7 million was paid in cash upon close and $1.3million is due in deferred installments within one year from the closing date. Throughout the twelve-month period ended December 31, 2016, we acquired other domain names and assets associated within our digital mediaoperating segment for approximately $3,000 in cash. Acquisitions – Publishing On August 1, 2016, we acquired the assets of Hillcrest Media Group, Inc. for $3.5 million and the assumption of $1.0 million in deferred revenueliabilities. We paid $3.3 million in cash upon close with the remaining $0.2 million due within 90 days upon the finalization of deferred revenueobligations. Throughout the twelve-month period ended December 31, 2016, we acquired other domain names and assets associated within our publishingoperating segment for approximately $3,000 in cash. Divestitures ·In November 2016, we entered an agreement with Word Broadcasting Network to transfer the operation of our Louisville radio stations (WFIA-AM; WFIA-FM; WGTK-AM) under a twenty-four month Time Brokerage Agreement (“TBA”) effective as of January 3, 2017. We received $0.5million of cash from Word Broadcasting Network associated with an option for them to purchase these stations. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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.54Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, 2016, we received $0.7 million in cash associated with a land easement granted in our South Carolina market. ·On June 10, 2016, we received $2.5 million in cash from the National Park Service in exchange for its claim under eminent domain for our towersite in Miami, Florida. We recognized a pre-tax gain of $1.9 million from this sale. We entered a limited terms of use agreement with theNational Park Service to broadcast from the tower site for the next twenty years for a nominal fee. Net Broadcast Revenue Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Net Broadcast Revenue $197,184 $202,016 $4,832 2.5% 74.2% 73.6%Same Station Net Broadcast Revenue $196,972 $199,379 $2,407 1.2% The following table shows the dollar amount and percentage of net broadcast revenue for each broadcast revenue source. Year Ended December 31, 2015 2016 (Dollars in thousands) Block program time: National $46,401 23.5% $49,271 24.4%Local 36,156 18.3 37,034 18.3 82,557 41.9 86,305 42.7 Advertising: National 13,939 7.1 13,426 6.6 Local 63,375 32.1 64,028 31.7 77,314 39.2 77,454 38.3 Digital 6,680 3.4 6,984 3.5 Infomercials 2,545 1.3 2,636 1.3 Network 15,010 7.6 17,683 8.8 Other 13,078 6.6 10,954 5.4 Net broadcast revenue $197,184 100.0% $202,016 100.0% Block programming revenue increased $3.7 million of which $1.1 million was generated from stations that we acquired late in 2015, many of which webegan programming in January 2016. On existing stations, we saw increases in the number of national and local programmers featured on our stations thatoften creates a higher demand for certain time slots. This increase in demand can result in the realization of higher rates. Our Christian Teaching and Talkstations generated a $1.4 million increase in programming revenues of which $1.3 million was from national programs. Programming revenue on our NewsTalk stations increased $0.9 million of which $0.3 million was generated from launching a local program onto our national platform. The remaining $0.3million increase was generated from our Spanish Christian Teaching and Talk and Business News format stations. Advertising revenue, net of agency commissions, increased by $0.1 million including a $2.3 million increase in political advertising. Net of politicaladvertising, the net decrease in advertising revenue of $2.2 million was due to a $3.5 million decline in advertising on our CCM stations, particularly in ourDallas market due to higher competition for advertising sales from agencies and what we believe to be a shift in advertisers toward a younger demographic. Inresponse to these trends, we have undertaken efforts to retool our music, image and promotions to capture more of that audience. The decline in advertisingon our CCM stations was partially offset with a $0.7 million increase from our News Talk stations, a $0.3 million increase from our Business stations and a$0.2 million increase from our Spanish Christian Teaching and Talk stations. Our stations, particularly our News Talk format, benefited from a higher demandfor airtime associated with news and related content from the 2016 presidential election cycle. This higher demand for airtime results in higher spot rates forpremium airtime. Digital revenue generated from our radio station websites increased $0.3 million, primarily from our News Talk Stations. Digital revenues were favorablyimpacted by higher demand and higher page views associated with news and related content from the 2016 presidential election cycle. Rates charged wereconsistent with those during the same period of the prior year. 55Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Infomercial revenue increased $0.1 million due to a higher number of placements on our Christian Teaching and Talk stations. We have seen declininginfomercial revenues in recent years due to our efforts to feature programming that is tailored to our listeners and consistent with our company values. Whilewe continue to seek alternatives to infomercial programs that we believe are not of interest to our listeners, we may continue to place programs that arecategorized as infomercials. Network revenue increased by $2.7 million including a $2.9 million increase in advertising sales through our network, of which $0.2 million was due topolitical advertising. This increase was offset by a $0.2 million decline in event revenue due to a special listener event held in 2015 that included ournetwork hosts on a historical tour. Other revenues declined by $2.1 million due to a $1.4 million decline in listener purchase program revenue due to lower demand from our audience withrespect to participation in sales incentives and discount programs and a $0.7 million decline in event revenue due to lower ticket sales and attendanceprimarily due to weather related conditions during outdoor summer events. On a Same Station basis, net broadcast revenue increased $2.4 million, which reflects these items net of the impact of stations with acquisitions and formatchanges. Net Digital Media Revenue Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Net Digital Media Revenue $44,761 $46,777 $2,016 4.5% 16.8% 17.1% The following table shows the dollar amount and percentage of net digital media for each digital media revenue source. Year Ended December 31, 2015 2016 (Dollars in thousands) Digital Advertising, Net $24,472 54.7% $27,296 58.4%Digital Streaming 4,472 10.0 4,504 9.6 Digital Subscriptions 5,189 11.6 4,881 10.4 Digital Downloads 7,661 17.1 7,475 16.0 e-commerce 2,371 5.3 2,159 4.6 Other Revenue 596 1.3 462 1.0 Net Digital Media Revenue $44,761 100.0% $46,777 100.0% Digital advertising revenue, net of agency commissions, increased $2.8 million on a consolidated basis of which $0.6 million was due to political-basedadvertising revenue. Salem Web Network generated a $1.5 million increase in net digital advertising revenue while our conservative option websites withinTownhall Media generated a $0.7 million increase in net digital advertising revenue. These increases resulted from growth in page views including growth inpage views generated from the use of mobile applications. While changes in the Facebook newsfeed algorithm negatively impacted the volume of our desktop page views, we have been developing and promoting theuse of mobile applications. The increases in traffic to our websites that we have observed to date are largely due to increases in the number of visits and in thenumber of Christian mobile applications available. The growth in traffic from mobile applications reduces our reliance on Facebook to generate traffic. Oneimportant note about this shift in traffic to mobile applications and away from desktop and tablet is that there are far fewer ads on mobile and visits are muchshorter. As a result, our growth in traffic is larger than our growth in revenue. Digital streaming revenue increased slightly as compared to the prior year based on higher usage of content available on our Christian websites. The ratescharged were consistent with those of the same period of the prior year. Digital subscription revenue declined by $0.3 million due to lower distribution levels of Eagle Financial Publications. The stock market performance during2016, particularly the drop in the market during January 2016, along with uncertainty with the presidential election, negatively impacted the demand forthese products. There were no changes in subscriber rates during this period. Digital download revenue decreased $0.2 million due to a lower volume of downloads generated as compared to the prior year. Of this decrease, $0.1 millionwas generated from WorshipHouseMedia.com and $0.1 million was generated from SermonSpice.com. There were no changes in rates charged to ourcustomers for digital downloads. E-commerce revenue includes sales of wellness products through Eagle Wellness and Gene Smart. Sales of Eagle Wellness products declined by $0.3 millionand were partially offset with an increase in products sold under the Gene Smart line of $0.1 million. The net decline was due to a 5% reduction in the numberof products sold with no change in the retail prices. However, based on the composite mix of products sold, there was a 5% reduction in the average unit priceper unit. 56Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Publishing Revenue Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Net Publishing Revenue $23,842 $25,528 $1,686 7.1% 9.0% 9.3% The following table shows the dollar amount and percentage of net publishing revenue for each publishing revenue source. Year Ended December 31, 2015 2016 (Dollars in thousands) Book Sales $17,955 75.3% $17,006 66.6%Estimated Sales Returns & Allowances (6,404) (26.9) (4,482) (17.6)E-book Sales 1,970 8.3 2,213 8.7 Self-Publishing Fees 5,406 22.7 6,138 24.0 Print Magazine Subscriptions 1,665 7.0 1,501 5.9 Print Magazine Advertisements 1,821 7.6 1,651 6.5 Other Revenue 1,429 6.0 1,501 5.9 Net Publishing Revenue $23,842 100.0% $25,528 100.0% On a consolidated basis, sales of print books decreased by $0.9 million comprised of a $1.6 million decline in book sales from Regnery Publishing that wereoffset by a $0.7 million increase in book sales to authors through our self-publishing services. The $0.7 million increase in book sales generated from self-publishing services included a $1.1 million increase due to activity from our newly acquired publisher Hillcrest Media that was offset by a $0.4 milliondecline in book sales from Xulon PressTM. There were no changes in rates charged as compared to the same period of the prior year. Book sales generated byRegnery Publishing are directly attributable to the composite mix of titles released and available in each period. Revenues can vary significantly based onthe book release date and the number of titles that achieve the New York Times bestseller list, which can increase awareness and demand for the book. The$1.9 million decrease in estimated sales returns and allowances was due to a decline in print book sales from Regnery Publishing and a reduction of thepreviously recorded reserve of $0.3 million associated with titles published in 2014 for which actual returns were less than the original estimates. E-book sales from Regnery Publishing increased $0.2 million based on a higher volume of books sold as compared to the same period of the prior year.Similar to the sale of books in print, e-book sales are also directly attributable to the composite mix of titles available in each period. Revenues can varysignificantly based on the book release date and the number of titles that achieve the New York Times bestseller list, which can increase awareness anddemand for the book. Self-publishing fees increased $0.7 million due to growth in the number of authors utilizing Salem Author Services, including $0.4 million generated fromour newly acquired publisher Hillcrest Media and $0.3 million generated from Xulon PressTM. There were no changes in fees as compared to the same periodof the prior year. We believe that our ability to cross-promote our self-publishing services to authors interested in Regnery Publishing provides us withongoing growth potential. We believe that our acquisition of Hillcrest Media, a self-publishing service provider for all authors, also increases our ability tocross-promote our publishing services. Hillcrest Media is a “tuck-in” acquisition that will transition its operations within our existing Xulon PressTMmanagement team and facility. These operations are collectively referred to as Salem Author Services. Print magazine revenues continued to decline with a $0.2 million reduction in subscription revenue based on a lower number of subscribers and a $0.2million decline in advertising revenues due to reduced demand from advertisers and reduced rates based on the lower subscriber levels as compared to thesame period of the prior year. We continue to explore cost reductions in this segment to offset the eroding revenue base. Broadcast Operating Expenses Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Broadcast Operating Expenses $140,819 $146,283 $5,464 3.9% 53.0% 53.3%Same Station Broadcast Operating Expenses $140,487 $143,298 $2,811 2.0% Broadcast operating expenses increased by $5.5 million of which $2.5 million relates to operating expenses for stations acquired during 2015 that areincluded in 2016 operations for the full year. The increase also includes a $3.0 million increase in payroll related costs due to higher staffing levels and sales-based commissions associated with higher revenues and a $0.5 million increase in benefit costs due to higher value claims under our health insurance plan, a$0.5 million charge associated with a contract litigation matter and $0.5 million increase in travel expenses that include a corporate-sponsored conference.The corporate sponsored conference was held in January 2016 and featured our local and national talk show hosts focusing on opportunities with theupcoming political elections. These increases were partially offset by a $0.7 million decline in bad debt expense due to an increase in collection efforts and a$0.2 million decline in professional services. The increase in broadcast operating expenses on a Same Station basis reflects these items net of the impact ofstart-up costs associated with acquisitions and format changes. 57Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Operating Expenses Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Digital Media Operating Expenses $35,380 $36,290 $910 2.6% 13.3% 13.2% The $0.9 million increase in digital media operating expenses includes a $0.4 million increase in payroll related costs across all business units based onhigher staffing levels and higher sales based commissions and bonuses, a $0.1 million increase in employee benefit costs due to an increase in higher valueclaims under our health insurance plan, a $0.6 million increase in streaming expenses due to a higher usage volume primarily from Townhall Media, and a$0.1 million increase in professional services that were partially offset with $0.2 million in savings realized from lower rent costs due to consolidation of theTownhall Media facility. Publishing Operating Expenses Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Publishing Operating Expenses $24,774 $26,209 $1,435 5.8% 9.3% 9.6% Publishing operating expenses reflect a $0.5 million increase in the cost of goods sold associated with book sales generated through Salem Author Services,our self-publishing operations through Xulon Press and Hillcrest Media. The gross profit margin for our self-publishing entities was consistent at 71% foreach of the years ended December 31, 2016 and 2015. The gross profit margin for Regnery Publishing was 46% for the year ended December 31, 2016compared to 42% for the same period of the prior year. Cost of goods sold for Regnery Publishing improves with sale of e-books, which have a lower cost ofgoods sold due to the nature of delivery and no sales returns. Our newly acquired publisher Hillcrest Media generated approximately $1.5 million of operating expenses including salary, advertising and promotionalcosts, and facility related costs. These costs were partially offset with a $0.4 million decline in advertising and promotions with Regnery Publishing and a$0.2 million decline in operating costs from our print magazine segment due to cost saving initiatives. Unallocated Corporate Expenses Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Unallocated Corporate Expenses $15,146 $14,994 $(152) (1.0)% 5.7% 5.5% 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. The net decrease of $0.2 million includes a $1.2 million reduction in accrued management bonuses and a$0.1 million decrease in non-cash stock-based compensation expense that were partially offset by a $0.1 million increase in employee benefit costs due to anincrease in higher value claims under our health insurance plan, a $0.6 million increase in professional fees associated with legal and accounting services anda $0.5 million increase in net payroll related costs due to higher staffing levels associated with acquisitions and growth. Depreciation Expense Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Depreciation Expense $12,417 $12,205 $(212) (1.7)% 4.7% 4.4% There were no changes in our depreciation methods or in the estimated useful lives of our asset groups. The decline in depreciation of $0.2 million reflectsthe impact of computer software acquired during the year ended December 31, 2012 that was fully depreciated during the year ended December 31, 2016,compared to generating depreciation expense of $0.5 million during the prior year as well as the composite mix of other capital expenditures incurred. Amortization Expense Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Amortization Expense $5,324 $5,071 $(253) (4.8)% 2.0% 1.8% 58Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. There were no changes in our amortization methods or in the estimated useful lives of our intangible asset groups. The decline in amortization expense of$0.3 million reflects the impact of customer lists and contracts acquired with Eagle Publishing that were fully amortized as of the year ended December 31,2016, compared to generating amortization expense of $1.0 million during the prior year that were offset with the amortization of intangible assets acquiredwith King James Bible in March 2016 and Hillcrest Media in September 2016. Change in the Estimated Fair Value of Contingent Earn-Out Consideration Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Change in the Estimated Fair Value of Contingent Earn-Out Consideration $(1,715) $(689) $1,026 (59.8)% (0.6)% (0.3)% Our acquisitions may include contingent earn-out consideration as part of the purchase price under which we will make future payments to the seller upon theachievement 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 ended December 31, 2016, we recorded a net reduction in our contingent earn-out liabilities of $0.7 million compared to $1.7 million for theprior year. The changes are based on actual results as compared to the estimates used in our probability analysis for each contingency. Refer to Note 5 in thenotes to our consolidated financial statements contained in Item 8 of this annual report on Form 10-K for a detailed analysis of the changes in ourassumptions 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, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Impairment of Indefinite-Lived Long Term Assets OtherThan Goodwill $— $7,041 $7,041 100.0% —% 2.6% The impairment charge of $7.0 million includes $6.5 million of impairments associated with our broadcast licenses and $0.5 million associated with thevalue of mastheads. These impairments were recognized during our annual testing period in the fourth quarter of 2016. Broadcast licenses were deemed to beimpaired in four of the twenty five markets tested. Impairments were recorded in our Cleveland, Dallas, Detroit and Portland market clusters due to an increasein the risk-adjusted discount rate or Weighted Average Cost of Capital (“WACC”). The increase in the WACC for the 2016 testing period as compared to2015 was largely attributable to increases in corporate borrowing interest rates during 2016 within the composite mix of industry participants considered inthe analysis. The impairment charge also includes a $0.5 million charge associated with magazine mastheads due to further reductions in projected netrevenues and increases in the WACC. We believe that these impairments are indicative of trends in the industry and are not unique to our company oroperations. Impairment of Goodwill Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Impairment of Goodwill $439 $32 $(407) (92.7)% 0.2% —% During our annual testing period in the fourth quarter of 2016, we noted operating losses and missed projections within our wellness business indicating thatthe value of goodwill may be impaired. We engaged an independent third-party appraisal and valuation firm to assist us with determining the enterprisevalue. Based on this review and analysis, we recorded an impairment charge of $32,000 associated with the value of goodwill for Eagle Wellness. Thisimpairment charge resulted from reductions in revenue forecasts for this business due to actual operating results to date that have not met expectations. 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. We believethat this impairment is indicative of trends in the industry and is not unique to our company or operations. 59Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Amortizable Intangible Assets Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Impairment of Amortizable Intangible Assets $— $8 $8 100.0% —% —% When performing our review of goodwill associated with our wellness products business during our annual testing in the fourth quarter of 2016, wedetermined that the carrying value of Eagle Wellness exceeded its fair value. When this occurs, we are required to perform Step 2 of the impairment testing inwhich we determine the fair value of an entity following the same procedures as a purchase price allocation. Under Step 2, the implied fair value of thereporting unit, including goodwill, was less than the carrying value. We recorded an impairment charge of approximately $8,000 associated with amortizableintangible assets of Eagle Wellness. This impairment charge resulted from reductions in revenue forecasts for this business due to actual operating results todate that have not met expectations. Impairment of Long-Lived Assets Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Impairment of Long-Lived Assets $— $700 $700 100.0% —% 0.3% We recorded a $0.7 million impairment charge associated with the fair value of land in Covina, California. Based on changes in management’s plannedusage, we classified this land as held for sale as of June 2012. While we continue to market the land for sale and have no intention to use the land in ouroperations, we have not received successful purchase offers for the land. Due to the amount of time that the land has been held for sale, we obtained a third-party valuation for the land as of June 2016. We reduced the value of the land based on this fair value appraisal. Previously recognized impairment chargesfor this land were $5.6 million in June 2012 and $1.2 million in December 2012. (Gain) Loss on the Sale or Disposal of Assets Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue (Gain) Loss on the Sale or Disposal of Assets $181 $(1,901) $(2,082) (1,150.3)% 0.1% (0.7)% The net gain on the sale or disposal of assets of $1.9 million for the year ended December 31, 2016 includes a $1.9 million gain on the sale of our Miamitower site and $0.7 million gain from a land easement in our South Carolina market offset by a $0.4 million charge associated with leasehold improvementsthat were abandoned during the relocation of our offices in the Washington, D.C. market and various fixed asset disposals. 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 our officeand studio in our Seattle, Washington market offset by proceeds from various fixed asset and equipment disposals. Other Income (Expense) Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Interest income $8 $6 $(2) (25.0)% —% —%Interest Expense, net of Capitalized Interest (15,429) (14,938) 491 (3.2)% (5.8)% (5.4)%Change in the Fair Value of Interest Rate Swap (1,273) 285 1,558 (122.4)% (0.5)% 0.1%Gain on Bargain Purchase 1,357 95 (1,262) (93.0)% 0.5% —%Loss on Early Retirement of Long-Term Debt (41) (87) (46) 112.2% —% —%Net Miscellaneous Income and (Expenses) 201 6 (195) (97.0)% 0.1% —% Interest income represents earnings on excess cash and interest due under promissory notes. Interest expense includes interest due on outstanding debt balances, interest due on our swap agreement and non-cash interest accretion related to deferredpayments related to our acquisition activity and from our contingent earn-out consideration. The $0.5 million decline in interest expense is due to a lowerprincipal balance outstanding on our Term Loan B and a lower average outstanding balance on our Revolver. 60Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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 entered into onMarch 28, 2013. In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations,”effective as of January 1, 2009, any excess of fair value of the acquired net assets over the acquisition consideration shall be recognized as a gain on a bargainpurchase. Prior to recording a gain, the acquiring entity must reassess whether all acquired assets and assumed liabilities have been identified and recognizedand perform re-measurements to verify that the consideration paid, assets acquired, and liabilities assumed have been properly valued. We underwent such areassessment, and as a result, have recorded a gain on bargain purchase for KXFN-AM in St. Louis, Missouri, of $0.1 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 adjust the amounts recognized as of the acquisition date. For the same period of the prior year, we recorded a gain on the bargain purchase for WSDZ-AM in St. Louis, Missouri, of $0.8 million, for KDIZ-AM inMinneapolis, Minnesota, of $0.3 million and for WWMI-AM in Tampa, Florida, of $0.3 million. We believed that the gain on bargain purchase resulted fromvarious factors that impacted the acquisition price, including, without limitation, Disney’s plan to exit the broadcasting business and divest its Radio Disneyproperties. The loss on early retirement of long-term debt reflects the unamortized discount and bank loan fees associated with principal redemptions of our Term LoanB. Net miscellaneous income and expenses includes royalty income, usage fees for our real estate properties and insurance proceeds. Provision for Income Taxes Year Ended December 31, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Provision for Income Taxes $6,695 $4,572 $(2,123) (31.7)% 2.5% 1.7% The decrease in our provision for income taxes of $2.1 million reflects the impact of pre-tax income of $13.4 million recognized during the year endedDecember 31, 2016 compared to $17.8 million for the prior year and a $1.6 million out-of-period adjustment to correct an error in our estimated valuationallowance for certain deferred tax assets related to state net operating loss carryforwards that we determined were not more likely than not to be realized thatwas recorded in September 2016. The provision for income taxes as a percentage of income before income taxes, or the effective tax rate, was 34.0% for theyear ended December 31, 2016 compared to 37.5% 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, 2015 2016 Change $ Change % 2015 2016 (Dollars in thousands) % of Total Net Revenue Net Income $11,150 $8,873 $(2,277) (20.4)% 4.2% 3.2% Our net income declined by $2.3 million to $8.9 million for the year ended December 31, 2016 compared to $11.2 million during the prior year. This declinereflects the impact of $7.8 million of impairment charges in 2016 compared to $0.4 million in the prior year and an increase in operating expenses of $7.7million, that were partially offset by an $8.5 million increase in net revenue and the $2.1 million favorable impact of gains on the sale or disposal of assets in2016. 61Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, 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 ended December 31, 2015, we repaid $2.0 million in principal on our Term Loan B and paid interest through each repayment datecompared to $15.3 million in principal plus interest through each repayment date during the prior year. Equity Throughout the year ended December 31, 2015, we paid total equity distributions of $6.6 million compared to total equity distributions of $6.2 millionduring the prior year. Broadcast Acquisitions We completed a number of broadcast acquisitions during the year ended December 31, 2015, most notably from Disney’s divestiture of its Radio Disneyproperties. Of the eleven radio 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. Weconsummate tuck-in acquisitions when we believe it is advantageous to increase the strength and number of our broadcast signals while minimizing costsunder our market cluster-operating concept. The St. Louis market, as one of the top 25 radio markets in the United States, provides a unique opportunity toexpand our platform in a new market. During the year ended December 31, 2015, we paid $12.4 million of cash to acquire broadcast assets and radio stations.A summary of our broadcast acquisitions during the year ended December 31, 2015, 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. ·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 ended December 31, 2015, we paid$4.5 million of cash to acquire digital media assets and businesses. A summary of our digital acquisitions and asset purchases, in order of most recent, is asfollows: ·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. 62Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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.We may pay up to an additional $0.3 million in contingent earn-out consideration payable over the next two years based upon the achievementof 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. Divestitures ·On December 31, 2015, we ceased programming KVCE-AM, Dallas, Texas upon expiration of a TBA. Net Broadcast Revenue Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Net Broadcast Revenue $194,094 $197,184 $3,090 1.6% 72.8% 74.2%Same Station Net Broadcast Revenue $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 23.2% $46,401 23.5%Local 34,600 17.8 36,156 18.4 79,521 41.0 82,557 41.9 Advertising: National 14,986 7.7 13,939 7.1 Local 62,566 32.2 63,375 32.1 77,552 39.9 77,314 39.2 Digital 6,279 3.2 6,680 3.4 Infomercials 3,906 2.0 2,545 1.3 Network 15,822 8.2 15,010 7.6 Other 11,014 5.7 13,078 6.6 Net broadcast revenue $194,094 100.0% $197,184 100.0% 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 and 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 increases were partially offset by a $0.3 million decline in local programs on our Spanish Christian Teaching and Talk stations.The increase in the number of programmers featured on-air creates a higher demand for premium time slots. This increase in demand often results inrealization of higher rates. Consolidated broadcast advertising revenue, net of agency commissions, declined by $0.2 million. The decline includes the impact of political advertising,which was $2.0 million during the year ended December 31, 2014 based on the then upcoming local and congressional elections compared to $0.4 millionfor the year ended December 31, 2015. Excluding the $1.6 million impact of political advertising, net advertising revenue increased by $1.3 million due toincreases in demand from local advertisers on our News Talk and Contemporary Christian Music stations. The increases in demand from local advertisers alsoresulted in the realization of higher rates for premium time slots. 63Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 $0.4 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 audience and consistent with our company values. Wecontinue to seek alternatives to infomercial programs that we believe are not of interest to our audience. 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 include 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-acquiredstations. 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 $45,691 $44,761 $(930) (2.0)% 17.1% 16.8% 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 54.2% $24,472 54.7%Digital Streaming 4,280 9.4 4,472 10.0 Digital Subscriptions 5,825 12.7 5,189 11.6 Digital Downloads 7,982 17.5 7,661 17.1 e-commerce 2,223 4.9 2,371 5.3 Other Revenue 592 1.3 596 1.3 Net Digital Media revenue $45,691 100.0% $44,761 100.0% Digital advertising revenue, net of agency commissions, declined by $0.3 million on a consolidated basis. Included in this amount is a $1.9 million declinein digital advertising revenue generated from Townhall.com due to a reduction in the number of advertising supported email distributions to readers. Thedecline 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 make it more difficult to drive trafficfrom 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, which carrylower 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 digital subscriptionssold. During 2014, a rebranding of the newsletters generated a higher interest level and a corresponding increase in the number of new subscriptions 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 of renewals. There wereno 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, including a$0.5 million decline in video downloads on our WorshipHouseMedia.com website offset by $0.2 million increase in fees generated from ChurchStaffing.comand ChristianJobs.com. The decline in downloads of these third party produced videos are common throughout the industry as users become more adept atcreating their own content. We believe that our sermon content is unique and valuable and that the number of downloads of our content will not be impactedas severely by user created content. We tend to see increases in the volume of our digital downloads with the approach of Christian holidays, specificallyEaster and Christmas. 64Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 $0.1 million increase in the sales volume of wellness products of which approximately $57,000 wasattributable to our acquisition of Gene Smart on June 4, 2015. There were no changes in the retail sales price for products sold year over year. We believe theincrease in volume of wellness products sold is directly 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 2015. The RedState Gathering featured several2016 GOP candidates and was 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 1,665 7.0 Print Magazine Advertisements 1,983 7.4 1,821 7.6 Other Revenue 1,144 4.3 1,429 6.0 Net Publishing Revenue $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 ended December31, 2015 as compared to the prior year. These declines were offset by a $0.1 million increase in book sales from Xulon PressTM due to an increase in thenumber of 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 sold during2015 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 of printedbooks, 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 the NewYork Times bestseller list. Xulon PressTM 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 the self-publishing services of Xulon PressTM to authors interested in RegneryPublishing provides 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 $0.2million decline in advertising revenues based on reduced demand and reduced rates due to lower distribution levels. As of December 2014, we discontinuedprinting and distributing Townhall Magazine, the content of which is currently only available online. We continue to explore cost reductions in this segmentto 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 $139,206 $140,819 $1,613 1.2% 52.2% 53.0%Same Station Broadcast Operating Expenses $138,278 $137,785 $(493) (0.4)% Increases in broadcast operating expenses include an increase of $1.6 million in personnel-related costs including sales-based commissions, consistent withthe higher revenues generated and an increase in the number of stations owned. Included in this amount is a $0.3 million increase in group health insurancepremiums. Facility-related costs increased by $0.9 million due to recent acquisitions and the relocation and consolidation of our facilities in Washington DC,for which we are incurring duplicative rent expense until the build out of our new facility is complete and we can vacate our existing locations. In addition,there was a $0.3 million increase in production and programming expense and a $0.2 million increase in professional services, each of which is attributable torecent acquisitions. These increases were offset by a $1.1 million decrease in bad debt expense due to an increase in collection efforts. 65Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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. Ourcost 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 Operating Expenses $35,590 $35,380 $(210) (0.6)% 13.4% 13.3% 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 PressTM increased by $0.1 million, including a $0.1 million increase in the cost of sales and $0.2 million increase in advertisingcosts, consistent with the increase in revenue, offset by a $0.2 million decrease in bad debt expense attributed to more successful collection efforts. 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% Depreciation expense decreased due to higher depreciation expense recognized in 2014 on capital expenditures such as computer software, data processingand office equipment that have shorter estimated useful lives than tower and broadcasting assets that were acquired in 2013. There were no changes in ourdepreciation methods or in the estimated useful lives of our asset groups. 66Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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 Fair Value 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 seller upon theachievement 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 ended December 31, 2015, we recorded a net reduction in our contingent earn-out liabilities of $1.7 million compared to a net increase of $0.7million 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 toNote 5 in the notes to our consolidated financial statements contained in Item 8 of this annual report for a detailed analysis of the changes in our assumptionsand 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-Lived Long-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 cease publishingTownhall Magazine as of December 2014. We reduced our projected net revenues for the following year and considered ceasing additional print magazinesin the future. Although we expect to realize cost savings from the reduction in the number of print magazines produced, we do not expect the cost savings toincrease operating margins. Based on the reduction of projected net revenues and the potential to further reduce the number of magazines published, werecorded 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 of digital-only publications, which are often free or available at a significantly reduced cost to readers, has hindered the ability of the publishing industry to recoverfrom the economic recession that began in 2008. We believe that the impairments are indicative of trends in the publishing industry as a whole and are notunique to our company or operations. 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% 67Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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 could notconclude that the value of goodwill associated with our magazine publishing unit was not impaired. We obtained an independent fair value of our magazinepublishing unit. Based on this review and analysis, we recorded an impairment charge of $45,000 associated with the value of goodwill for our printmagazines. 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 of Assets $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 our officeand 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 a receivablefrom 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 receivable settlementand $0.1 million of insurance proceeds from a claim associated with one of our markets as well as other insignificant fixed asset and equipment disposals. 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 of Capitalized Interest (15,993) (15,429) 564 (3.5)% (6.0)% (5.8)%Change in the Fair Value of Interest 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 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 Term LoanB, 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 our contingentearn-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 entered into onMarch 28, 2013. In accordance with the FASB ASC Topic 805 “Business Combinations,” effective as of January 1, 2009, any excess of fair value of the acquired net assetsover the acquisition consideration shall be recognized as a gain on a bargain purchase. Prior to recording a gain, the acquiring entity must reassess whetherall acquired assets and assumed liabilities have been identified and recognized and perform re-measurements to verify that the consideration paid, assetsacquired, and liabilities assumed have been properly valued. We underwent such a reassessment, and as a result, have recorded a gain on the bargain purchasefor WSDZ-AM in St. Louis, Missouri, of $0.8 million, for KDIZ-AM in Minneapolis, Minnesota, of $0.3 million and for WWMI-AM in Tampa, Florida, of$0.3 million. We believe that these gains on the bargain purchase resulted from various factors that may have impacted the acquisition price, including,without limitation, Disney’s plan to exit the broadcasting business and divest its Radio Disney properties. 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. 68Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Provision for Income Taxes Year Ended December 31, 2014 2015 Change $ Change % 2014 2015 (Dollars in thousands) % of Total Net Revenue Provision for Income Taxes $4,765 $6,695 $1,930 40.5% 1.8% 2.5% Our provision for income taxes was $6.7 million for the year ended December 31, 2015 compared to $4.8 million for the prior year. The increase in ourprovision results from $17.8 million of pre-tax income from continuing operations for the current period compared to a pre-tax income of $10.2 million forthe prior year, net of expirations of certain state statute of limitations for prior year deductions and carryovers. Provision for income taxes as a percentage ofincome before income taxes, or the effective tax rate, was 37.5% for the year ended December 31, 2015 compared to 46.5% for the prior year. The effectivetax rate for each period differs from the federal statutory income rate of 35.0% due to the effect of state income taxes, certain expenses that are not deductiblefor tax purposes and changes in the valuation allowance related to the utilization 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. 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 change asnew events occur, as more experience is acquired and as more information is obtained. We evaluate and update our assumptions and estimates on an ongoingbasis 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 – Summary of Significant Accounting Policies, in thenotes to our consolidated financial statements contained in Item 8 of this annual report on Form 10-K. Note 1 contains several other policies which areimportant to the preparation of our consolidated financial statements, but do not meet the SEC’s definition of critical accounting policies because they donot involve subjective or complex judgments. 69Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Goodwill, Broadcast Licenses and Other Indefinite-Lived Intangible Assets We have accounted for acquisitions for which a significant amount of the purchase price was allocated to broadcast licenses and goodwill. Approximately70% of our total assets at December 31, 2016 consisted of indefinite-lived intangible assets including broadcast licenses, goodwill and mastheads. The valueof these indefinite-lived intangible assets depends significantly upon the operating results of our businesses. We do not amortize goodwill or otherindefinite-lived intangible assets, but rather test for impairment at least annually or more frequently if events or circumstances indicate that an asset may beimpaired. 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 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. We did not find reconciliation to our current market capitalization meaningful in the determination of ourenterprise value given current factors that impact our market capitalization, including but not limited to: limited trading volume, the impact of ourpublishing segment operating losses and the significant voting control of our Chairman and Chief Executive Officer. 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 12 in the notes to our consolidated financial statements contained in Item 8 of this annual report onform 10-K. We are permitted to perform a qualitative assessment as to whether it is more likely than not that an indefinite-lived intangible asset is impaired. Thisqualitative assessment requires significant judgment in considering events and circumstances that may affect the estimated fair value of our indefinite-livedintangible assets and requires that we weigh these events and circumstances by what we believe to be the strongest to weakest indicator of potentialimpairment. If it is more likely than not that an 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. When we are required to perform a quantitative analysis to estimate the fair value of our broadcast licenses, the Greenfield Method, a form of the incomeapproach is used. The premise of the Greenfield Method is that the value of a broadcast license is equivalent to a hypothetical start-up in which the only assetowned by the station as of the valuation date is the broadcast license. This approach eliminates factors that are unique to the operation of the station,including its format and historical financial performance. The method then assumes the entity has to purchase, build, or rent all of the other assets needed tooperate a comparable station to the one in which the broadcast license is being utilized as of the valuation date. Cash flows are estimated and netted againstall start-up costs, expenses and investments necessary to achieve a normalized and mature state of operations, thus reflecting only the cash flows directlyattributable to the broadcast license. A multi-year discounted cash flow approach is then used to determine the net present value of these cash flows to derivean indication of fair value. For cash flows beyond the projection period, a terminal value is calculated using the Gordon constant growth model and long-term industry growth rate assumptions based on long-term industry growth and Gross Domestic Product inflation rates. 70Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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, or the broadcast license. When we are required to perform a quantitative analysis to estimate the fair value of mastheads, the relief from royalty method is used. The relief from royaltymethod estimates the fair value of mastheads through use of a discounted cash flow model that incorporates a hypothetical “royalty rate” that a third-partyowner would be willing to pay in lieu of owning the asset. The royalty rate is based on observed royalty rates for comparable assets as of the measurementdate. We adjust the selected royalty rate to account for a percentage of the royalty fee that could be attributed to the use of other intangibles, such asgoodwill, time in existence, trade secrets and industry expertise. The adjusted royalty rate represents the royalty fee remaining that could be attributed to theuse of the masthead only. When performing Step 1 of our annual impairment testing for goodwill, the fair value of each applicable accounting unit is estimated using a discounted cashflow analysis, which is a form of the income approach. The discounted cash flow analysis utilizes a five to seven year projection period to derive operatingcash flow projections from a market participant view. We make certain assumptions regarding future revenue growth based on industry market data, historicalperformance and expected future performance. We also make assumptions regarding working capital requirements and ongoing capital expenditures for fixedassets. If the results of Step 1 indicate that the fair value of a reporting unit is less than its carrying value, Step 2 is required. Under Step 2, the implied fair value ofthe reporting unit, including goodwill, is calculated to determine the amount of the impairment. We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of our indefinite-lived intangible assets, however, theseestimates and assumptions are highly judgmental in nature. Actual results can be materially different from estimates and assumptions. If actual marketconditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fairvalue of our indefinite-lived intangible assets below the amounts reflected on our balance sheet, we may recognize future impairment charges, the amount ofwhich may be material. Sensitivity of Key Broadcasting Licenses and Goodwill Assumptions When estimating the fair value of our broadcasting licenses and goodwill, we make assumptions regarding revenue growth rates, operating cash flow marginsand discount rates. These assumptions require substantial judgment, and actual rates and margins may differ materially. We prepared a sensitivity analysis ofthese assumptions and the hypothetical non-cash impairment charge that would have resulted if our estimated discount rate were increased. We performed a sensitivity analysis of certain current year key assumptions, including the long-term revenue growth rate and the WACC to determine theimpact that such changes would have on the estimated fair value of our broadcast licenses. The sensitivity analysis indicated that a reduction in the long-termrevenue growth rate by 100 basis points and an increase in the WACC by 100 basis points would have resulted in an additional impairment to our broadcastlicenses of $42.6 million. We performed a sensitivity analysis of certain current year key assumptions, including the long-term revenue growth rate and the WACC, to determine theimpact that such changes would have on the estimated fair value of goodwill associated with our broadcasting segment. The sensitivity analysis indicatedthat reducing the long-term revenue growth rates by 100 basis points and increasing the WACC by 100 basis points would have resulted in an impairment togoodwill associated with our broadcast entities of $0.6 million. We performed a sensitivity analysis of certain current year key assumptions, including the long-term revenue growth rate and the WACC, to determine theimpact that such changes would have on the estimated fair value of goodwill associated with our digital media segment. The sensitivity analysis indicatedthat reducing the long-term revenue growth rates by 100 basis points and increasing the WACC by 100 basis points would have resulted in an impairment togoodwill associated with our digital media entities of $0.4 million. We performed a sensitivity analysis of certain current year key assumptions, including the long-term revenue growth rate and the WACC, to determine theimpact that such changes would have on the estimated fair value of goodwill associated with our publishing segment. The sensitivity analysis indicated thatreducing the long-term revenue growth rate by 100 basis points and increasing the WACC by 100 basis points would have no incremental impact to thecarrying value of goodwill associated with our publishing entities. 71Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Long-Lived Assets We account for property and equipment in accordance with FASB ASC Topic 360-10, “Property, Plant and Equipment.” We periodically review our long-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 estimates andassumptions are highly judgmental in nature. Actual results can be materially different from estimates and assumptions. If actual market conditions are lessfavorable 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-livedassets below the amounts reflected on our balance sheet, we may recognize future impairment charges, the amount of which may be material. Business Acquisitions We account for business acquisitions in accordance with the acquisition method of accounting as specified in FASB ASC Topic 805 “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. 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. To date, we have not experienced changes in the economic life established for each major category of our assets. 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 12 in the notes to our consolidated financial statements contained in Item 8 of this annualreport on Form 10-K. 72Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 decrease to our estimated contingent earn-out liabilities of $0.7 million for the year ended December 31, 2016 and $1.7million during the year ended December 31, 2015. The changes in our estimates reflect volatility from variables, such as revenue growth, page views andsession time as discussed in Note 5 – Contingent Earn-Out Consideration in the notes to our consolidated financial statements contained in Item 8 of thisannual 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-out considerationhowever, these estimates and assumptions are highly judgmental in nature. Actual results can be materially different from estimates and assumptions. Fair Value Measurements FASB ASC Topic 820, “Fair Value Measurements and Disclosures” established a single definition of fair value in generally accepted accounting principlesand requires expanded disclosure requirements about fair value measurements. The provision applies to other accounting pronouncements that require orpermit fair value measurements. This includes applying the fair value concept to (i) nonfinancial assets and liabilities initially measured at fair value inbusiness combinations; (ii) reporting units or nonfinancial assets and liabilities measured at fair value in conjunction with goodwill impairment testing;(iii) other nonfinancial assets measured at fair value in conjunction with impairment assessments; and (iv) asset retirement obligations initially measured atfair value. The fair value provisions include guidance on how to estimate the fair value of assets and liabilities in the current economic environment and reemphasizethat the objective of a fair value measurement remains an exit price. If we were to conclude that there has been a significant decrease in the volume and levelof activity of the asset or liability in relation to normal market activities, quoted market values may not be representative of fair value and we may concludethat 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. Thisframework 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 12 in thenotes to our consolidated financial statements contained in Item 8 of this annual report on form 10-K. Contingency Reserves In the ordinary course of business, we are involved in various legal proceedings, lawsuits, arbitration and other claims that are complex in nature and haveoutcomes that are difficult to predict. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impactwith respect to these matters. Certain of these proceedings are discussed in Note 14, Commitments and Contingencies, contained in our consolidatedfinancial statements. 73Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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 nutritional productssold 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. Our estimatesare based upon historical sales returns, the amount of current period sales, economic trends and any changes in customer demand and acceptance of ourproducts. 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. We record barter revenue as it is earned, typically when the broadcast time is used or the digital advertisement is delivered. We record barter expense equal tothe estimated fair value of the goods or services received upon receipt or usage of the items as applicable. Barter advertising revenue included in broadcastrevenue for the year ended December 31, 2016 and 2015 was approximately $5.4 million and $6.1 million, respectively. Barter expenses included inbroadcast operating expense for the year ended December 31, 2016 and 2015 was approximately $5.3 million and $5.9 million, respectively. Barteradvertising revenue included in digital media revenue for the year ended December 31, 2016 and 2015 was approximately $42,000 and $0.1 million,respectively. Barter expenses included in digital media operating expense for the year ended December 31, 2016 and 2015 was approximately $34,000 and$0.1 million, respectively. Inventory Reserves Inventories consist of finished goods, including published books and wellness products. Inventory is recorded at the lower of cost or market as determined ona First-In First-Out (“FIFO”) cost method. We reviewed historical data associated with book and wellness product inventories held by Regnery Publishing andour e-commerce wellness entities, as well as our own experiences to estimate the fair value of inventory on hand. Our analysis includes a review of actualsales returns, our allowances, royalty reserves, overall economic conditions and product demand. We record a provision to expense the balance of unsoldinventory that we believe to be unrecoverable. We regularly monitor actual performance to our estimates and make adjustments as necessary. Estimatedinventory reserves may be adjusted, either favorably or unfavorably, if factors such as the historical data we used to calculate these estimates do not properlyreflect future returns or as a result of changes in economic conditions of the customer and/or the market. We have not modified our estimate methodology 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. 74Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 determine thatfuture recovery of the royalty is not likely. We reviewed historical data associated with royalty advances, earnings and recoverability based on actual resultsof Regnery Publishing. Historically, the longer the unearned portion of an advance remains outstanding, the less likely it is that we will recover the advancethrough the sale of the book. We apply this historical experience to outstanding royalty advances to estimate the likelihood of recovery. A provision wasestablished to expense the balance of any unearned advance which we believe is not recoverable. Our analysis also considers other discrete factors, such asdeath 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 equity awardswith stock-based compensation measured at the fair value of the award as of the grant date. We determine the fair value of each award using the Black-Scholes valuation model that requires the input of highly subjective assumptions, including the expected stock price volatility and expected term of theaward granted. The exercise price for each award is equal to or greater than the closing market price of Salem Media Group, Inc. common stock as of the dateof the award. We use the straight-line attribution method to recognize share-based compensation costs over the expected service period of the award. Uponexercise, cancellation, forfeiture, or expiration of the award, deferred tax assets for awards with multiple vesting dates are eliminated for each vesting periodon a first-in, first-out basis as if each vesting period was a separate award. We have not modified our estimates or assumptions used in our valuation model.We believe that our estimates and assumptions are reasonable and that our stock based compensation is accurately reflected in our results of operations. Partial Self-Insurance on Employee Health Plan We provide health insurance benefits to eligible employees under a self-insured plan whereby we pay actual medical claims subject to certain stop loss limits.We record self-insurance liabilities based on actual claims filed and an estimate of those claims incurred but not reported. Our estimates are based onhistorical data and probabilities. Any projection of losses concerning our liability is subject to a high degree of variability. Among the causes of thisvariability 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 $0.8 million and $0.7 million at December 31, 2016 and 2015, respectively. We have not modified our estimate methodology and we have nothistorically recognized significant losses from changes in our estimates. While we had an unusually high level of claims in the third quarter of 2016 due to alarger than normal number of expensive claims, we believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected. Income Tax Valuation Allowances (Deferred Taxes) In preparing our consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating ouractual current tax exposure and assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes. Ourjudgments, assumptions and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax lawsand possible outcomes of audits conducted by tax authorities. Reserves for income taxes to address potential exposures involving tax positions that could bechallenged by tax authorities are established if necessary. Although we believe our judgments, assumptions and estimates are reasonable, changes in tax lawsor our interpretation of tax laws and the resolution of any future tax audits could significantly impact the amounts provided for income taxes in ourconsolidated financial statements. We calculate our current and deferred tax provisions based on estimates and assumptions that could differ from the actual results reflected in income taxreturns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the taximplications are known. Tax law and rate changes are reflected in the income tax provision in the period in which such changes are enacted. 75Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider all availableevidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income andongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. In the event we were to determine that we would not beable to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period inwhich we make such a determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, wewould reverse the applicable portion of the previously provided valuation allowance. For financial reporting purposes, we recorded a valuation allowance of $4.5 million as of December 31, 2016 to offset $4.2 million of the deferred tax assetsrelated to the state net operating loss carryforwards and $0.3 million associated with asset impairments. During the third quarter of 2016, we identified anerror in our estimated valuation allowance for certain deferred tax assets. We recorded an out-of-period adjustment to increase our valuation allowance by$1.6 million for a portion of the deferred tax assets related to state net operating loss carryforwards that we determined were not more likely than not to berealized. 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 taxassets related to the state net operating loss carryforwards. We believe that our estimates and assumptions are reasonable and that our reserves are accuratelyreflected. Income Taxes and Uncertain Tax Positions We are subject to audit and review by various taxing jurisdictions. We may recognize liabilities on our financial statements for positions taken on uncertaintax positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, whileothers may be subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of atax position is recognized in the financial statements in the period during which, based on all available evidence, we believe it is more likely than not thatthe position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Such positions are deemed to beunrecognized tax benefits and a corresponding liability is established on the balance sheet. It is inherently difficult and subjective to estimate such amounts,as this requires us to make estimates based on the various possible outcomes. We review and reevaluate uncertain tax positions on a quarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an additionalcharge to the tax provision. During the year ended December 31, 2016, we recognized a net decrease of $0.1 million in liabilities associated with uncertaintax positions. Accordingly, we have no liabilities for uncertain tax positions recorded at December 31, 2016. The $0.1 million balance at December 31, 2015included approximately $21,000 of accrued interest, net of federal income tax benefits, and $6,000 for the related penalties previously recorded in incometax expense. Our evaluation was performed for all tax years that remain subject to examination, which range from 2012 through 2015. There are currently notax examinations in process. Recent Accounting Pronouncements Changes to accounting principles are established by the FASB in the form of Accounting Standards Updates (“ASU”) to the FASB’s Codification. Weconsider the applicability and impact of all ASUs on our financial position, results of operations, cash flows, or presentation thereof. Described below areASUs that are not yet effective, but may be applicable to our financial position, results of operations, cash flows, or presentation thereof. ASUs not listedbelow were assessed and determined to not be applicable to our financial position, results of operations, cash flows, or presentation thereof. In February 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20), whichclarifies the scope and application of ASC Topic 610-20 on accounting for the sale or transfer of nonfinancial assets, that is an asset with physical value suchas real estate, equipment, intangibles or similar property. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017, and interim periodswithin those fiscal years. We have not yet evaluated the impact of the adoption of this accounting standard on our financial position, results of operations,cash flows, or presentation thereof. In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” whicheliminates the requirement to calculate the implied fair value of goodwill in Step 2 of the goodwill impairment test. Under ASU 2017-04, goodwillimpairment charges will be based on the excess of a reporting unit’s carrying amount over its fair value as determined in Step 1 of the testing. ASU 2017-04 iseffective for interim and annual testing dates after January 1, 2019, with early adoption permitted for interim and annual goodwill impairment testing datesafter January 1, 2017. We have not yet evaluated the impact of the adoption of this accounting standard on our financial position, results of operations, cashflows, or presentation thereof. In January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and JointVentures (Topic 323)” which amends the Codification to incorporate SEC staff views regarding recently issued accounting standards and investments inqualified affordable housing projects. The guidance requires registrants to disclose the effect that recently issued accounting standards will have on theirfinancial statements when adopted in a future period. ASU 2017-03 is effective for fiscal years beginning after December 15, 2019, and interim periods withinthose fiscal years with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We do notexpect the adoption of ASU 2017-03 to impact our financial position, results of operations, cash flows, or presentation thereof. 76Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 2017, the FASB issued ASU 2017-01, “Business Combinations – Clarifying the Definition of a Business,” which clarifies the definition of abusiness for determining whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 is effective for fiscalyears beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We do not expect the adoption of ASU2017-01 to have a material impact on our financial position, results of operations, cash flows, or presentation thereof. In December 2016, the FASB issued ASU 2016-19 “Technical Corrections and Improvements,” which covers a wide range of topics in the Codification. Theamendments in this update represent changes to clarify, correct errors, or make minor improvements to the Accounting Standards Codification. ASU 2016-19is effective upon issuance for amendments that do not have transition guidance, and for fiscal years beginning after December 15, 2016, and interim periodswithin those years for all other amendments with early adoption permitted. The adoption of ASU 2016-19 did not have a material impact on our financialposition, results of operations, cash flows, or presentation thereof. In November 2016, the FASB issued ASU 2016-18, “Statements of Cash Flows (Topic 230): Restricted Cash” which provides guidance on the presentation ofrestricted cash or restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, andinterim periods within those fiscal years. We do not expect the adoption of ASU 2016-18 to have a material impact on our cash flows or presentation thereof. In October 2016, the FASB issued ASU 2016-17, “Interests Held through Related Parties That Are under Common Control,” which amends the consolidationguidance in ASU 2015-02 regarding the treatment of indirect interests held through related parties that are under common control. The guidance is effectivefor fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. We do not expect theadoption of ASU 2016-17 to have a material impact on our financial position, results of operations, cash flows, or presentation thereof. In October 2016, the FASB issued ASU 2016-16 “Intra-Entity Transfers of Assets Other Than Inventory,” which modifies existing guidance for theaccounting for income tax consequences of intra-entity transfers of assets. This ASU requires entities to immediately recognize the tax consequences onintercompany asset transfers (excluding inventory) at the transaction date, rather than deferring the tax consequences under current GAAP. The guidance iseffective for fiscal years beginning after December 15, 2018, and interim reports within those fiscal years, with early adoption permitted only as of the firstquarter of a fiscal year. We do not expect the adoption of ASU 2016-16 to have a material impact on our financial position, results of operations, cash flows,or presentation thereof. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” whichclarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing diversity inpractice related to eight specific types of transactions. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periodswithin those fiscal years, with early adoption permitted. We do not expect the adoption of ASU 2016-15 to have a material impact on our financial cash flowsor presentation thereof. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses,” which changes the impairment model for most financial assets andcertain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a newforward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances forlosses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that thelosses will be recognized as an allowance. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within thosefiscal years, with early adoption permitted. We have not yet evaluated the impact of the adoption of this accounting standard on our financial position,results of operations, cash flows, or presentation thereof. In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of theaccounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities andclassification on the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within thoseyears, with early adoption is permitted. We do not expect the adoption of ASU 2016-09 to have a material impact on our financial position, results ofoperations, 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 for allleases 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 guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlyadoption permitted. We have not yet determined the dollar impact of recording operating leases on our statement of financial position. The adoption of ASU2016-02 will have a material impact on our financial position and the presentation thereof. Our existing credit facility stipulates that our covenants are basedon GAAP as of the agreement date. Therefore, the material impact of recording right-to-use assets and lease liabilities on our statement of financial position isnot expected to impact the compliance status for any covenant. 77Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 provides updatedguidance that enhances the reporting model for financial instruments, including amendments, to address aspects of recognition, measurement, presentationand disclosure. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. With the exceptionof the early application guidance applicable to certain entities, early adoption of the amendments is not permitted. We have not yet evaluated the impact ofthe adoption of this accounting standard on 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 in thestatement of financial position. The updated guidance requires that deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet.Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts. The current requirement thatdeferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in thisASU. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption ispermitted. The adoption of ASU 2015-17 is not expected to have a material impact on our financial position, results of operations, cash flows, or presentationthereof. In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” to reduce the complexity in accounting for inventory. This ASUrequires 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, and interim periods within those fiscal years,with early adoption permitted. We do not expect the adoption of ASU 2015-11 to have a material impact on our financial position, results of operations, cashflows, or presentation thereof. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” and issued subsequent amendments to the initialguidance in August 2015, March 2016, April 2016, May 2016 and December 2016, within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, andASU 2016-20 respectively (ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 collectively, “Topic 606”). Topic606 supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promisedgoods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenuerecognition process than are required under existing GAAP. These estimates include identifying performance obligations in the contract, estimating theamount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, amongothers. The guidance is effective for us as of January 2018, the first interim period within fiscal years beginning on or after December 15, 2017, using either oftwo methods: (1) retrospective application of Topic 606 to each prior reporting period presented with the option to elect certain practical expedients asdefined within Topic 606 or (2) retrospective application of Topic 606 with the cumulative effect of initially applying Topic 606 recognized at the date ofinitial application and providing certain additional disclosures as defined per Topic 606. We have developed a project plan for the implementation of ASC606 and all related ASU’s as of the effective date with further analysis planned during 2017 to complete the implementation plan. Based on our evaluation ofa sample of revenue contracts with customers against the requirements of the standard, we believe that the reporting of revenue as principal (gross) or agent(net) will impact our consolidated financial statements. We may sell advertising that includes placement on third party websites that we currently report on agross basis as principal due to having latitude in establishing the sales price and bearing credit risk. Under new guidance, we will report this revenue net asagent because the third party is primarily responsible for fulfilling the service. Preliminarily, we plan to adopt Topic 606 pursuant to the (1) retrospectiveapplication method of Topic 606 and we do not currently believe that there will be a material impact to our revenues upon adoption. We continue to evaluatethe impact of our pending adoption of Topic 606 and our preliminary assessments are subject to change. LIQUIDITY AND CAPITAL RESOURCES We have historically funded, and will continue to fund, expenditures for operations, administrative expenses, and capital expenditures from operating cashflow, borrowings under credit facilities and, if necessary, proceeds from the sale of selected assets or businesses. We have historically financed acquisitionsthrough borrowings, including borrowings under credit facilities and, to a lesser extent, from operating cash flow and from proceeds on selected assetdispositions. We expect to fund future acquisitions from cash on hand, borrowings under our credit facilities, operating cash flow and possibly through thesale of income-producing assets or proceeds from debt and equity offerings. We believe that the borrowing capacity under our current credit facilities allowsus to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the next twelve months. 78Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 cash and cash equivalents balance was unchanged at $0.1 million at December 31, 2016 and 2015. Our working capital increased $3.3 million to $16.4million as of December 31, 2016 compared to $13.1 million as of December 31, 2015 due to a reduction in the current portion of long-term debt of $5.1million offset by a $1.4 million increase in accounts payable and accrued expenses. Operating Cash Flows Our largest source of operating cash inflows are receipts from customers in exchange for advertising and programming. Other sources of operating 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 ended December 31, 2016 increased by $2.7 million to $38.9 million compared to $36.1 millionduring the prior year. The increase in cash provided by operating activities includes the impact of the following items: ·Net income decreased $2.3 million to $8.9 million compared to $11.2 million for the same period of the prior year due to a $7.3 million increasein non-cash impairment charges;·Miscellaneous other receivables decreased $1.2 million;·Our Day’s Sales Outstanding, or the average number of days to collect cash from the date of sale, decreased to 64 days at December 31, 2016compared to 68 days for the same period of the prior year;·Net accounts payable and accrued expenses increased $1.3 million to $28.8 million from $27.5 million as of the same period of the prior year;and·Net inventories on hand decreased $0.2 million to $0.7 million at December 31, 2016 compared to an increase of $0.3 million to $0.9 million atDecember 31, 2015. 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. In recent years, our acquisition agreements have contained contingent earn-out arrangements that are payable in the future based on the achievement ofpredefined operating results. We believe that these contingent earn-out arrangements provide some degree of protection with regard to our cash outflowsshould these acquisitions not meet our operational expectations. During 2017, we expect to close on the acquisition of several FM translators and have the option to acquire radio station KHTE-FM in Little Rock, Arkansas.We plan to fund these asset purchases and any acquisitions from cash on hand, operating cash flow or our credit facilities. These transactions include: We have the option to acquire radio station KHTE-FM, Little Rock, Arkansas, for $1.2 million in cash during our 36-month TBA that is extendableto 48 months. The TBA began on April 1, 2015, at which time we began programming the station. 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. We entered into agreements to acquire FM translators or FM translator construction permits during the applicable windows of the FCC AMRevitalization program, or “AMR.” that included several initiatives intended to benefit AM broadcasters. We believe that securing these FMtranslators allows us to increase our listening audience by providing enhanced coverage and reach of our existing AM broadcasts. As of December31, 2016, we have $36,000 of cash deposited into escrow accounts associated with APA’s for these FM translator and FM translator constructionpermits as follows: Date APAEntered Permit orID Authorized Site - Current PurchasePrice EscrowDeposits Date Closed Market (Dollars in thousands) 7/25/2016 K283CA Festus, Missouri * 40 8 - St. Louis, Missouri7/26/2016 K294CP Roseburg, Oregon * 45 9 3/01/2017 Portland, Oregon7/26/2016 K276FZ Eaglemount, Washington * 40 8 - Portland, Oregon8/25/2016 K278BH Astoria, Oregon 33 7 1/16/2017 Seattle, Washington9/22/2016 K260CG Mohave Valley, Arizona* 20 2 1/6/2017 Phoenix, Arizona10/07/2016 K279CM Quartz Site, Arizona * 20 2 - To be determined* Indicates that the purchase is for an FM translator construction permit. 79Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 undertake projects from time to time to upgrade our radio station technical facilities and/or FCC broadcast licenses, expand our digital and web-basedofferings, improve our facilities and upgrade our computer infrastructures. The nature and timing of these upgrades and expenditures can be delayed or scaledback at the discretion of management. Based on our current plans, we expect to incur capital expenditures of approximately $8.7 million during 2017. Net cash used in investing activities during the year ended December 31, 2016 decreased $13.7 million to $15.5 million compared to $29.2 million duringthe prior year. The decrease in cash used for investing activities includes: ·Cash paid for acquisitions decreased $8.5 million to $8.4 million compared to $16.9 million during the same period of the prior year;·Cash paid for capital expenditures net of tenant improvement allowances increased $0.6 million to $9.4 million compared to $8.8 millionduring the same period of the prior year;·Cash received from the sale of assets was $3.1 million compared to $10,000 during the same period of the prior year; and·Capital expenditures for leasehold improvements reimbursable under tenant improvement allowances decreased $2.4 million to $0.6 millioncompared to $3.0 million during the same period of 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 stock incentiveplan. Financing cash outflows include repayments of our credit facilities, the payment of equity distributions and payments of amounts due under deferredinstallments and contingency earn-out consideration associated with acquisition activity. We believe that cash payments for deferred installments and contingent earn-out consideration that were entered contemporaneously with an acquisition areappropriately recorded 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. This is consistent with the guidance in FASB ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification ofCertain Cash Receipts and Cash Payments,” which clarifies how entities should classify certain cash receipts and cash payments on the statement of cashflows issued in August 2016. During the year ended December 31, 2016, we paid $0.1 million in cash for contingent earn-out consideration due underacquisition agreements and $3.6 million in cash for the deferred installments. During the year ended December 31, 2016, the principal balances outstanding under our credit facilities ranged from $263.5 million to $278.1 million. Theseoutstanding balances were ordinary and customary based on our operating and investing cash needs during this time. Based on the number of shares of Class A and Class B common stock currently outstanding we expect to pay total annual equity distributions ofapproximately $6.8 million in 2017. However, the actual declaration of dividends and equity distributions, as well as the establishment of per share amounts,dates of record, and payment dates are subject to final determination by our Board of Directors and depend upon future earnings, cash flows, financial andlegal requirements, and other factors. The current policy of the Board of Directors is to review each of these factors on a quarterly basis to determine theappropriate amount, if any, to allocate toward a cash distribution with the general principle of using approximately 20% of Adjusted EBITDA less cash paidfor capital expenditures, less cash paid for income taxes, and less cash paid for interest. Adjusted EBITDA is a non-GAAP financial measure defined in Item 7,Management’s Discussion 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. Net cash used in financing activities during the year ended December 31, 2016 increased $16.4 million to $23.3 million compared to $6.9 million during theprior year. The decrease in cash used for financing activities includes: ·We repaid $11.0 million of principal outstanding on the Term Loan B compared to $2.0 million of principal during the same period of the prioryear;·We paid $3.6 million of cash against deferred installments due under our purchase agreements during the year ended December 31, 2016compared to $0.9 million for the same period of the prior year;·The book overdraft decreased $2.1 million to $12,000 during the year ended December 31, 2016 compared to $2.1 million for the same periodof the prior year; 80Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 paid $0.1 million of cash for the amount earned under the contingent earn-out provision of our purchase agreements during the year endedDecember 31, 2016 compared to $1.2 million during the same period of the prior year; and·We paid cash equity distributions of $6.7 million, on our Class A and Class B common stock compared to $6.6 million during the same periodof 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, 2015 and 2016,approximately $0.2 million, respectively, of the discount has been recognized as interest expense. 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 $60.0million, subject to the terms and conditions of the credit agreement. We are required to make principal payments of $750,000 per quarter as of September 30,2013. Prepayments may be made against the outstanding balance of our Term Loan B with each prepayment applied ratably to each of the next four principalinstallments due within 12 months of the prepayment date in the direct order of maturity and thereafter to the remaining principal balance in reverse order ofmaturity. We have made prepayments on our Term Loan B, including interest due as of the date of the repayment as follows: Date Principal Paid UnamortizedDiscount (Dollars in Thousands) December 30, 2016 $5,000 $12 November 30, 2016 1,000 3 September 30, 2016 1,500 4 September 30, 2016 750 — June 30, 2016 441 1 June 30, 2016 750 — March 31, 2016 750 — March 17, 2016 809 2 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 In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” that requires the cost of issuing debt to be recorded asa reduction of the debt proceeds or a reduction of the debt liability, similar to the presentation of debt discounts. Prior to this ASU, debt issue costs wererecorded as deferred costs, or long-term intangible assets. In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement ofDebt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITFMeeting” that amended ASU 2015-03 to reflect the SEC staff’s position that it would not object to an entity deferring and presenting debt issuance costsrelated to line-of-credit arrangements as an asset and subsequently amortizing deferred debt issuance costs ratably over the term of the line-of-creditarrangement, regardless of whether there are outstanding borrowings under that line-of-credit arrangement. We adopted ASU 2015-03, as amended by ASU 2015-15, as of the effective date, or fiscal years beginning after December 31, 2015. We chose to continuepresentation of debt issue costs associated with our Revolver as an asset in accordance with ASU 2015-15. We have retrospectively accounted for theimplementation of ASU 2015-03 and ASU 2015-15 as a change in accounting principle. We have reclassified debt issue costs reported on our December 31,2015 consolidated balance sheet as follows: 81Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. December 31, 2015 (Dollars in thousands) As Reported As UpdatedASU 2015-03 Balance Sheet Line Items: Term Loan B $273,136 $274,000 Less: Unamortized discount based on imputed interest rate of 4.78% — (864)Less: Unamortized debt issuance costs based on imputed interest rate of 4.78% — (2,361)Term Loan B net carrying value 273,136 270,775 Revolver 3,306 3,306 Capital leases and other loans 674 674 $277,116 $274,755 Less current portion (5,662) (5,662)Long-term debt and capital lease obligations less unamortized discount and debt issuance costs, net of currentportion $271,454 $269,093 Deferred financing costs $2,512 $151 Debt issue costs are being amortized to non-cash interest expense over the life of the Term Loan B using the effective interest method. For each of the twelvemonths ended December 31, 2015 and 2016, approximately $0.6 million of the debt issue costs associated with the Term Loan B were recognized as interestexpense. Debt issue costs associated with our Revolver are recorded as an asset in accordance with ASU 2015-15. These costs are being amortized to non-cash interestexpense over the five year life of the Revolver using the effective interest method based on an imputed interest rate of 4.58%. For each of the twelve monthsended December 31, 2015 and 2016, we recorded amortization of deferred financing costs of approximately $0.1 million each. 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 the Revolverto fund ordinary and customary operating cash needs with repayments made frequently. We believe that the borrowing capacity under our Term Loan B andRevolver allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the nexttwelve 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 Bank, National Association’s(“Wells Fargo”) base rate plus a spread of 2.50%. Borrowings under the Revolver may be made at LIBOR or Wells Fargo’s base rate plus a spread determinedby reference to our leverage ratio, as set forth in the pricing grid below. If an event of default occurs under the credit agreement, the applicable interest ratemay increase by 2.00% per annum. At December 31, 2016, the blended interest rate on amounts outstanding under the Term Loan B and Revolver includingthe impact of the interest rate swap agreement was 5.08%. 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 its subsidiaries,other than certain exceptions set forth in the Security Agreement, dated as of March 14, 2013, among Salem, the subsidiary guarantors party thereto, andWells Fargo, 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 stepped up to 2.50 to1.0 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 other negativecovenants that are customary for credit facilities of this type, including covenants that, subject to exceptions described in the credit agreement, restrict theability of Salem and its subsidiary guarantors: (i) to incur additional indebtedness; (ii) to make investments; (iii) to make distributions, loans or transfers ofassets; (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 orconsolidate with, or dispose of all or substantially all assets to, a third party. As of December 31, 2016, our leverage ratio was 4.96 to 1 compared to ourcompliance covenant of 6.00 and our interest coverage ratio was 3.57 compared to our compliance ratio of 2.50. We were in compliance with our debtcovenants under the credit facility at December 31, 2016. 82Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Summary of long-term debt obligations Long-term debt consisted of the following: December 31, 2015 December 31, 2016 (Dollars in thousands) Term Loan B principal amount $274,000 $263,000 Less unamortized discount and debt issuance costs based on imputed interest rateof 4.78% (3,225) (2,371)Term Loan B net carrying value 270,775 260,629 Revolver 3,306 477 Capital leases and other loans 674 568 274,755 261,674 Less current portion (5,662) (590) $269,093 $261,084 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, 2016: ·Outstanding borrowings of $263.0 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%;·Outstanding borrowings of $0.5 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; and·Quarterly interest payments on $150.0 million notional amount interest rate swap agreement with Wells Fargo based on a LIBOR floor of0.625% and a fixed rate of 1.645%. Other Debt We have several capital leases related to office equipment. The obligation recorded at December 31, 2015 and 2016 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, 2016 for each of the next five years and thereafter are asfollows: Amount For the Twelve Months Ending December 31, (Dollars in thousands) 2017 $590 2018 3,105 2019 3,103 2020 254,735 2021 120 Thereafter 21 $261,674 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 are notamortized but instead are tested for impairment at least annually, or more frequently if events or circumstances indicate that there may be an impairment. Weperform our annual impairment testing during the fourth quarter of each year, which coincides with our budget and planning process for the upcoming year.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 as well as a $7.8 million charge in the year ended December 31, 2016. We believe that the impairments are indicative of trends in theindustry as a whole 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 the covenants on our Revolver and Term Loan B, the potentialfor future impairment charges can be viewed as a negative factor with regard to forecasted future performance and cash flows. We believe that we haveadequately 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. 83Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. OFF-BALANCE SHEET ARRANGEMENTS At December 31, 2015 and 2016, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to asstructured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we hadengaged in such relationships. CONTRACTUAL OBLIGATIONS We enter into various agreements in the normal course of business that contain minimum guarantees. The typical minimum guarantee is tied to future revenueamounts that exceed the contractual level. Accordingly, the estimated fair value of these arrangements is zero. We undertake projects from time to time toupgrade our radio station technical facilities and/or FCC broadcast licenses, expand our Internet offerings, improve our facilities and update our computerinfrastructures. We expect to incur capital expenditures of approximately $8.7 million throughout the twelve months ending December 31, 2017; the natureand 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, 2016, and the estimated timing and effect that such obligations areexpected 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 1 year years years years (Dollars in thousands) Long-term debt, including current portion $261,106 $477 $6,000 $254,629 $— Interest payments on long-term debt (1) 38,288 11,793 23,539 2,956 — Capital lease obligations and other loans 568 113 208 226 21 Operating leases 84,256 11,698 21,883 18,566 32,109 Deferred cash payments 316 316 — — — Contingent earn-out consideration (2) 66 66 — — — Talent Agreements (3) 6,619 2,503 3,396 720 — Other Contracts (4) 1,562 362 1,200 — — Total contractual cash obligations $392,781 $27,328 $56,226 $277,097 $32,130 (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, 2016 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 11 in the notes to our consolidated financialstatements contained in Item 8 of this annual report on Form 10-K for additional information. (2)Maximum amount of contingent earn-out consideration payable over two years associated with our acquisitions of Turner Trends on September13, 2016, Daily Bible Devotion on May 6, 2015 and Bryan Perry Newsletters on February 6, 2015. See Note 5 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, 2016. Future payments will vary as the agreements are renewed. (4)Other contracts consist of purchase commitments, including APA’s as of December 31, 2016. 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 as acash 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. 84Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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 $0.5 million as of December 31, 2016, 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 12 in the notes to our consolidated financialstatements contained in Item 8 of this annual report on Form 10-K for additional information. As of December 31, 2015 As of December 31, 2016 (Dollars in thousands) Fair value of interest rate swap liability $798 $514 85Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 PAGE Report of Independent Registered Public Accounting Firm for the year ending December 31, 2016 87 Report of Independent Registered Public Accounting Firm for the year ending December 31, 2015 88 Consolidated Balance Sheets as of December 31, 2015 and 2016 89 Consolidated Statements of Operations for the years ended December 31, 2014, 2015 and 2016 90 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 2015 and 2016 92 Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2015 and 2016 93 Notes to Consolidated Financial Statements 95 86Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Stockholders ofSalem Media Group, Inc.Camarillo, California We have audited the accompanying consolidated balance sheet of Salem Media Group, Inc. (the “Company”) as of December 31, 2016, and the relatedstatements of operations, stockholders' equity, and cash flows for the year ended December 31, 2016. In connection with our audit of the consolidatedfinancial statements, we also have audited the consolidated financial statement schedule for the year ended December 31, 2016 as listed in Item 15(a)2. Theseconsolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is toexpress an opinion on these consolidated financial statements and consolidated financial statement schedule 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 the consolidated financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statementpresentation. We believe that our audit provides 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, 2016, and the results of its operations and its cash flows for the year ended December 31, 2016, in conformity with accounting principlesgenerally accepted in the United States of America. Also, in our opinion, the related consolidated financial statement schedule, when considered in relationto the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We also have 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, 2016, based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2017, expressed an adverse opinion thereon. /s/ Crowe Horwath LLP Sherman Oaks, California March 10, 2017 87Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 sheet of Salem Media Group, Inc. and subsidiaries (collectively, the “Company”) as of December31, 2015, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years ending December 31, 2015 and2014. Our audit also included the financial statement schedule of the Company listed in Item 15(a) for each of these years. These consolidated financialstatements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on theseconsolidated financial statements and schedule 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 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 auditprovides 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, 2016 and the results of its operations and its cash flows for the year ending December 31, 2016, in conformity with U.S. generally acceptedaccounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financialstatements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ SingerLewak LLP Los Angeles, California March 11, 2016 88Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, 2015 2016 ASSETS Current assets: Cash and cash equivalents $98 $130 Trade accounts receivable (net of allowances of $13,479 in 2015 and $10,420 in 2016) 37,181 37,260 Other receivables (net of allowances of $371 in 2015 and $260 in 2016) 1,981 751 Inventories (net of reserves of $1,855 in 2015 and $2,226 in 2016) 893 670 Prepaid expenses 6,285 6,287 Deferred income taxes 9,813 9,411 Land held for sale 1,700 1,000 Total current assets 57,951 55,509 Notes receivable (net of allowance of $528 in 2015 and $564 in 2016) 173 65 Property and equipment (net of accumulated depreciation of $162,382 in 2015 and $156,024 in 2016) 105,483 102,790 Broadcast licenses 393,031 388,517 Goodwill 24,563 25,613 Other indefinite-lived intangible assets 833 332 Amortizable intangible assets (net of accumulated amortization of $39,454 in 2015 and $44,488 in 2016) 11,481 14,408 Deferred financing costs 151 82 Other assets 2,500 2,952 Total assets $596,166 $590,268 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $5,177 $4,968 Accrued expenses 14,032 15,658 Accrued compensation and related expenses 8,297 8,133 Accrued interest 16 77 Current portion of deferred revenue 11,549 9,491 Income taxes payable 73 223 Current portion of long-term debt and capital lease obligations 5,662 590 Total current liabilities 44,806 39,140 Long-term debt and capital lease obligations, less current portion 269,093 261,084 Fair value of interest rate swap 798 514 Deferred income taxes 57,082 60,769 Deferred rent expense 8,300 9,596 Deferred revenue less current portion 5,630 5,252 Other long-term liabilities 636 67 Total liabilities 386,345 376,422 Commitments and contingencies (Note 14) Stockholders’ Equity: Class A common stock, $0.01 par value; authorized 80,000,000 shares; 22,246,134 and 22,593,130 issued and19,928,484 and 20,275,480 outstanding at December 31, 2015 and 2016, respectively 223 226 Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding atDecember 31, 2015 and 2016, respectively 56 56 Additional paid-in capital 241,780 243,607 Accumulated earnings 1,768 3,963 Treasury stock, at cost (2,317,650 shares at December 31, 2015 and 2016) (34,006) (34,006)Total stockholders’ equity 209,821 213,846 Total liabilities and stockholders’ equity $596,166 $590,268 See accompanying notes 89Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, 2014 2015 2016 Net broadcast revenue $194,094 $197,184 $202,016 Net digital media revenue 45,691 44,761 46,777 Net publishing revenue 26,751 23,842 25,528 Total net revenue 266,536 265,787 274,321 Operating expenses: Broadcast operating expenses, exclusive of depreciation and amortization shown below(including $1,454, $1,509 and $1,663 for the years ended December 31, 2014, 2015 and2016, respectively, paid to related parties) 139,206 140,819 146,283 Digital media operating expenses, exclusive of depreciation and amortization shown below 35,590 35,380 36,290 Publishing operating expenses exclusive of depreciation and amortization shown below 26,143 24,774 26,209 Unallocated corporate expenses, exclusive of depreciation and amortization shown below(including $274, $133 and $301 for the years ended December 31, 2014, 2015 and 2016,respectively, paid to related parties) 17,092 15,146 14,994 Depreciation 12,629 12,417 12,205 Amortization 6,196 5,324 5,071 Change in the estimated fair value of contingent earn-out consideration 734 (1,715) (689)Impairment of long-lived assets — — 700 Impairment of indefinite-lived long-term assets other than goodwill 34 — 7,041 Impairment of goodwill 45 439 32 Impairment of amortizable intangible assets — — 8 (Gain) loss on the sale or disposal of assets 251 181 (1,901)Total operating expenses 237,920 232,765 246,243 Operating income 28,616 33,022 28,078 Other income (expense): Interest income 45 8 6 Interest expense, net of capitalized interest (15,993) (15,429) (14,938)Change in the fair value of interest rate swap (2,702) (1,273) 285 Gain on bargain purchase — 1,357 95 Loss on early retirement of long-term debt (391) (41) (87)Net miscellaneous income and expenses 665 201 6 Income from operations before income taxes 10,240 17,845 13,445 Provision for income taxes 4,765 6,695 4,572 Net income $5,475 $11,150 $8,873 See accompanying notes 90Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, 2014 2015 2016 Basic earnings per share data: Basic earnings per share Class A and Class B common stock $0.21 $0.43 $0.34 Diluted earnings per share data: Diluted earnings per share Class A and Class B common stock $0.21 $0.43 $0.34 Distributions per share Class A and Class B common stock $0.24 $0.26 $0.26 Basic weighted average Class A and Class B shares outstanding 25,336,809 25,426,732 25,669,538 Diluted weighted average Class A and Class B shares outstanding 26,081,175 25,887,819 26,034,990 See accompanying notes 91Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Common Stock Common Stock Additional Retained Paid-In Earnings Treasury Shares Amount Shares Amount Capital (Accumulated Deficit) Stock Total Stockholders' equity, December31, 2013 21,803,303 $218 5,553,696 $56 $237,579 $(2,062) $(34,006) $201,785 Stock-based compensation — — — — 1,576 — — 1,576 Options exercised 278,837 3 — — 1,218 — — 1,221 Tax benefit related to stockoptions exercised — — — — 120 — — 120 Cash distributions — — — — — (6,183) — (6,183)Net income — — — — — 5,475 — 5,475 Stockholders' equity, December31, 2014 22,082,140 221 5,553,696 56 240,493 (2,770) (34,006) 203,994 Stock-based compensation — — — — 771 — — 771 Options exercised 163,994 2 — — 383 — — 385 Tax benefit related to stockoptions exercised — — — — 133 — — 133 Cash distributions — — — — — (6,612) — (6,612)Net income — — — — — 11,150 — 11,150 Stockholders' equity, December31, 2015 22,246,134 223 5,553,696 56 241,780 1,768 (34,006) 209,821 Stock-based compensation — — — — 582 — — 582 Options exercised 336,996 3 — — 990 — — 993 Lapse of restricted shares 10,000 — — — — — — — Tax benefit related to stockoptions exercised — — — — 255 — — 255 Cash distributions — — — — — (6,678) — (6,678)Net income — — — — — 8,873 — 8,873 Stockholders' equity, December31, 2016 22,593,130 $226 5,553,696 $56 $243,607 $3,963 $(34,006) $213,846 92Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, 2014 2015 2016 OPERATING ACTIVITIES Net income $5,475 $11,150 $8,873 Adjustments to reconcile net income to net cash provided by operating activities: Non-cash stock-based compensation 1,576 771 582 Tax benefit related to stock options exercised 120 133 255 Depreciation and amortization 18,825 17,741 17,276 Amortization of deferred financing costs 643 628 631 Accretion of financing items 187 188 206 Accretion of acquisition-related deferred payments and contingent earn-outconsideration 576 349 70 Provision for bad debts 3,026 1,733 941 Deferred income taxes 4,375 6,313 4,089 Impairment of long-lived assets — — 700 Impairment of indefinite-lived long-term assets other than goodwill 34 — 7,041 Impairment of goodwill 45 439 32 Impairment of amortizable intangible assets — — 8 Change in the fair value of interest rate swap 2,702 1,273 (285)Change in the estimated fair value of contingent earn-out consideration 734 (1,715) (689)(Gain) loss on the sale or disposal of assets 251 181 (1,901)Gain on bargain purchase — (1,357) (95)Loss on early retirement of debt 391 41 87 Changes in operating assets and liabilities: Accounts receivable 4,101 1,461 4,236 Inventories (27) (307) 223 Prepaid expenses and other current assets 237 (705) (2)Accounts payable and accrued expenses 538 (6,482) (819)Deferred rent 643 3,745 1,330 Deferred revenue (1,414) (72) (4,106)Other liabilities (1,125) 703 33 Income taxes payable 12 (81) 150 Net cash provided by operating activities 41,925 36,130 38,866 INVESTING ACTIVITIES Cash paid for capital expenditures net of tenant improvement allowances (9,363) (8,833) (9,414)Capital expenditures reimbursable under tenant improvement allowances and tradeagreements (711) (3,034) (620)Escrow deposits related to acquisitions (65) — (36)Deposit received under option agreement for radio station sales — — 450 Purchases of broadcast assets and radio stations (6,195) (12,411) (1,758)Purchases of digital media businesses and assets (3,713) (4,472) (3,253)Purchases of publishing businesses and assets (2,774) — (3,403)Proceeds from the sale of assets 1,370 10 3,147 Other (283) (443) (606)Net cash used in investing activities (21,734) (29,183) (15,493)FINANCING ACTIVITIES Payments under Term Loan B (15,250) (2,000) (11,000)Proceeds from borrowings under Revolver 56,510 60,219 43,909 Payments on Revolver (54,726) (58,698) (46,738)Payments of costs related to bank credit facility (13) — — See accompanying notes 93Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, 2014 2015 2016 Payments of acquisition-related contingent earn-out consideration (300) (1,204) (111)Payments of deferred installments due from acquisition activity — (935) (3,621)Proceeds from exercise of stock options 1,221 385 993 Payment of cash distribution on common stock (6,183) (6,612) (6,678)Payments on capital lease obligations (130) (112) (107)Book overdraft (1,352) 2,075 12 Net cash used in financing activities (20,223) (6,882) (23,341)Net increase (decrease) in cash and cash equivalents (32) 65 32 Cash and cash equivalents at beginning of year 65 33 98 Cash and cash equivalents at end of year $33 $98 $130 Supplemental disclosures of cash flow information: Cash paid during the year for: Cash paid for interest net of capitalized interest $14,518 $14,289 $14,038 Cash paid for income taxes $257 $330 $78 Other supplemental disclosures of cash flow information: Barter revenue $6,227 $6,204 $5,470 Barter expense $6,052 $5,990 $5,341 Non-cash investing and financing activities: Capital expenditures reimbursable under tenant improvement allowances $670 $2,998 $620 Non-cash capital expenditures for property & equipment acquired trade agreements $41 $36 $— Estimated present value of contingent earn-out consideration $2,047 $300 $66 Current value of deferred cash payments (short-term) $600 $21 $1,640 Present value of deferred cash payments (due 2015) $893 $— $— Present value of deferred cash payments (due 2016) $2,289 $— $— Assets acquired under capital leases $64 $— $— See accompanying notes 94Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 company and itswholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Description of Business Salem is a domestic multimedia company with integrated operations including radio broadcasting, digital media, and publishing. Effective as of February 19,2015, we changed our name from Salem Communications Corporation to Salem Media Group, Inc. to more accurately reflect our multimedia business. Salemwas formed in 1986 as a California corporation and was reincorporated in Delaware in 1999. Our content is intended for audiences interested in Christian andfamily-themed programming and conservative news talk. We maintain a website at www.salemmedia.com. We have three operating segments, (1) Broadcast, (2) Digital Media, and (3) Publishing, which are discussed in Note 20 – Segment Data. Our foundationalbusiness is the ownership and operation of radio stations in large metropolitan markets. We also own and operate Salem Radio Network® (“SRN”), SRN NewsNetwork (“SNN”), Today’s Christian Music (“TCM”), Singing News Network (formerly Solid Gospel Network) and Salem Media RepresentativesTM(“SMR”). SRN, SNN, and Singing News Network are networks that develop, produce and syndicate a broad range of programming specifically targeted toChristian and family-themed talk stations, music stations and general News Talk stations throughout the United States, including Salem-owned and operatedstations. SMR, a national advertising sales firm with offices in nine U.S. cities, specializes in placing national advertising on religious and other commercialradio stations. Our digital media based businesses provide Christian, conservative, investing and health-themed content, e-commerce, audio and video streaming, and otherresources digitally through the web. Salem Web Network™ (“SWN”) websites include Christian content websites: OnePlace.com, Christianity.com,Crosswalk.com®, GodVine.com, CrossCards.com, LighSource.com, Jesus.org, BibleStudyTools.com, iBelieve.com, CCMmagazine.com andChristianHeadlines.com,. Our conservative opinion websites, collectively known as Townhall Media, include Townhall.com™, HotAir.com, Twitchy.com,HumanEvents.com, RedState.com, and BearingArms.com. We also issue digital newsletters, including Eagle Financial Publications, which provide marketanalysis and non-individualized investment strategies from financial commentators on a subscription basis. Church product websites including WorshipHouseMedia.com, SermonSpice.com, SermonSearch.com, and ChurchStaffing.com offer downloads and serviceplatforms to pastors and other educators. Our web content is accessible through all of our radio station websites that feature content of interest to localaudiences throughout the United States. Digital media includes our e-commerce sites, Eagle Wellness and Gene Smart Wellness. These e-commerce sites offer health advice and nutritional products. Our publishing operating segment is comprised of three businesses: (1) Regnery Publishing is a traditional book publisher that has published dozens ofbestselling books by leading conservative authors and personalities, including Ann Coulter, Newt Gingrich, David Limbaugh, Ed Klein, Mark Steyn andDinesh D'Souza; (2) Salem Author Services, our self-publishing services for authors through Xulon Press and Hillcrest Media; and (3) Salem Publishing™which produces and distributes five print magazines and one digital magazine. 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 of ourcash and 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. 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. 95Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Inventory Inventories consist of finished goods, including published books and wellness products. Inventory is recorded at the lower of cost or market as determined ona 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, as wellas our own experiences to estimate the fair value of inventory on hand. Our analysis includes a review of actual sales returns, our allowances, royalty reserves,overall economic conditions and product demand. We record a provision to expense the balance of unsold inventory that we believe to be unrecoverable. Weregularly monitor actual performance to our estimates and make adjustments as necessary. Estimated inventory reserves may be adjusted, either favorably orunfavorably, if factors such as the historical data we used to calculate these estimates do not properly reflect future returns or as a result of changes ineconomic conditions of the customer and/or the market. We have not modified our estimate methodology and we have not historically recognized significantlosses from changes in our estimates. We believe that our estimates and assumptions are reasonable and that our reserves are accurately reflected. 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, 2016 and 2015, respectively. Repair and maintenance costs are charged to expense asincurred. Improvements are capitalized if they extend the life of the asset or enhance the quality or ability of the asset to benefit operations. Depreciation iscomputed 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 useful life or remaining lease term 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 9 – Property and Equipment. 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 the FinancialAccounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350-40 “Internal-Use Software.” Capitalized costs are generallyamortized over the estimated useful life of three years. Costs incurred related to the conceptual design and maintenance of internal-use software are expensedas incurred. Website development activities include planning, design and development of graphics and content for new websites and operation of existingsites. Costs incurred that involve providing additional functions and features to the website are capitalized. Costs associated with website planning,maintenance, content development and training are expensed as incurred. We capitalized $2.3 million, $2.2 million and $3.9 million during the years endedDecember 31, 2016, 2015 and 2014, respectively, related to internally developed software and website development costs. Amortization expense of amountscapitalized was $2.5 million, $2.4 million and $2.4 million for the years ended December 31, 2016, 2015 and 2014, respectively. 96Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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 cash flowsof the underlying radio stations and businesses for indicators of impairment. In accordance with FASB ASC Topic 360 “Property, Plant and Equipment,”when indicators of impairment are present and the undiscounted cash flows estimated to be generated from these assets are less than the carrying amounts ofthese assets, an adjustment to reduce the carrying value to the fair market value of these assets is recorded, if necessary. During 2016, we recorded animpairment of approximately $8,000 associated with amortizable assets within our wellness products business. See Note 2 – Impairment of Goodwill andOther Non-Amortizable Assets and Note 10 – Amortizable Intangible Assets. No adjustments to the carrying amounts of our amortizable intangible assetswere necessary during the year’s ended December 31, 2015 or 2014. 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 weighted-average period before the next renewal of our broadcasting licenses is 4.5 years. We do not amortize broadcast licenses, but rather test for impairment annually or more frequently if events or circumstances indicate that the value may beimpaired. We perform our annual impairment testing during the fourth quarter of each year, which coincides with our budget and planning process for theupcoming year. The unit of accounting we use to test broadcast licenses is the cluster level, which we define as a group of radio stations operating in the same 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. The second step of our qualitative assessment consists of a review of the financial operating results for each market cluster. Radio stations are often sold onthe basis of a multiple of projected cash flow, or Station Operating Income (“SOI”) defined as net broadcast revenue less broadcast operating expenses. SeeItem 6 – Selected Financial Data within this annual report for information on SOI, a non-GAAP measure. Numerous trade organizations and analysts reviewthese radio station sales to track SOI multiples applicable to each transaction. Based on published reports and analysis of market transactions, we believeindustry 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. 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, 2016, 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 and 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 perform our annualimpairment testing during the fourth quarter of each year, which coincides with our budget and planning process for the upcoming year. 97Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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 stations operating inthe same geographic market, sharing the same building and equipment and managed by a single general manager. Nineteen of our 34 market clusters havegoodwill associated with them as of our annual testing period ending December 31, 2016. The unit of accounting we use to test goodwill in our radio networks is the entity level, which includes Salem Radio Network® (“SRN”), SRN News Network(“SNN”), Todays Christian Music (“TCM”) and Singing News Network (formerly Solid Gospel Network. The entity level is the level reviewed bymanagement for which discreet financial information is available. One of our five networks has goodwill associated with it as of our annual testing periodending December 31, 2016. 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, EagleFinancial Publications and wellness products. The financial statements for Salem Web Network reflect the operating results and cash flows for all of ourInternet sites and our church product sites exclusive of Townhall.com. The financial statements for Townhall.com reflect the operating results for each of ourconservative opinion sites. Eagle Wellness includes only the results of the e-commerce site for nutritional products. The unit of accounting we use to test goodwill in our publishing segment is the entity level, which includes Regnery Publishing, Xulon Press, and HillcrestMedia. Regnery Publishing is our book publishing entity based in Washington DC, with a stand-alone facility under one general manager, with operatingresults and cash flows of reported at the entity level. Xulon Press and Hillcrest Media also operate from a stand-alone facility in Orlando, Florida under onegeneral manager who is responsible for the separately stated operating results and cash flows. 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 of theassets in market cluster are less than their carrying values. We review the significant inputs used in our prior year fair value estimates to determine if anychanges to those inputs should be made. We estimate fair value using a market approach and compare the estimated fair value of a market cluster to itscarrying value, including goodwill. If the carrying amount, including goodwill, exceeds the estimated fair value of the market cluster, a potential indicationexists that the amount of goodwill attributed to that market cluster may be impaired. When performing Step 1 of our annual impairment testing of goodwill, the fair value of the entity is estimated using a discounted cash flow analysis, a formof the income approach. The discounted cash flow analysis utilizes a five to seven year projection period to derive operating cash flow projections from amarket participant view. We make certain assumptions regarding future revenue growth based on industry market data, historical performance and expectedfuture performance. We also make assumptions regarding working capital requirements and ongoing capital expenditures for fixed assets. Future net free cash flows are calculated on a debt free basis and discounted to present value using a risk adjusted discount rate. The terminal year value iscalculated 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 each reporting units’ net assets. We estimate the fair value using a market approach and compare the estimated fair value of each entity to its carrying value, including goodwill. Under themarket approach, we apply a multiple of four to each entities operating income to estimate the fair value. We believe that a multiple of four is a conservativeindicator of fair value as described above. If the carrying amount, including goodwill, exceeds the estimated fair value of the reporting unit, an indication exists that the amount of goodwill attributedto that 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. If the results of Step 1 indicate that the carrying value of a reporting unit exceeds its fair value, Step 2 is required. UnderStep 2, the implied fair value of the reporting unit, including goodwill, is calculated to determine the amount of the impairment. Other Indefinite-Lived Intangible Assets Mastheads consist of the graphic elements that identify our publications to readers and advertisers. These include customized typeset page headers, sectionheaders, and column graphics as well as other name and identity stylized elements within the body of each publication. We test the value of mastheads as asingle combined publishing entity as our print magazines operate from one shared facility under one general manager with operating results and cash flowsreported on a combined basis for all publications. This is the lowest level for which discrete financial information and cash flows are available and the levelreviewed by management to analyze operating results. 98Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Business 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 bargain purchase of $0.1 million for KXFN-AM in St. Louis, Missouri during the yearended December 31, 2016. During the year ended December 31, 2015 recorded a gain on bargain purchase of $1.4 million, including $0.8 million for 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 believe that thesegains on bargain purchase resulted from various factors that may have impacted the acquisition price, including, without limitation, that Disney was eager todivest of their Radio Disney properties in 2015 and the seller of WSDZ-AM was under a receivership. 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. See Note 4 – Acquisitions and Recent Transactions andNote 5 – Contingent Earn-Out Consideration. 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. 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 measurements as discussed in Note 12 to our consolidated financial statements. 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 5 – Contingent Earn-Out Consideration. 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 of stations,or other asset group is considered for sale or disposal, we review the transaction to determine if or when the entity qualifies as a discontinued operation inaccordance with the criteria of FASB ASC Topic 205-20 “Discontinued Operations.” In April 2014, the FASB issued authoritative guidance which raises thethreshold for disposals to qualify as discontinued operations. Under the new guidance, a discontinued operation is (1) a component of an entity or group ofcomponents 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 on an entity'soperations and financial results, or (2) an acquired business that is classified as held for sale on the acquisition date. We elected to early-adopt the FASBguidance 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 has beenobtained, services are performed, fees are fixed or determinable and collectability is reasonably assured. 99Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 account for broadcast revenue from the sale of airtime for programs or spots as the program or advertisement is broadcast. Revenues are reported net ofagency 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. Multiple-Deliverables We enter bundled advertising agreements that may include cross-promotions such as advertisements on our radio stations, digital banners, print magazineplacements, booth space at local events, or some combination thereof. The multiple deliverables contained in each agreement are accounted for separatelyover their respective delivery period provided that they are separate units of accounting. The selling price for each deliverable is based on vendor specificobjective evidence, if available, or the estimated fair value of each deliverable. Objective evidence of the fair value includes the price charged for eachelement 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. Sales Returns We provide for estimated returns for products sold with the right of return, primarily book sales associated with Regnery Publishing and nutritional productssold 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. Our estimatesare based upon historical sales returns, the amount of current period sales, economic trends and any changes in customer demand and acceptance of ourproducts. 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 expense equal tothe estimated fair value of the goods or services received upon receipt or usage of the items as applicable. Barter revenue included in broadcast revenue forthe years ended December 31, 2016, 2015 and 2014 was approximately $5.4 million, $6.1 million and $6.0 million, respectively. Barter expenses included inbroadcast operating expense for the years ended December 31, 2016, 2015 and 2014 were approximately $5.3 million, $5.9 million and $6.0 million,respectively. Barter revenue included in digital media revenue for the years ended December 31, 2016, 2015 and 2014 was approximately $42,000, $0.1million and $0.2 million, respectively. Barter expenses included in digital media operating expense for the years ended December 31, 2016, 2015 and 2014were approximately $34,000, $0.1 million and $0.1 million, respectively. 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 15 – Stock Incentive Plan. 100Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Advertising and Promotional Cost Costs of media advertising and associated production costs are expensed as incurred and amounted to approximately $12.3 million, $11.3 million and $11.5million for each of the years ending December 31, 2016, 2015 and 2014, respectively. Leases We lease broadcast towers, transmitter sites and office space throughout the United States. We review each lease agreement upon inception 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. Where leases includerent holidays, rent escalations, rent concessions and leasehold improvement incentives, the value of these incentives are amortized over the lease termincluding anticipated renewal periods. Rent expense, exclusive of intercompany leases eliminated during consolidation, was $15.3 million, $14.8 millionand $13.8 million, respectively, for each of the years ended December 31, 2016, 2015 and 2014. Deferred rental revenue was $4.3 million as of December 31, 2016 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 and depreciatedover the shorter of the estimated useful life of the improvement or the lease term including anticipated renewal periods. 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 certain stoploss limits. We record self-insurance liabilities based on actual claims filed and an estimate of those claims incurred but not reported. Our estimates are basedon historical data and probabilities that are subject to a high degree of variability due to unpredictable external factors such as future inflation rates, changesin severity, benefit level changes, medical costs and claim settlement patterns. Should the actual amount of claims increase or decrease beyond what wasanticipated, we may adjust our future reserves. Our self-insurance liability was $0.8 million and $0.7 million at December 31, 2016 and 2015, respectively.Changes in the number and/or the amount of claims could cause a material impact and volatility in our operating results. We have not modified our estimatemethodology and we have not historically recognized significant losses from changes in our estimates. While we had an unusually high level of claims in thethird quarter of 2016 due to a larger than normal number of expensive claims, we believe that our estimates and assumptions are reasonable and that ourreserves are accurately reflected. 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 as acash 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 $0.5 million as of December 31, 2016, 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 12 to our consolidated financial statements. As of December 31, 2015 As of December 31, 2016 (Dollars in thousands) Fair value of interest rate swap liability $798 $514 101Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Fair Value Measurements and Disclosures As of December 31, 2016, 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 12 – Fair Value Measurements and Disclosures. 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 terms ofour Credit Agreement and after considering our projected operating results and cash flows for the coming year, no principal payments are required to be madewithin the next twelve months. 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, which began on September 30, 2013; however, repayments may be made against the outstanding balance. Each repayment of the TermLoan B is applied ratably to each of the next four principal installments thereof in the direct order of maturity and thereafter to the remaining principalbalance in reverse 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. Deferred Financing Costs Deferred financing costs consists of underwriting and legal fees incurred in conjunction with entering our Term Loan B and Revolver. In April 2015, theFASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” that requires the cost of issuing debt to be recorded as a reduction of thedebt proceeds or a reduction of the debt liability, similar to the presentation of debt discounts. Prior to this ASU, debt issue costs were recorded as deferredcosts, or long-term intangible assets. In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance CostsAssociated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting” thatamended ASU 2015-03 to reflect the SEC staff’s position that it would not object to an entity deferring and presenting debt issuance costs related to line-of-credit arrangements as an asset and subsequently amortizing deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless ofwhether there are outstanding borrowings under that line-of-credit arrangement. We adopted ASU 2015-03, as amended by ASU 2015-15, as of the effective date of January 1, 2016. Debt issue costs are being amortized to non-cash interestexpense over the life of the Term Loan B using the effective interest method. We chose to continue presentation of debt issue costs associated with ourRevolver as an asset in accordance with ASU 2015-15. We have retrospectively accounted for the implementation of ASU 2015-03 and ASU 2015-15 as achange in accounting principle. Costs of the Revolver are being amortized to non-cash interest expense over the five year life of the Revolver using theeffective interest method based on an imputed interest rate of 4.58%. Income Tax Valuation Allowances (Deferred Taxes) We account for income taxes in accordance with FASB ASC Topic 740 “Income Taxes.” In preparing our consolidated financial statements, we estimate ourincome tax liability in each of the jurisdictions in which we operate by estimating our actual current tax exposure and assessing temporary differencesresulting from differing treatment of items for tax and financial statement purposes. We calculate our current and deferred tax provisions based on estimatesand assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returnsare generally recorded in the period when the tax returns are filed and the tax implications are known. Tax law and rate changes are reflected in the incometax provision in the period in which such changes are enacted. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider all availableevidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income andongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. In the event we were to determine that we would not beable to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period inwhich we make such a determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, wewould reverse the applicable portion of the previously provided valuation allowance. For financial reporting purposes, we recorded a valuation allowance of $4.5 million as of December 31, 2016 and $2.8 million as of December 31, 2015, tooffset a portion of the deferred tax assets related to the state net operating loss carryforwards. During the third quarter of 2016, we identified an error in ourestimated valuation allowance for certain deferred tax assets. We recorded an out-of-period adjustment to increase our valuation allowance by $1.6 millionfor a portion of the deferred tax assets related to state net operating loss carryforwards that we determined were not more likely than not to be realized. Webelieve that our estimates and assumptions are reasonable and that our reserves are accurately reflected. 102Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Income Taxes and Uncertain Tax Positions We are subject to audit and review by various taxing jurisdictions. We may recognize liabilities on our financial statements for positions taken on uncertaintax positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, whileothers may be subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of atax position is recognized in the financial statements in the period during which, based on all available evidence, we believe it is more likely than not thatthe position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Such positions are deemed to beunrecognized tax benefits and a corresponding liability is established on the balance sheet. It is inherently difficult and subjective to estimate such amounts,as this requires us to make estimates based on the various possible outcomes. We review and reevaluate uncertain tax positions on a quarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an additionalcharge to the tax provision. During 2016, we recognized a net decrease of $0.1 million in liabilities associated with uncertain tax positions. Accordingly, wehave no liabilities for uncertain tax positions recorded at December 31, 2016. The $0.1 million balance at December 31, 2015 included approximately$21,000 of accrued interest, net of federal income tax benefits, and $6,000 for the related penalties previously recorded in income tax expense. Ourevaluation was performed for all tax years that remain subject to examination, which range from 2012 through 2015. There are currently no tax examinationsin process. Effective Tax Rate Our provision for income tax as a percentage of operating income before taxes, or our effective tax rate, may be impacted by: (1)changes in the level of income in any of our taxing jurisdictions;(2)changes in statutes and rules applicable to taxable income in the jurisdictions in which we operate;(3)changes in the expected outcome of income tax audits;(4)changes in the estimate of expenses that are not deductible for tax purposes;(5)income taxes in certain states where the states’ current taxable income is dependent on factors other than consolidated net income;(6)the addition of operations in states that on average have different income tax rates from states in which we currently operate, and(7)the effect of previously reported temporary differences between the and financial reporting bases of assets and liabilities. Our annual effective tax rate may also be materially impacted by tax expense associated with non-amortizable assets such as broadcast licenses and goodwillas well as changes in the deferred tax valuation allowance. An impairment loss for financial statement purposes will result in an income tax benefit during theperiod incurred as the amortization of broadcasting licenses and goodwill is deductible for income tax purposes. Reserves for Royalty Advances Royalties due to book authors are paid in advance and capitalized. Royalties are expensed as the related book revenues are earned or when we determine thatfuture recovery of the royalty is not likely. We reviewed historical data associated with royalty advances, earnings and recoverability based on actual resultsof Regnery Publishing. Historically, the longer the unearned portion of an advance remains outstanding, the less likely it is that we will recover the advancethrough the sale of the book. We apply this historical experience to outstanding royalty advances to estimate the likelihood of recovery. A provision wasestablished to expense the balance of any unearned advance which we believe is not recoverable. Our analysis also considers other discrete factors, such asdeath 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. 103Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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 and haveoutcomes that are difficult to predict. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or the financial impactwith 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 14 – 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.” During the year ended December 31, 2016, we recorded a $1.9million pre-tax gain which included a $1.9 million gain on the sale of our Miami tower site and a $0.7 million gain from a land easement in our SouthCarolina market offset by a $0.4 million charge associated with leasehold improvements that were abandoned during the relocation of our offices inWashington D.C. market and various fixed asset disposals. During the year ended December 31, 2015, we recorded a $0.2 million pre-tax loss which includeda $0.2 million charge associated with the relocation of our office and studio in our Seattle, Washington market offset by proceeds from various fixed asset andequipment disposals. During the year ended December 31, 2014, we recorded a $0.3 million pre-tax loss which included a $0.2 million loss associated withthe 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 $0.1 million loss due to therelocation of our office and studio facility in our San Francisco market offset by $0.1 million of insurance proceeds from a claim associated with one of ourmarkets as well as other various fixed asset and equipment disposals. 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 during theperiod. Diluted net earnings per share is computed using the weighted average number of shares of Class A and Class B common stock outstanding during theperiod plus the dilutive effects of stock options. Options to purchase 1,720,000, 1,581,123 and 1,816,204 shares of Class A common stock were outstanding at December 31, 2016, 2015 and 2014,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, 2016, 2015 and 2014 was 795,378, 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, 2014 2015 2016 Weighted average shares 25,336,809 25,426,732 25,669,538 Effect of dilutive securities - stock options 744,366 461,087 365,452 Weighted average shares adjusted for dilutive securities 26,081,175 25,887,819 26,034,990 Segments We have three operating segments: (1) Broadcast, (2) Digital Media, and (3) Publishing, which also qualify as reportable segments. Our operating segmentsreflect how our chief operating decision makers, which we define as a collective group of senior executives, assesses the performance of each operatingsegment and determines the appropriate allocations of resources to each segment. We continually review our operating segment classifications to align withoperational changes in our business and may make changes as necessary. We measure and evaluate our operating segments based on operating income and operating expenses that do not include allocations of costs related tocorporate functions, such as accounting and finance, human resources, legal, tax and treasury, which are reported as unallocated corporate expenses in ourconsolidated statements of operations included in this annual report on Form 10-K. We also exclude costs such as amortization, depreciation, taxes andinterest expense. 104Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 third quarter of 2016, we reclassed Salem Consumer Products, our e-commerce business that sells books, DVD’s and editorial content developedby our on-air personalities, from our Digital Media segment to our Broadcast segment. This reclassification was to consolidate all revenue and expensesgenerated by on-air hosts, which includes broadcast programs and e-commerce product sales to better assess the financial performance of each networkprogram. This reclassification did not impact the reporting units used to test non-amortizable assets for impairment. All prior periods presented are updated toreflect this new composition of our operating segments. Refer to Note 20 – Segment Data in the notes to our consolidated financial statements. Variable Interest Entities We may enter into agreements or investments with other entities that could qualify as variable interest entities (“VIEs”) in accordance with FinancialAccounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 “Consolidation.” A VIE is consolidated in the financialstatements if we are deemed to be the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interests in the VIE,either explicitly or implicitly. A VIE is an entity for which the primary beneficiary’s interest in the entity can change with variations in factors other than theamount of investment in the entity. We perform our evaluation for VIE’s upon entry into the agreement or investment. We re-evaluate the VIE when or ifevents occur that could change the status of the VIE. We may enter into lease arrangements with entities controlled by our principal stockholders or other related parties. We believe that the requirements ofFASB ASC Topic 810 do not apply to these entities because the lease arrangements do not contain explicit guarantees of the residual value of the real estate,do not contain purchase options or similar provisions and the leases are at terms that do not vary materially from leases that would have been available withunaffiliated parties. Additionally, we do not have an equity interest in the entities controlled by our principal stockholders or other related parties and we donot guarantee debt of the entities controlled by our principal stockholders or other related parties. We also enter into Local Marketing Agreements (“LMAs”) or Time Brokerage Agreements (“TBAs”) contemporaneously with entering into an Asset PurchaseAgreement (“APA”) to acquire or sell a radio station. Typically, both LMAs and TBAs are contractual agreements under which the station owner/licenseemakes airtime available to a programmer/licensee in exchange for a fee and reimbursement of certain expenses. LMAs and TBAs are subject to compliancewith the antitrust laws and the communications laws, including the requirement that the licensee must maintain independent control over the station and, inparticular, its personnel, programming, and finances. The FCC has held that such agreements do not violate the communications laws as long as the licenseeof the station receiving programming from another station maintains ultimate responsibility for, and control over, station operations and otherwise ensurescompliance 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 each transaction.As of December 31, 2016, we did not have implicit or explicit arrangements that required consolidation under the guidance in FASB ASC Topic 810. Concentrations of Business Risks We derive a substantial part of our total revenues from the sale of advertising. For the years ended December 31, 2016, 2015 and 2014, 38.3%, 39.2% and40.0% of our total broadcast revenues, respectively, were generated from the sale of broadcast advertising. We are particularly dependent on revenue fromstations in the Los Angeles and Dallas markets, which generated 15.1% and 20.8% for the year ended December 31, 2016, 14.7% and 24.5% for the yearended December 31, 2015, and 14.3% and 24.0% for the year ended December 31, 2014. 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. 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. 105Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported inthe 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, other indefinite-lived intangible assets, and assets held for sale;·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 change asnew events occur, as more experience is acquired and as more information is obtained. We evaluate and update our assumptions and estimates on an ongoingbasis 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. These reclassifications include theadoption of FASB Accounting Standards Update (“ASU”) 2015-03 and ASU 2015-15 and the reclassification of Salem Consumer Products from e-commerce(digital) to broadcast. Under ASU 2015-03 and 2015-15, debt issuance costs, with the exception of costs associated with obtaining line-of-creditarrangements, are reported as a reduction of the debt liability rather than as a deferred cost asset. The adoption of ASU 2015-03 and ASU 2015-15 is reportedas a change in accounting principle and discussed in detail in Note 11 – Notes Payable. The reclassification of Salem Consumer Products, our e-commercebusiness that sells books, DVD’s and editorial content developed by our on-air personalities, was made to assess the performance of each network programbased on all revenue sources. Refer to Note 20 – Segment Data for an explanation of this reclassification. Out-of-Period Adjustment During the third quarter of 2016, we identified an error in our valuation allowance for certain deferred tax assets. We recorded an adjustment to increase ourestimated deferred tax valuation allowance by $1.6 million for a portion of the deferred tax assets related to state net operating loss carryforwards that wedetermined were not more likely than not to be realized. In evaluating the adjustment, we referred to the Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 99, including SAB Topic1.M, which provides guidance on the assessment of materiality and states that “the omission or misstatement of an item in a financial report is material if, inthe light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the reportwould have been changed or influenced by the inclusion or correction of the item.” We also referred to SAB 108 for guidance on considering the effects ofprior year misstatements when quantifying misstatements in current year financial statements and the assessment of materiality. Our analysis of the materiality of the adjustment was performed by reviewing quantitative and qualitative factors. We determined based on this analysis thatthe adjustment was not material to the current period and any prior periods. Recent Accounting Pronouncements Changes to accounting principles are established by the FASB in the form of ASUs to the FASB’s Codification. We consider the applicability and impact ofall ASUs on our financial position, results of operations, cash flows, or presentation thereof. Described below are ASUs that are not yet effective, but may beapplicable to our financial position, results of operations, cash flows, or presentation thereof. ASUs not listed below were assessed and determined to not beapplicable to our financial position, results of operations, cash flows, or presentation thereof. 106Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20), whichclarifies the scope and application of ASC Topic 610-20 on accounting for the sale or transfer of nonfinancial assets, that is an asset with physical value suchas real estate, equipment, intangibles or similar property. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017, and interim periodswithin those fiscal years. We have not yet evaluated the impact of the adoption of this accounting standard on our financial position, results of operations,cash flows, or presentation thereof. In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” whicheliminates the requirement to calculate the implied fair value of goodwill in Step 2 of the goodwill impairment test. Under ASU 2017-04, goodwillimpairment charges will be based on the excess of a reporting unit’s carrying amount over its fair value as determined in Step 1 of the testing. ASU 2017-04 iseffective for interim and annual testing dates after January 1, 2019, with early adoption permitted for interim and annual goodwill impairment testing datesafter January 1, 2017. We have not yet evaluated the impact of the adoption of this accounting standard on our financial position, results of operations, cashflows, or presentation thereof. In January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and JointVentures (Topic 323)” which amends the Codification to incorporate SEC staff views regarding recently issued accounting standards and investments inqualified affordable housing projects. The guidance requires registrants to disclose the effect that recently issued accounting standards will have on theirfinancial statements when adopted in a future period. ASU 2017-03 is effective for fiscal years beginning after December 15, 2019, and interim periods withinthose fiscal years with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We do notexpect the adoption of ASU 2017-03 to impact our financial position, results of operations, cash flows, or presentation thereof. In January 2017, the FASB issued ASU 2017-01, “Business Combinations – Clarifying the Definition of a Business,” which clarifies the definition of abusiness for determining whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 is effective for fiscalyears beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We do not expect the adoption of ASU2017-01 to have a material impact on our financial position, results of operations, cash flows, or presentation thereof. In December 2016, the FASB issued ASU 2016-19 “Technical Corrections and Improvements,” which covers a wide range of topics in the Codification. Theamendments in this update represent changes to clarify, correct errors, or make minor improvements to the Accounting Standards Codification. ASU 2016-19is effective upon issuance for amendments that do not have transition guidance, and for fiscal years beginning after December 15, 2016, and interim periodswithin those years for all other amendments with early adoption permitted. The adoption of ASU 2016-19 did not have a material impact on our financialposition, results of operations, cash flows, or presentation thereof. In November 2016, the FASB issued ASU 2016-18, “Statements of Cash Flows (Topic 230): Restricted Cash” which provides guidance on the presentation ofrestricted cash or restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, andinterim periods within those fiscal years. We do not expect the adoption of ASU 2016-18 to have a material impact on our cash flows or presentation thereof. In October 2016, the FASB issued ASU 2016-17, “Interests Held through Related Parties That Are under Common Control,” which amends the consolidationguidance in ASU 2015-02 regarding the treatment of indirect interests held through related parties that are under common control. The guidance is effectivefor fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. We do not expect theadoption of ASU 2016-17 to have a material impact on our financial position, results of operations, cash flows, or presentation thereof. In October 2016, the FASB issued ASU 2016-16 “Intra-Entity Transfers of Assets Other Than Inventory,” which modifies existing guidance for theaccounting for income tax consequences of intra-entity transfers of assets. This ASU requires entities to immediately recognize the tax consequences onintercompany asset transfers (excluding inventory) at the transaction date, rather than deferring the tax consequences under current GAAP. The guidance iseffective for fiscal years beginning after December 15, 2018, and interim reports within those fiscal years, with early adoption permitted only as of the firstquarter of a fiscal year. We do not expect the adoption of ASU 2016-16 to have a material impact on our financial position, results of operations, cash flows,or presentation thereof. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” whichclarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing diversity inpractice related to eight specific types of transactions. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periodswithin those fiscal years, with early adoption permitted. We do not expect the adoption of ASU 2016-15 to have a material impact on our financial cash flowsor presentation thereof. 107Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses,” which changes the impairment model for most financial assets andcertain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a newforward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances forlosses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that thelosses will be recognized as an allowance. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within thosefiscal years, with early adoption permitted. We have not yet evaluated the impact of the adoption of this accounting standard on our financial position,results of operations, cash flows, or presentation thereof. In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of theaccounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities andclassification on the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within thoseyears, with early adoption is permitted. We do not expect the adoption of ASU 2016-09 to have a material impact on our financial position, results ofoperations, 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 for allleases 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 guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlyadoption permitted. We have not yet determined the dollar impact of recording operating leases on our statement of financial position. The adoption of ASU2016-02 will have a material impact on our financial position and the presentation thereof. Our existing credit facility stipulates that our covenants are basedon GAAP as of the agreement date. Therefore, the material impact of recording right-to-use assets and lease liabilities on our statement of financial position isnot expected to impact the compliance status for any covenant. In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which provides updatedguidance that enhances the reporting model for financial instruments, including amendments, to address aspects of recognition, measurement, presentationand disclosure. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. With the exceptionof the early application guidance applicable to certain entities, early adoption of the amendments is not permitted. We have not yet evaluated the impact ofthe adoption of this accounting standard on 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 in thestatement of financial position. The updated guidance requires that deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet.Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts. The current requirement thatdeferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in thisASU. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption ispermitted. The adoption of ASU 2015-17 is not expected to have a material impact on our financial position, results of operations, cash flows, or presentationthereof. In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” to reduce the complexity in accounting for inventory. This ASUrequires 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, and interim periods within those fiscal years,with early adoption permitted. We do not expect the adoption of ASU 2015-11 to have a material impact on our financial position, results of operations, cashflows, or presentation thereof. 108Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 (Topic 606)” and issued subsequent amendments to the initialguidance in August 2015, March 2016, April 2016, May 2016 and December 2016, within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, andASU 2016-20 respectively (ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 collectively, “Topic 606”). Topic606 supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promisedgoods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenuerecognition process than are required under existing GAAP. These estimates include identifying performance obligations in the contract, estimating theamount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, amongothers. The guidance is effective for us as of January 2018, the first interim period within fiscal years beginning on or after December 15, 2017, using either oftwo methods: (1) retrospective application of Topic 606 to each prior reporting period presented with the option to elect certain practical expedients asdefined within Topic 606 or (2) retrospective application of Topic 606 with the cumulative effect of initially applying Topic 606 recognized at the date ofinitial application and providing certain additional disclosures as defined per Topic 606. We have developed a project plan for the implementation of ASC606 and all related ASU’s as of the effective date with further analysis planned during 2017 to complete the implementation plan. Based on our evaluation ofa sample of revenue contracts with customers against the requirements of the standard, we believe that the reporting of revenue as principal (gross) or agent(net) will impact our consolidated financial statements. We may sell advertising that includes placement on third party websites that we currently report on agross basis as principal due to having latitude in establishing the sales price and bearing credit risk. Under new guidance, we will report this revenue net asagent because the third party is primarily responsible for fulfilling the service. Preliminarily, we plan to adopt Topic 606 pursuant to the (1) retrospectiveapplication method of Topic 606 and we do not currently believe that there will be a material impact to our revenues upon adoption. We continue to evaluatethe impact of our pending adoption of Topic 606 and our preliminary assessments are subject to change. NOTE 2. IMPAIRMENT OF 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 thatrequires that we test for impairment at least annually or when events or circumstances indicates that they may be impaired. We do not amortize broadcastlicenses, but rather test for impairment annually or more frequently if events or circumstances indicate that the value may be impaired. We perform our annualimpairment testing during the fourth quarter of each year, which coincides with our budget and planning process for the upcoming year. Broadcast Licenses We perform a qualitative assessment for each of our broadcast market clusters annually. We review the significant assumptions and key estimates applicableto our prior year estimated fair value calculations to assess if events and circumstances have occurred that could affect these assumptions and key estimates.We also review internal benchmarks and the economic performance for each market cluster to assess if it is more likely than not that impairment exists. 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 eleven markets for which an independent third party fair value appraisal was obtained in the prior year, three markets were subject to testing in thecurrent year. The table below presents the percentage within a range by which our prior year start-up income estimated fair value exceeds the current yearcarrying value of our broadcasting licenses: Geographic Market Clusters as of December 31, 2016 Percentage Range By Which 2015 Estimated Fair Value Exceeds 2016 Carrying Value ≤ 25% >26%-50% >50% to 75% > than 75%Number of accounting units 3 4 1 3Broadcast license carrying value (in thousands) $108,374 $49,738 $27,878 $15,650 We performed a quantitative analysis for 22 of our market clusters for which we did not obtain an independent third party fair value appraisal during our prioryear annual testing period and 1 newly acquired market for which the fair value had been previously estimated as of the acquisition date during the prioryear. The second step of our qualitative assessment consists of a review of the financial operating results for each market cluster. Radio stations are often sold onthe basis of a multiple of projected cash flow, or Station Operating Income (“SOI”) defined as net broadcast revenue less broadcast operating expenses. SeeItem 6 – Selected Financial Data within this annual report for information on SOI, a non-GAAP measure. Numerous trade organizations and analysts reviewthese radio station sales to track SOI multiples applicable to each transaction. Based on published reports and analysis of market transactions, we believeindustry 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 anSOI multiple to estimate fair value, we did not identify additional markets for further testing. The table below shows the percentage within a range by which our estimated fair value exceeded the carrying value of our broadcasting licenses for thesetwenty three market clusters: Geographic Market Clusters as of December 31, 2016 Tested due to length of time from prior valuation – Percentage Range by Which PriorValuation Exceeds 2016 Carrying Value ≤ 25% >26%-50% >50% to 100% > than 100%Number of accounting units 13 4 2 4Broadcast license carrying value (in thousands) $166,107 $10,635 $9,904 $6,771 109Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 engaged Noble Financial, an independent third-party appraisal and valuation firm, to assist us in estimating the fair value of broadcast licenses in 25 ofour market clusters. The estimated fair value of each market cluster was determined using the Greenfield Method, a form of the income approach. The premiseof the Greenfield 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 historical financialperformance. The method then assumes the entity has to purchase, build, or rent all of the other assets needed to operate a comparable station to the one inwhich the FCC license is being utilized as of the valuation date. Cash flows are estimated and netted against all start-up costs, expenses and investmentsnecessary to achieve a normalized and mature state of operations, thus reflecting only the cash flows directly attributable to the FCC License. A multi-yeardiscounted cash flow approach is then used to determine the net present value of these cash flows to derive an indication of fair value. For cash flows beyondthe projection period, a terminal value is calculated using the Gordon constant growth model and long-term industry growth rate assumptions based on long-term industry growth and Gross Domestic Product (“GDP”) inflation rates. The primary assumptions used in the Greenfield Method are: (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 andassumptions used in the start-up income valuation for our broadcast licenses were as follows: Broadcast Licenses December 31, 2014 December 31, 2015 December 31, 2016Risk-adjusted discount rate 8.0% 8.0% 8.5%Operating profit margin ranges (13.9%) - 30.8% (13.9%) - 30.8% (13.9%) - 30.8%Long-term market revenue growth rate ranges 1.5% - 2.5% 2.0% 1.9% The risk-adjusted discount rate reflects the Weighted Average Cost of Capital (“WACC”) developed based on data from same or similar industry participantsand publicly available market data as of the measurement date. The increase in the WACC for the 2016 testing period as compared to 2015 was largelyattributable to increases in corporate borrowing interest rates during 2016 within the composite mix of industry participants considered in the analysis. Based on our review and analysis, we determined that the carrying value of broadcast licenses in four of our market clusters were deemed to be impaired as ofthe annual testing period ending December 31, 2016. We recorded an impairment charge of $6.5 million to the value of broadcast licenses in Cleveland,Dallas-Ft Worth, Detroit and Portland. There were no impairment charges during the testing periods ending December 31, 2015 or 2014. The impairmentcharge was driven by an increase in the WACC during the year ended December 31, 2016 as compared to the prior year. We believe that these trends areindicative of trends in the industry as a whole and not unique to our company or operations. The table below presents the results of our impairment testing under the income approach for the 2016 annual testing period. Markets with a negative excessfair value were impaired as of the balance sheet date with corresponding adjustments to the FCC license value recorded. Market Cluster Excess Fair Value2016 EstimateAtlanta, GA 6.6%Cleveland, OH (6.4%)Columbus, OH 47.1%Dallas, TX (1.0%)Denver, CO 765.2Detroit, MI (3.3%)Honolulu, HI 146.40%Houston, TX 1,103.4%Little Rock 345.4%Los Angeles, CA 390.7%Louisville, KY 14.6%Miami FL 29.1%Nashville, TN 193.0% 110Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 York, NY 466.5%Omaha NE 22.5%Philadelphia, PA 86.3%Phoenix, AZ 83.4%Pittsburgh, PA 348.4%Portland, OR (9.6%)San Antonio, TX 257.2%San Diego, CA 37.8%San Francisco, CA 21.8%Seattle, WA 309.6%St Louis 261.2%Washington, D.C. 107.2% Mastheads We regularly perform quantitative reviews of our mastheads due to the low margin by which our estimated fair values have exceeded our carrying value, andongoing operating results that have not met or exceeded our expectations. We engaged Noble Financial, an independent third-party appraisal firm, to assistus in estimating the fair value of our mastheads using a Relief from Royalty method, a form of the income approach. The Relief from Royalty method estimates the fair value of mastheads through use of a discounted cash flow model that incorporates a hypothetical “royaltyrate” 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 comparable assets asof 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 (terminal year)is based on estimated long-term industry growth rates. The analysis also incorporated the present value of the tax amortization benefit associated with themastheads. The key estimates and assumptions are as follows: Mastheads December 31, 2014 December 31, 2015 December 31, 2016Risk-adjusted discount rate 8.0% 8.0% 9.5%Projected revenue growth ranges (4.8%) – 1.4% 2.1% – 2.9% (4.3%) – 1.2%Royalty rate 3.0% 3.0% 3.0% The risk-adjusted discount rate reflects the WACC developed based on data from same or similar industry participants and publicly available market data asof the measurement date. The increase in the WACC for the 2016 testing period as compared to 2015 was largely attributable to increases in corporateborrowing interest rates during 2016 within the composite mix of industry participants considered in the analysis. Based on our review and analysis as of the December 2016 annual testing period, we recorded an impairment charge of $0.5 million associated with thecarrying value of mastheads. This impairment was driven by an increase in the WACC associated with the print magazine publishing business and declines inour forecasted revenue growth rates based on a continual erosion of operating results. The print magazine industry as a whole is impacted by the growth ofdigital-only publications, which are often free to readers or available at a significantly reduced cost to readers. We believe that the impairment is indicative oftrends in the magazine publishing industry as a whole and is not unique to our company or publications. Goodwill – Broadcast Radio Stations Nineteen of our broadcast markets had goodwill associated with them as of December 31, 2016. Based on our review, we tested eight of these market clustersfor impairment of goodwill during the annual testing period ending December 31, 2016. We engaged Noble Financial, an independent third-party appraisalfirm, to assist us in estimating the enterprise of value our market clusters for the purpose of testing goodwill for impairment. The key estimates and assumptions used for our enterprise valuations are as follows: December 31, 2014 December 31, 2015 December 31, 2016Enterprise Valuations Broadcast Markets Broadcast Markets Broadcast MarketsRisk-adjusted discount rate 8.0% 8.0% 8.5%Operating profit margin ranges 8.4% - 46.1% 49.7% (18.5%) – 43.3%Long-term revenue market growth rate ranges 1.0% - 5.0% 2.0% 1.9% The risk-adjusted discount rate reflects the WACC developed based on data from same or similar industry participants and publicly available market data asof the measurement date. The increase in the WACC for the 2016 testing period as compared to 2015 was largely attributable to increases in corporateborrowing interest rates during 2016 within the composite mix of industry participants considered in the analysis. 111Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, we determined that no impairment charges were necessary to the carrying value of our broadcast market goodwill as of theannual testing period ending December 31, 2016, December 31, 2015, and December 31, 2014, respectively and that Step 2 was not necessary. 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, 2016 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 6 7 Carrying value including goodwill (in thousands) 93,978 $27,714 $124,464 $71,270 Broadcast Market Clusters as of December 31, 2015 Percentage Range By Which Estimated Fair Value Exceeds Carrying Value Including Goodwill < 10% >10% to 20% >20% to 50% > than 50% Number of accounting units 3 3 2 11 Carrying value including goodwill (in thousands) $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 Including Goodwill < 10% >10% to 20% >20% to 50% > than 50% Number of accounting units 5 --- 2 7 Carrying value including goodwill (in thousands) $81,507 $--- $27,636 $84,693 Goodwill – Broadcast Networks TCM, one of our five networks has goodwill associated with it as of our annual testing period ending December 31, 2016. We identified operating losseswithin TCM that indicated that the value of goodwill may be impaired. We engaged Noble Financial, an independent third-party appraisal firm, to assist us inestimating the enterprise of value our networks for the purpose of testing goodwill for impairment. The key estimates and assumptions used for our enterprise valuations for each period tested are as follows: December 31, 2015 December 31, 2016Enterprise Valuations Broadcast Networks Broadcast NetworksRisk-adjusted discount rate 9.0% 9.5%Operating profit margin ranges (74.1) – (97.5%) 1.0% – 24.4%Long-term revenue market growth rates 2.0% 1.9% The risk-adjusted discount rate reflects the WACC developed based on data from same or similar industry participants and publicly available market data asof the measurement date. The increase in the WACC for the 2016 testing period as compared to 2015 was largely attributable to increases in corporateborrowing interest rates during 2016 within the composite mix of industry participants considered in the analysis. Based on this review and analysis, we determined that the fair value of the reporting unit was more than the carrying value. No impairment charges wererecorded and Step 2 was not necessary based on the results. We did not perform a sensitivity analysis for the current year certain key assumptions, as suchchanges in assumptions would have no impact on the carrying value of goodwill associated with our broadcast networks. Goodwill – Digital Media Five of our digital media businesses had goodwill associated with them as of our annual testing period ending December 31, 2016. We tested two of theseentities for impairment based on an excess carrying value of less than 25%. The key estimates and assumptions used in the valuation of our digital mediaentities for each testing period are as follows: Enterprise Valuation December 31, 2014 December 31, 2015 December 31, 2016Risk adjusted discount rate 8.0% 8.0% - 9.0% 8.5% - 9.5%Operating profit margin ranges (7.4%) - 34.9% (8.9%) - 13.8% (20.3%) - 8.2%Long-term revenue market growth rate ranges 2.50% 2.0 - 3.0% 1.9% - 2.5% 112Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 risk-adjusted discount rate reflects the WACC developed based on data from same or similar industry participants and publicly available market data asof the measurement date. The increase in the WACC for the 2016 testing period as compared to 2015 was largely attributable to increases in the risk free rateand corporate borrowing interest rates during 2016 as compared to the prior year. We engaged Noble Financial, an independent third-party appraisal firm, to assist us in estimating the enterprise of value these digital media businesses for thepurpose of testing goodwill for impairment. Based on our review and analysis, we determined that the carrying value of our wellness business exceeded itsfair value and Step 2 was necessary. Under Step 2, the implied fair value of the reporting unit, including goodwill, was estimated to determine the amount ofthe impairment. We recorded an impairment charge of $32,000 to the carrying value of goodwill and an impairment charge of approximately $8,000 toamortizable intangible assets. These impairment charges resulted from reductions in revenue forecasts for this business unit due to actual operating results todate that have not met expectations. 113Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, 2016 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 1 1 Carrying value including goodwill (in thousands) $811 $3,910 $28,285 $941 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 (in thousands) $4,488 $− $ $29,126 Digital Media Entities as of December 31, 2014 Percentage Range By Which Estimated Fair Value Exceeds Carrying Value Including Goodwill < 10% >10% to 20% >20% to 50% > than 50% Number of accounting units 1 1 1 1 Carrying value including goodwill (in thousands) $4,649 $6,118 $385 $26,101 Goodwill – Publishing Two of our publishing entities had goodwill associated with them as of the annual testing period ending December 31, 2016. Based on actual operatingresults that did not meet our annual projections, we engaged Noble Financial, an independent third-party appraisal firm to assist us with estimating theenterprise value of one of these entities for the purpose of testing goodwill for impairment. The enterprise valuation assumes that the subject assets areinstalled 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 December 31,2014 December 31,2014 December 31, 2016 Risk adjusted discount rate 8.0% 8.0% 8.5% Operating margin ranges 2.4% - 5.9% 4.2% – 6.2% 3.5% – 5.7% Long-term revenue market growth rates 1.5% 2.0% 1.9% The risk-adjusted discount rate reflects the WACC developed based on data from same or similar industry participants and publicly available market data asof the measurement date. The increase in the WACC for the 2016 testing period as compared to 2015 was largely attributable to increases in corporateborrowing interest rates during 2016 within the composite mix of industry participants considered in the analysis. Based on our review and analysis of the enterprise estimated fair value, we determined that no impairment charges were necessary to the carrying value ofgoodwill associated with our publishing entities as of the annual testing period ending December 31, 2016 and that Step 2 was not necessary. 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, 2016 Percentage Range By Which Estimated Fair Value Exceeds CarryingValue Including Goodwill < 10% >10% to 20% >20% to 50% > than 50% Number of accounting units 2 – – – Carrying value including goodwill (in thousands) $1,360 $– $– $– 114Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Publishing Accounting units as of December 31, 2015 Percentage Range By Which Estimated Fair Value Exceeds Carrying ValueIncluding Goodwill < 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 ValueIncluding Goodwill < 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 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 are highly judgmental in nature. Actual results can be materially different from estimates and assumptions. If actual marketconditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fairvalue of our indefinite-lived intangible assets below the amounts reflected on our balance sheet, we may recognize future impairment charges, the amount ofwhich may be material. NOTE 3. 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 our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. Ourreview requires us to estimate the fair value of assets when events or circumstances indicate that they may be impaired. The fair value measurements for ourlong-lived assets use significant observable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fairvalue including assumptions about risk. If actual future results are less favorable than the assumptions and estimates we used, we are subject to futureimpairment charges, the amount of which may be material. Based on changes in management’s planned usage, we classified land in Covina, California as held for sale as of June 2012. At that time, we evaluated theland for impairment in accordance with guidance for impairment of long-lived assets held for sale. We determined that the carrying value of the landexceeded the estimated fair value less costs to sell and recorded an impairment charge of $5.6 million associated with the land based on our estimated saleprice at that time. In December 2012, after several purchase offers for the land were terminated, we obtained a third-party valuation for the land. Based on thefair value determined by the third-party, we recorded an additional impairment charge of $1.2 million associated with the land. While we continue to marketthe land for sale and have no intention to use the land in our operations, we have not received successful offers. Based on the amount of time that the land hasbeen held for sale, we obtained a third-party valuation for the land as of June 2016. Based on this fair value appraisal, we recorded an additional $0.7 millionimpairment charge associated with the land during the period ending June 30, 2016. The table below presents the fair value measurements used to value this asset. Fair Value Measurements Using: (Dollars in thousands) Description As of December31, 2016 Quoted prices inactive markets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservableInputs (Level 3) Total Loss Long-Lived Asset Held for Sale $1,000 $1,000 $(700) NOTE 4. ACQUISITIONS AND RECENT TRANSACTIONS During the year ended December 31, 2016, we completed or entered into the following transactions: Debt On December 30, 2016, we paid $5.0 million in principal on our term loan of $300.0 million (“Term Loan B”), and paid interest due as of that date. Werecorded a $12,000 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and $33,000 in bank loan fees associated withthis principal prepayment. 115Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 30, 2016, we paid $1.0 million in principal on our Term Loan B, and paid interest due as of that date. We recorded a $2,500 pre-tax loss on theearly retirement of long-term debt related to the unamortized discount and $6,900 in bank loan fees associated with this principal prepayment. On September 30, 2016, we paid $2.3 million in principal on our Term Loan B, of which $1.5 million was an early prepayment of principal, and paid interestdue as of that date. We recorded a $3,900 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and $14,000 in bank loanfees associated with this principal prepayment. On June 30, 2016, we paid $1.2 million in principal on our Term Loan B, of which $0.4 million was an early prepayment of principal, and paid interest due asof that date. We recorded a $1,300 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and $3,400 in bank loan feesassociated with this principal prepayment. On March 31, 2016, we paid the quarterly installment due of $0.8 million in principal on our Term Loan B and paid interest due as of that date. On March 17, 2016, we paid $0.8 million in principal on our Term Loan B and paid interest due as of that date. We recorded a $2,500 pre-tax loss on theearly retirement of long-term debt related to the unamortized discount and $6,700 in bank loan fees associated with this principal repayment. Equity On December 7, 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 of $1.7 million was paid on December 31, 2016 to all Class A and Class B common stockholders of record as of December 19, 2016. On September 9, 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 of $1.7 million was paid on September 30, 2016 to all Class A and Class B common stockholders of record as of September 19, 2016. On June 2, 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 of $1.6 million was paid on June 30, 2016 to all Class A and Class B common stockholders of record as of June 16, 2016. 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 of $1.7 million was paid on April 5, 2016 to all Class A and Class B common stockholders of record as of March 22, 2016. Acquisitions — Broadcast We acquired or entered agreements to acquire several FM Translators or FM Translator construction permits during the year. The FCC permits AM and FMradio stations to operate FM Translators. The FCC began an AM Revitalization program, or “AMR,” that included several initiatives intended to benefit AMbroadcasters. One of these benefits, intended to promote the use of FM Translators by AM broadcasters, allows an AM station to relocate one FM translator upto 250 miles from its authorized site and operate the translator on any non-reserved band FM channel in the AM station’s market, subject to coverage andinterference rules (“250 Mile Window”). On February 23, 2017, the FCC amended its rules to allow an AM station using a rebroadcasting FM translator tolocate the FM translator anywhere within the AM station’s daytime service contour or anywhere within a 25-mile radius of the transmitter, even if the contourextends farther than 25 miles from the transmitter. This rule change, when it becomes effective, will be particularly useful for finding a location for thesetranslators. On January 29, 2016, the FCC opened a one-time only 250 Mile Window during which only Class C and Class D AM broadcast stations could participate.This window closed on July 28, 2016. A second window opened on July 29, 2016, allowing Class A and Class B AM broadcast stations to participate inaddition to any Class C and Class D AM broadcast station that did not participate in the first 250 Mile Window. The second 250 Mile Window closed onOctober 31, 2016. During these filing windows, qualifying AM stations were able to apply for one new FM translator station, in the non-reserved FM band tobe used solely to re-broadcast the AM station’s AM signal to provide fill-in and/or nighttime service. The FM translator must rebroadcast the related AMstation for at least four years, not counting any periods of silence. Construction permits provide authority to construct new FM Translators or make changes in existing facilities. We believe that securing these FM Translatorsallows us to increase our listening audience by providing enhanced coverage and reach of our existing AM broadcasts that can be heard on FM or expand thelistenership of FM HD channels with the potential to create new stations using the HD-2, HD-3 and HD-4 channel capacity. Our 2016 broadcast acquisitions include the following: On December 31, 2016, we closed on the acquisition of an FM translator in Aurora, Florida for $50,000 in cash. The FM translator will be used byour WHIM-AM radio station in Miami, Florida. On December 31, 2016, we closed on the acquisition of an FM translator in Port St. Lucie, Florida for $50,000 in cash. The FM translator will beused by our WLCC-AM radio station in Tampa, Florida. On December 14, 2016, we closed on the acquisition of an FM translator in Rhinelander, Wisconsin for $50,000 in cash. The FM translator will beused by our WWTC-AM radio station in Minneapolis, Minnesota. 116Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 December 8, 2016, we closed on the acquisition of an FM translator in Little Fish Lake Valley, California for $44,000 in cash. The FM translatorwill be used by our KFIA-AM radio station in Sacramento, California. On December 1, 2016, we closed on the acquisition of an FM translator in Lake Placid, Florida for $35,000 in cash. The FM translator will be usedby our WTLN-AM radio station in Orlando, Florida. On November 22, 2016, we closed on the acquisition of two FM translator construction permits in Lahaina, Hawaii and Kihei, Hawaii for $110,000in cash. The FM translators will be used by our KHNR-AM and KGU-AM radio stations in Honolulu, Hawaii. On November 22, 2016, we closed on the acquisition of an FM translator in Crested Butte, Colorado for $38,500 in cash. The FM translator will beused by our KZNT-AM radio station in Colorado Springs, Colorado. On November 21, 2016, we closed on the acquisition of an FM translator in Dansville, New York for $75,000 in cash. The FM translator will be usedby our WMCA-AM radio station in New York, New York. On November 21, 2016, we closed on the acquisition of an FM translator in Carbondale, Pennsylvania for $75,000 in cash. The FM translator will beused by our WPGP-AM radio station in Pittsburgh, Pennsylvania. On November 11, 2016, we closed on the acquisition of an FM translator construction permit in Kingsville, Texas for $50,000 in cash. The FMtranslator will be used by our KNTH-AM radio station in Houston, Texas. On November 7, 2016, we closed on the acquisition of an FM translator in Sebring, Florida for $77,000 in cash. The FM translator will be used byour WKAT-AM radio station in Miami, Florida. On October 20, 2016, we closed on the acquisition of radio station KXFN-AM in St. Louis, Missouri for $190,000 in cash. The station was dark uponclosing and launched on December 29, 2016. The accompanying consolidated statements of operations included in this annual report on Form 10-Kreflect the operating results of this entity as of the closing date and launch date, respectively. On October 20, 2016, we closed on the acquisition of three FM translator construction permits for $155,000 in cash. The FM translator constructionpermits were based in Angola, Indiana, Cofax, Indiana and Battle Creek, Michigan and will be used by WHK-AM and WHKW-AM, our radiostations in Cleveland, Ohio and WSDZ-AM our radio station in St. Louis, Missouri. On October 19, 2016, we closed on the acquisition of an FM translator construction permit in Palm Coast, Florida for $65,000 in cash from a relatedparty. The FM translator will be used by our WTWD-AM radio station in Tampa, Florida. On October 12, 2016, we closed on the acquisition of an FM translator in Lake City, Florida for $65,000 in cash from a related party. The FMtranslator will be used by our WBZW-AM radio station in Orlando, Florida. On June 24, 2016, we entered into an LMA to operate radio station KTRB-AM in San Francisco, California beginning on July 1, 2016. Theaccompanying consolidated statements of operations included in this annual report on Form 10-K reflect the operating results of this entity as of theLMA date. On December 15, 2016, we entered into a new LMA to operate this station with East Bay Broadcasting, LLC, a related party. On June 20, 2016, we closed on the acquisition of an FM translator in Columbus, Ohio market for $0.3 million in cash. The FM translator is used inour Columbus, Ohio market. On June 10, 2016, we closed on the acquisition of an FM translator in Amherst, New York for $60,000 in cash. The FM translator is used in ourPittsburgh, Pennsylvania market. On June 8, 2016, we closed on the acquisition of a construction permit for an FM translator construction permit in Charlotte, Michigan for $50,000in cash. The FM translator will be used in our Detroit, Michigan market. On June 3, 2016, we closed on the acquisition of a construction permit for an FM translator in Atwood, Kentucky for $88,000 in cash. The FMtranslator will be used in our Columbus, Ohio market. On May 13, 2016, we closed on the acquisition of a construction permit for an FM translator in Kerrville, Texas for $50,000 in cash. The FMtranslator will be used in our Houston, Texas market. On May 2, 2016, we closed on the acquisition of an FM translator in Lincoln, Maine for $100,000 in cash. The FM translator is used in our Boston,Massachusetts market. On April 29, 2016, we closed on the acquisition of a construction permit for an FM translator in Emporia, Kansas for $25,000 in cash. The FMtranslator will be relocated to Omaha, Nebraska, for use by our KCRO-AM radio station. 117Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 — Digital Media On December 1, 2016, we acquired ChristianConcertAlerts.com for $0.2 million, of which $0.1 million was paid in cash upon close with the remaining$50,000 being due in two installments within the next year. ChristianConcertAlerts.com provides Christian artists’ tour dates and events across the UnitedStates. The website features a location-based calendar that includes over 300 artists and 4,000 venues created by editors and user submissions, as well as artistreviews and album news. On October 17, 2016, we purchased Historyonthenet.com and Authentichistory.com for $0.1 million. These websites and related social media accounts areoperated within our Salem Web Network platform. On September 13, 2016, we acquired Mike Turner’s line of investment products, including TurnerTrends.com, other domain names and related assets for $0.4million in cash and the assumption of $0.1 million in deferred subscription liabilities. As part of the purchase agreement, we may pay up to an additional $0.1million in contingent earn-out consideration over the next twelve months based on the achievement of certain revenue benchmarks. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of Turner’s investment products to achieve the revenue targets at thetime of closing, we estimated the fair value of the contingent earn-out consideration to be $66,000, which approximates the discounted present value due tothe earn-out of less than one year. Turner’s investment products offer stock trading advisory newsletters to individual subscribers. We recorded goodwill ofapproximately $7,200 associated with the expected synergies to be realized upon combining the operations of Turner’s line of investment products into ourdigital media platform with Eagle Financial Publications and from brand loyalty from its existing subscriber base that is not a separately identifiableintangible asset. On April 1, 2016, we acquired the Retirement Watch newsletter and websites for $0.1 million in cash and the assumption of $0.6 million in deferredsubscription liabilities. Retirement Watch offers non-individualized research and strategies associated with retirement planning. We recorded goodwill ofapproximately $8,600 associated with the expected synergies to be realized upon combining the operations of Retirement Watch into our digital mediaplatform and brand loyalty from its existing subscriber base that is not a separately identifiable intangible asset. On March 8, 2016, we acquired King James Bible mobile applications for $4.0 million, of which $2.7 million was paid in cash upon close and $1.3 million isdue in deferred installments within one year from the closing date. The deferred installments were amended on May 17, 2016 to include the $0.3 million thatwas due upon finalization of banking arrangements with the deferred installments. The amended deferred payments of $1.3 million now consist of $0.6million due within 90 days, $0.3 million due within 180 days and two deferred payments of $0.2 million each due 270 and 360 days from the closing date,respectively. During the year ended December 31, 2016, we have paid $1.1 million in installments. We recorded goodwill of $0.2 million associated with theexpected synergies to be realized from combining the operations of these applications into our existing digital media platform. The accompanyingconsolidated statement of operations reflects the operating results of King James Bible mobile applications as of the closing date within our digital mediaoperating segment. Throughout the year ended December 31, 2016, we acquired other domain names and assets associated within our digital media operating segment forapproximately $3,000 in cash. Acquisitions — Publishing On August 1, 2016, we acquired the assets of Hillcrest Media Group, Inc. for $3.5 million and the assumption of $1.0 million in deferred revenue liabilities.We paid $3.3 million in cash upon close with the remaining $0.2 million due within 90 days upon the finalization of deferred revenue obligations. HillcrestMedia provides self-publishing services for general market authors and will be operated within our existing Xulon Press business. We recorded goodwill ofapproximately $0.8 million associated with the expected synergies to be realized upon combining the operations of Hillcrest Media into our existingpublishing platform and brand loyalty from its existing subscriber base that is not a separately identifiable intangible asset. Throughout the year ended December 31, 2016, we acquired other domain names and assets associated within our publishing operating segment forapproximately $3,000 in cash. 118Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. A summary of our business acquisitions and asset purchases during the year ended December 31, 2016, 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 Consideration (Dollars in thousands) December 31, 2016 FM translator, Aurora, Florida (asset purchase) $50 December 31, 2016 FM translator, Port St. Lucie, Florida (asset purchase) 50 December 14, 2016 FM translator, Rhinelander, Wisconsin (asset purchase) 50 December 8, 2016 FM translator, Little Fish Lake Valley, California (asset purchase) 44 December 1, 2016 FM translator, Lake Placid, Florida (asset purchase) 35 December 1, 2016 Christian Concerts Alerts, LLC (asset purchase) 150 November 22, 2016 FM translator construction permit, Kihei, Hawaii (asset purchase) 55 November 22, 2016 FM translator construction permit, Lahaina, Hawaii (asset purchase) 55 November 22, 2016 FM translator, Crested Butte, Colorado (asset purchase) 39 November 21, 2016 FM translator, Dansville, New York (asset purchase) 75 November 21, 2016 FM translator, Carbondale, Pennsylvania (asset purchase) 75 November 11, 2016 FM translator construction permit, Kingsville, Texas (asset purchase) 50 November 7, 2016 FM translator, Sebring, Florida (asset purchase) 77 October 20, 2016 KXFN-AM, St. Louis, Missouri (business acquisition) 190 October 20, 2016 FM translator construction permit, Angola, Indiana (asset purchase) 50 October 20, 2016 FM translator construction permit, Cofax, Indiana (asset purchase) 55 October 20, 2016 FM translator construction permit, Battle Creek, Michigan (asset purchase) 50 October 19, 2016 FM translator construction permit Palm Coast, Florida purchased from a related party (asset purchase) 65 October 17, 2016 Historyonthenet.com and Authentichistory.com (asset purchase) 85 October 12, 2016 FM translator Lake City, Florida purchased from a related party (asset purchase) 65 September 13, 2016 Mike Turner’s investment products and domain names (business acquisition) 416 August 1, 2016 Hillcrest Media Group, Inc. (business acquisition) 3,515 June 20, 2016 FM translator, Columbus, Ohio (asset purchase) 345 June 10, 2016 FM translator, Amherst, New York (asset purchase) 60 June 8, 2016 FM translator construction permit, Charlotte, Michigan (asset purchase) 50 June 3, 2016 FM translator construction permit, Atwood, Kentucky (asset purchase) 88 May 13, 2016 FM translator construction permit, Kerrville, Texas (asset purchase) 50 May 2, 2016 FM translator, Lincoln, Maine (asset purchase) 100 April 29, 2016 FM translator construction permit, Emporia, Kansas (asset purchase) 25 April 1, 2016 Retirement Watch (business acquisition) 100 March 8, 2016 King James Bible mobile applications (business acquisition) 4,000 Various Purchase of other domain names and assets (asset purchases) 6 $10,120 The operating results of our business acquisitions and asset purchases are included in our consolidated results of operations from their respective closing dateor 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. Estimates of the fair value include discounted estimated cash flows to be generated by the assets and their expected useful lives based on historicalexperience, market trends and any synergies believed to be achieved from the acquisition. Acquisitions may include contingent consideration, the fair valueof which is estimated as of the acquisition date as the present value of the expected contingent payments as determined using weighted probabilities of thepayment amounts. 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 valuationand appraisal process, the third-party appraiser prepares a report assigning estimated fair values to the various asset categories in our financial statements.These fair value estimates are subjective in nature and require careful consideration and judgment. Management reviews the third party reports forreasonableness of the assigned values. We believe that these valuations and analysis provide appropriate estimates of the fair value for the net assets acquired as of the acquisition date. Theseinitial valuations are subject to refinement during the measurement period, which may be up to one year from the acquisition date. During this measurementperiod we may retroactively record adjustments to the net assets acquired based on additional information obtained for items that existed as of the acquisitiondate. Upon the conclusion of the measurement period any adjustments are reflected in our consolidated statements of operations. We have not to daterecorded adjustments to our estimated fair values used in our acquisition consideration during or after the measurement period. Property and equipment are recorded at the estimated fair value and depreciated on a straight-line basis over their estimated useful lives. Finite-livedintangible assets are recorded at their estimated fair value and amortized on a straight-line basis over their estimated useful lives. Goodwill, which representsthe organizational systems and procedures in place to ensure the effective operation of the entity, may also be recorded and tested for impairment. Costsassociated with acquisitions, such as consulting and legal fees, are expensed as incurred in corporate operating expenses. We recognized total costsassociated with acquisitions of $0.5 million during the year ended December 31, 2016 compared to $0.3 million during the prior year, which are included inunallocated corporate expenses in the accompanying consolidated statements of operations. 119Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 fair value of any deferred payments and promissory notes, and the presentvalue of any estimated contingent earn-out consideration. We estimate the fair value of contingent earn-out consideration using a probability-weighteddiscounted cash flow model. The fair value measurement is based on significant inputs that are not observable in the market and thus represent a Level 3measurement as defined in Note 12 - Fair Value Measurements. The following table summarizes the total acquisition consideration for the year ended December 31, 2016: Description Total Consideration (Dollars in thousands) Cash payments made upon closing $8,414 Deferred payments 1,640 Present value of estimated fair value of contingent earn-out consideration 66 Total acquisition consideration $10,120 Gain on bargain purchase 95 Fair value of net assets acquired $10,215 The fair value of the net assets acquired was allocated as follows: Net Broadcast Net Digital Media Net Publishing Net Total Assets Acquired Assets Acquired Assets Acquired Assets Acquired (Dollars in thousands) Assets Trade accounts receivable, net of allowances of $42 $— $— $166 $166 Property and equipment 224 405 271 900 Broadcast licenses 1,719 — — 1,719 Goodwill — 237 845 1,082 Domain and brand names — 1,129 2,121 3,250 Customer lists and contracts — 2,576 — 2,576 Subscriber base and lists — 675 — 675 Author relationships — — 526 526 Non-compete agreements — 289 716 1,005 Liabilities Deferred revenue — (642) (1,042) (1,684) $1,943 $4,669 $3,603 $10,215 Divestitures In November 2016, we entered into an agreement with Word Broadcasting Network to transfer the operation of our Louisville radio stations (WFIA-AM;WFIA-FM; WGTK-AM) under a twenty-four month Time Brokerage Agreement (“TBA”) effective as of January 3, 2017. We collected $0.5 million of cashfrom Word Broadcasting Network associated with an option for them to purchase these stations. On September 1, 2016, we received $0.7 million in cash associated with a land easement granted in our South Carolina market. On June 10, 2016, we received $2.5 million in cash from the National Park Service in exchange for its claim under eminent domain for our tower site inMiami, Florida. We recognized a pre-tax gain of $1.9 million from this claim that is reported in (gain) loss on the sale or disposal of assets and we entered alimited terms of use agreement with the National Park Service to broadcast from the tower site for the next twenty years for a nominal fee. Pending Transactions We are programming radio station KHTE-FM, Little Rock, Arkansas, under a 36 month TBA that began on April 1, 2015. The TBA is extendable for up to 48months. We have the option to acquire the station for $1.2 million in cash during the TBA period. The accompanying consolidated statements of operationsincluded in this annual report on Form 10-K reflect the operating results of this entity as of the TBA date. FM translators or FM translator construction permits purchase agreements pending as of the year ended December 31, 2016, include the following: Date APAEntered Permit orID Authorized Site - Current PurchasePrice EscrowDeposits Date Closed Market (Dollars in thousands) 7/25/2016 K283CA Festus, Missouri * 40 8 - St. Louis, Missouri7/26/2016 K294CP Roseburg, Oregon * 45 9 3/01/2017 Portland, Oregon7/26/2016 K276FZ Eaglemount, Washington * 40 8 - Portland, Oregon8/25/2016 K278BH Astoria, Oregon 33 7 1/16/2017 Seattle, Washington9/22/2016 K260CG Mohave Valley, Arizona* 20 2 1/6/2017 Phoenix, Arizona10/07/2016 K279CM Quartz Site, Arizona * 20 2 - To be determined* Indicates that the purchase is for an FM translator construction permit. 120Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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 (“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 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. The equitydistribution 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. 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. The equitydistribution 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 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 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 $9,000attributable 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 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. 121Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 October 1, 2015, we acquired radio station KKSP-FM in Little Rock, Arkansas for $1.5 million in cash. We recorded goodwill of approximately $16,000associated with the going concern value of this radio station and expected synergies to be realized from combining the operations of this station into ourexisting 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. 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. We recordedgoodwill 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 complementary to ourEagle 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 recorded goodwill ofapproximately $5,000 attributable to the additional audience reach obtained and the expected synergies to be realized when combining the operations of thisstation into our existing cluster in this market. The accompanying consolidated statements of operations reflect the operating results of this station as of theclosing 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. Under termsof 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 5. 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. 122Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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 as ofDecember 10, 2014. We recorded goodwill of approximately $3,000 attributable to the additional audience reach obtained and the expected synergies to berealized 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. On February 6, 2015, we acquired Bryan Perry’s Cash Machine and Bryan Perry’s Premium Income financial publications (“Bryan Perry Newsletters”) withassets 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 5. 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 Consideration (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 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 due 2016 176 Present value of estimated fair value contingent earn out consideration due 2017 124 Total acquisition consideration $17,271 Gain on bargain purchase 1,357 Fair value of net assets acquired $18,628 123Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 net assets acquired was allocated as follows: Net BroadcastAssets Acquired Net Digital MediaAssets 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 NOTE 5. 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 seller upon theachievement of certain benchmarks. The fair value of the contingent earn-out consideration is estimated as of the acquisition date at the present value of theexpected contingent payments to be made using a probability-weighted discounted cash flow model for probabilities of possible future payments. Thepresent value of the expected future payouts is accreted to interest expense over the earn-out period. The fair value estimates use unobservable inputs thatreflect our own assumptions as to the ability of the acquired business to meet the targeted benchmarks and discount rates used in the calculations. Theunobservable inputs are defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” as Level 3 inputs discussed in detail in Note 12. 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. Turner Investment Products We acquired Mike Turner’s line of investment products, including TurnerTrends.com and other domain names and related assets on September 13, 2016. Wepaid $0.4 million in cash upon closing and may pay up to an additional $0.1 million in contingent earn-out consideration payable over the next twelvemonths based on the achievement of certain revenue benchmarks. Using a probability-weighted discounted cash flow model based on our own assumptionsas to the ability of Turner’s investment products to achieve the revenue targets at the time of closing, we estimated the fair value of the contingent earn-outconsideration to be $66,000, which approximates the discounted present value due to the earn-out of less than one year. The discount is being accreted tointerest expense over the one-year earn-out period. We believe that our experience with digital subscriptions and websites provides a reasonable basis for ourestimates. We review the fair value of the contingent earn-out consideration quarterly over the earn-out period to compare actual subscriber revenues achieved andprojected to the estimated subscriber revenues used in our forecasts. Any changes in the estimated fair value of the contingent earn-out consideration will bereflected in our results of operations in the period they are identified, up to the maximum future value outstanding under the contract of $0.1 million. Duringthe period ending December 31, 2016, we recorded a net decrease of $18,000 in the estimated fair value of the contingent earn-out consideration that isreflected in our results of operations for this period. Daily Bible Devotion We acquired Daily Bible Devotion mobile applications on May 6, 2015. We paid $1.1 million in cash upon closing and may pay up to an additional $0.3million in contingent earn-out consideration payable over the next two years based upon on the achievement of cumulative session benchmarks for eachmobile application. Using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of Bible DevotionalApplications to achieve the session benchmarks at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $165,000,which was recorded at the discounted present value of $142,000. The discount is being accreted to interest expense over the two-year earn-out period. Webelieve that our experience with digital mobile applications and websites provides a reasonable basis for our estimates. 124Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 fair value of the contingent earn-out consideration quarterly over the two-year earn-out period to compare actual cumulative sessions achievedto the estimated cumulative sessions used in our forecasts. Any changes in the estimated fair value of the contingent earn-out consideration are reflected inour results of operations in the period they are identified, up to the maximum future value outstanding under the contract, or $0.3 million less amounts paidor expired to date. Changes in the fair value of the contingent earn-out consideration may materially impact and cause volatility in our future operatingresults. During the year ended December 31, 2016, we paid a total of $75,000 to the seller as contingent earn-out consideration for achieving benchmarksduring the earn-out period to date, which was less than our original estimates. Due to declines in the cumulative sessions achieved during the year endedDecember 31, 2016, we recorded a net decrease of $114,000 in the estimated fair value of the contingent earn-out consideration that is reflected in our resultsof operations for this period. 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 seller uponclosing. Future contingent earn-out consideration due to the seller is based upon net subscriber revenues achieved over a two-year period from date of close,of which we will pay the seller 50%. There is no minimum or maximum contractual amount due. Using a probability-weighted discounted cash flow modelbased 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. We review the fair value of the contingent earn-out consideration quarterly over the two year earn-out period to compare actual subscription revenue earnedto the estimated subscription revenue used in our forecasts. Any changes in the estimated fair value of the contingent earn-out consideration are reflected inour results 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. During the year ended December 31, 2016, we paid a total of $36,000 to the seller as contingent earn-outconsideration for amounts earned, which was less than our original estimates. Due to declines in the number of subscriptions renewed during the year endedDecember 31, 2016, we recorded a net decrease of $14,000 in the estimated fair value of the contingent earn-out consideration that is reflected in our resultsof operations for this period. 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 during the three year period from the closing date based upon the achievement of certain revenue benchmarks established for calendar years2014, 2015 and 2016 for each of the Eagle entities. Using a probability-weighted discounted cash flow model based on the likelihood of achievement of thebenchmarks at the time of closing, we estimated the fair value of the contingent earn-out consideration to be $2.4 million, which was recorded at thediscounted present value of $2.0 million. The discount was accreted to interest expense over the three-year earn-out period. We paid a total of $0.9 million incash for amounts due under the contingent earn-out over the three year earn out period and recognized a $1.4 million net decrease in the contingent earn-outestimates over the term. 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 of thecontingent earn-out consideration were reflected in our results of operations in the period they were identified. Our results of operations for the years endingDecember 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 of thecontingent earn-out consideration based upon actual page views that differed from those estimated in our forecasts. Declines in page views during the secondhalf of 2015 were greater than in other periods which we believe resulted from changes in the Facebook algorithm that drives traffic to our sites. We paid atotal of $0.6 million in cash for amounts due under the contingent earn-out over the two-year period. 125Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 reflects the changes in the present value of our acquisition-related estimated contingent earn-out consideration for the years endingDecember 31, 2016 and 2015. Twelve Months Ended December 31, 2016 Short-TermAccrued Expenses Long-TermOther Liabilities Total (Dollars in thousands) Beginning Balance as of January 1, 2016 $173 $602 $775 Acquisitions 66 — 66 Accretion of acquisition-related contingent earn-out consideration 17 8 25 Change in the estimated fair value of contingent earn-out consideration (635) (54) (689)Reclassification of payments due in next 12 months to short-term 556 (556) — Payments (111) — (111)Ending Balance as of December 31, 2016 $66 $— $66 Twelve Months Ended December 31, 2015 Short-TermAccrued Expenses Long-TermOther 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 NOTE 6. INVENTORIES Inventories consist of finished goods including books from Regnery Publishing and wellness products. All inventories are valued at the lower of cost ormarket as determined on a First-In First-Out (“FIFO”) cost method and reported net of estimated reserves for obsolescence. The following table provides details of inventory on hand by segment: As of December 31, 2015 As of December 31, 2016 (Dollars in thousands) Regnery Publishing book inventories $2,186 $2,473 Reserve for obsolescence – Regnery Publishing (1,798) (2,104)Inventory, net - Regnery Publishing 388 369 Wellness products $562 $423 Reserve for obsolescence – Wellness products (57) (122)Inventory, net - Wellness products 505 301 Consolidated inventories, net $893 $670 NOTE 7. BROADCAST LICENSES The following table presents the changes in broadcasting licenses that include acquisitions of radio stations and FM translators as discussed in Note 4 of ourconsolidated financial statements. Broadcast Licenses As of December 31, 2015 As of December 31, 2016 (Dollars in thousands) Balance, beginning of period before cumulative loss on impairment $484,727 $492,032 Accumulated loss on impairment (99,001) (99,001)Balance, beginning of period after cumulative loss on impairment 385,726 393,031 Acquisitions of radio stations 5,923 74 Acquisitions of FM translators 276 1,645 Capital projects to improve broadcast signal and strength 1,106 307 Impairments based on estimated fair value of broadcast licenses — (6,540)Balance, end of period before cumulative loss on impairment $492,032 $494,058 Accumulated loss on impairment (99,001) (105,541)Balance, end of period after cumulative loss on impairment $393,031 $388,517 126Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 8. GOODWILL The following table presents the changes in goodwill including acquisitions of multiple radio stations, digital entities and Hillcrest Media within ourpublishing segment. Goodwill As of December31, 2015 As of December 31,2016 (Dollars in thousands) Balance, beginning of period before cumulative loss on impairment, $26,242 $26,560 Accumulated loss on impairment (1,558) (1,997)Balance, beginning of period after cumulative loss on impairment 24,684 24,563 Acquisitions of radio stations 64 — Acquisitions of digital media entities 254 237 Acquisitions of publishing entities — 845 Impairment charge during year (439) (32)Balance, end of period before cumulative loss on impairment 26,560 27,642 Accumulated loss on impairment (1,997) (2,029)Ending period balance $24,563 $25,613 NOTE 9. PROPERTY AND EQUIPMENT The following is a summary of the categories of our property and equipment: As of December 31, 2015 2016 (Dollars in thousands) Land $32,679 $32,402 Buildings 29,099 29,070 Office furnishings and equipment 39,071 37,386 Office furnishings and equipment under capital lease obligations 228 228 Antennae, towers and transmitting equipment 83,943 84,144 Antennae, towers and transmitting equipment under capital lease obligations 795 795 Studio, production and mobile equipment 30,598 28,668 Computer software and website development costs 28,134 20,042 Record and tape libraries 55 27 Automobiles 1,298 1,373 Leasehold improvements 15,333 14,696 Construction-in-progress 6,632 9,983 $267,865 $258,814 Less accumulated depreciation (162,382) (156,024) $105,483 $102,790 Depreciation expense was approximately $12.2 million, $12.4 million and $12.6 million for the years ended December 31, 2016, 2015, and 2014,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 $517,000, $464,000 and $411,000 at December 31, 2016, 2015 and 2014, respectively. NOTE 10. AMORTIZABLE INTANGIBLE ASSETS The following tables provide a summary of our significant classes of amortizable intangible assets: As of December 31, 2016 Accumulated Cost Amortization Net (Dollars in thousands) Customer lists and contracts $22,599 $(20,070) $2,529 Domain and brand names 19,821 (12,970) 6,851 Favorable and assigned leases 2,379 (1,972) 407 Subscriber base and lists 7,972 (5,304) 2,668 Author relationships 2,771 (1,824) 947 Non-compete agreements 2,018 (1,012) 1,006 Other amortizable intangible assets 1,336 (1,336) — $58,896 $(44,488) $14,408 127Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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 Amortization expense was approximately $5.1 million, $5.3 million and $6.2 million for the years ended December 31, 2016, 2015, and 2014, respectively.Based on the amortizable intangible assets as of December 31, 2016, we estimate amortization expense for the next five years to be as follows: Year ended December 31, Amortization Expense (Dollars in thousands) 2017 $4,356 2018 3,917 2019 3,347 2020 2,056 2021 503 Thereafter 229 Total $14,408 NOTE 11. 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. During the year ended December 31, 2015 and 2016, respectfully,approximately $0.2 million, respectively, of the discount was been recognized as interest expense. 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 $60.0million, subject to the terms and conditions of the credit agreement. We are required to make principal payments of $750,000 per quarter as of September 30,2013. Prepayments may be made against the outstanding balance of our Term Loan B with each prepayment applied ratably to each of the next four principalinstallments due within 12 months of the prepayment date in the direct order of maturity and thereafter to the remaining principal balance in reverse order ofmaturity. We have made prepayments on our Term Loan B, including interest due through the date of the repayment as follows: Date Principal Paid Unamortized Discount (Dollars in Thousands) December 30, 2016 $5,000 $12 November 30, 2016 1,000 3 September 30, 2016 1,500 4 September 30, 2016 750 — June 30, 2016 441 1 June 30, 2016 750 — March 31, 2016 750 — March 17, 2016 809 2 January 30, 2015 2,000 15 128Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” that requires the cost of issuing debt to be recorded asa reduction of the debt proceeds or a reduction of the debt liability, similar to the presentation of debt discounts. Prior to this ASU, debt issue costs wererecorded as deferred costs, or long-term intangible assets. In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement ofDebt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITFMeeting” that amended ASU 2015-03 to reflect the SEC staff’s position that it would not object to an entity deferring and presenting debt issuance costsrelated to line-of-credit arrangements as an asset and subsequently amortizing deferred debt issuance costs ratably over the term of the line-of-creditarrangement, regardless of whether there are outstanding borrowings under that line-of-credit arrangement. We adopted ASU 2015-03, as amended by ASU 2015-15, as of the effective date, or fiscal years beginning after December 31, 2015. We chose to continuepresentation of debt issue costs associated with our Revolver as an asset in accordance with ASU 2015-15. We have retrospectively accounted for theimplementation of ASU 2015-03 and ASU 2015-15 as a change in accounting principle. We have reclassified debt issue costs reported on our December 31,2015 consolidated balance sheet as follows: December 31, 2015 (Dollars in thousands) As Reported As UpdatedASU 2015-03 Balance Sheet Line Items: Term Loan B $273,136 $274,000 Less: Unamortized discount based on imputed interest rate of 4.78% — (864)Less: Unamortized debt issuance costs based on imputed interest rate of 4.78% — (2,361)Term Loan B net carrying value 273,136 270,775 Revolver 3,306 3,306 Capital leases and other loans 674 674 $277,116 $274,755 Less current portion (5,662) (5,662)Long-term debt and capital lease obligations less unamortized discount and debt issuance costs, net ofcurrent portion $271,454 $269,093 Deferred financing costs $2,512 $151 Debt issue costs are being amortized to non-cash interest expense over the life of the Term Loan B using the effective interest method. For the years endedDecember 31, 2015 and 2016, approximately $0.6 million, of the debt issue costs associated with the Term Loan B were recognized as interest expense. Debt issue costs associated with our Revolver are recorded as an asset in accordance with ASU 2015-15. These costs are being amortized to non-cash interestexpense over the five year life of the Revolver using the effective interest method based on an imputed interest rate of 4.58%. For each of the twelve monthsended December 31, 2015 and 2016, we recorded amortization of deferred financing costs of approximately $0.1 million each. 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 the Revolverto fund ordinary and customary operating cash needs with repayments made frequently. We believe that the borrowing capacity under our Term Loan B andRevolver allows us to meet our ongoing operating requirements, fund capital expenditures and satisfy our debt service requirements for at least the nexttwelve 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 Bank, National Association’s(“Wells Fargo”) base rate plus a spread of 2.50%. Borrowings under the Revolver may be made at LIBOR or Wells Fargo’s base rate plus a spread determinedby reference to our leverage ratio, as set forth in the pricing grid below. If an event of default occurs under the credit agreement, the applicable interest ratemay increase by 2.00% per annum. At December 31, 2016, the blended interest rate on amounts outstanding under the Term Loan B and Revolver includingthe impact of the interest rate swap agreement was 5.08%. 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 its subsidiaries,other than certain exceptions set forth in the Security Agreement, dated as of March 14, 2013, among Salem, the subsidiary guarantors party thereto, andWells Fargo, as Administrative Agent (the “Security Agreement”) and such other related loan documents. 129Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. With respect to financial covenants, the credit agreement includes a minimum interest coverage ratio, which started at 1.50 to 1.0 and stepped up to 2.50 to1.0 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 other negativecovenants that are customary for credit facilities of this type, including covenants that, subject to exceptions described in the credit agreement, restrict theability of Salem and its subsidiary guarantors: (i) to incur additional indebtedness; (ii) to make investments; (iii) to make distributions, loans or transfers ofassets; (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 orconsolidate with, or dispose of all or substantially all assets to, a third party. As of December 31, 2016, our leverage ratio was 4.96 to 1 compared to ourcompliance covenant of 6.00 and our interest coverage ratio was 3.57 compared to our compliance ratio of 2.50. We were in compliance with our debtcovenants under the credit facility at December 31, 2016. Summary of long-term debt obligations Long-term debt consisted of the following: December 31, 2015 December 31, 2016 (Dollars in thousands) Term Loan B principal amount $274,000 $263,000 Less unamortized discount and debt issuance costs based on imputed interest rateof 4.78% (3,225) (2,371)Term Loan B net carrying value 270,775 260,629 Revolver 3,306 477 Capital leases and other loans 674 568 274,755 261,674 Less current portion (5,662) (590) $269,093 $261,084 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, 2016: ·Outstanding borrowings of $263.0 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%. ·Outstanding borrowings of $0.5 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. ·Quarterly interest payments on $150.0 million notional amount interest rate swap agreement with Wells Fargo based on a LIBOR floor of0.625% and a fixed rate of 1.645%. Other Debt We have several capital leases related to office equipment. The obligation recorded at December 31, 2015 and 2016 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, 2016 for each of the next five years and thereafter are asfollows: Amount For the Twelve Months Ended December 31, (Dollars in thousands) 2017 $590 2018 3,105 2019 3,103 2020 254,735 2021 120 Thereafter 21 $261,674 NOTE 12. FAIR VALUE MEASURMENTS AND DISCLOSURES 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: 130Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. •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, 2016, 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. We have certain assets that are measured at fair value on a non-recurring basis that are adjusted to fair value only when the carrying values exceed the fairvalues. The categorization of the framework used to price the assets is considered Level 3 due to the subjective nature of the unobservable inputs used whenestimating the fair value. During the fourth quarter of 2016, we estimated the fair value of broadcast licenses and mastheads using significant unobservableinputs (Level 3). We adjusted four of our broadcast market clusters and mastheads to their estimated fair value and recorded a combined impairment loss of$7.0 million. See Note 2 – Impairment of Goodwill and Other Indefinite Lived Intangible Assets. The following table summarizes the fair value of our financial assets and liabilities that are measured at fair value: December 31, 2016 Fair Value Measurement Category Total Fair Valueand CarryingValue onBalance Sheet Level 1 Level 2 Level 3 (Dollars in thousands) Assets Estimated fair value of broadcast licenses 388,517 123,109 Estimated fair value of other indefinite-lived intangible assets 332 332 Liabilities: Estimated fair value of contingent earn-out consideration included inaccrued expenses 66 — — 66 Long-term debt and capital lease obligations less unamortized discountand debt issuance costs 261,674 — 261,674 — Fair value of interest rate swap 514 — 514 — Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Theseestimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changesin assumptions could significantly affect the estimates. The fair value of contingent earn-out consideration is estimated as the present value of the expected contingent payments to be made using a probability-weighted discounted cash flow model for probabilities of possible future payments. These fair value estimates use unobservable inputs that reflect our ownassumptions as to the ability of the acquired business to meet the targeted benchmarks and discount rates used in the calculations. The carrying value oflong-term debt and capital lease obligations approximates the fair value as the related interest rates approximate rates currently available to the company forsimilar debt instruments of comparable maturity. The fair value of the interest rate swap is based on market quotes from a major financial institution takinginto consideration the most recent market activity. NOTE 13. INCOME TAXES We recognize deferred tax assets and liabilities for future tax consequences attributable to differences between our consolidated financial statement carryingamount of assets and liabilities and their respective tax bases. We measure these deferred tax assets and liabilities using enacted tax rates expected to apply inthe years in which these temporary differences are expected to reverse. We recognize the effect on deferred tax assets and liabilities resulting from a change intax rates in income in the period that includes the date of the change. 131Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. For financial reporting purposes, we recorded a valuation allowance of $4.5 million as of December 31, 2016 to offset $4.2 million of the deferred tax assetsrelated to the state net operating loss carryforwards and $0.3 million associated with asset impairments. During the third quarter of 2016, we identified anerror in our estimated valuation allowance for certain deferred tax assets. We recorded an out-of-period adjustment to increase our valuation allowance by$1.6 million for a portion of the deferred tax assets related to state net operating loss carryforwards that we determined were not more likely than not to berealized. 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 taxassets related to the state net operating loss carryforwards. A summary of changes in the gross amount of unrecognized tax benefits is as follows: December 31, 2016 (Dollars in thousands) Balance at January 1, 2016 $100 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 (73)Related interest and penalties, net of federal tax benefits (27)Balance as of December 31, 2016 $— The consolidated provision for income taxes is as follows: December 31, 2014 2015 2016 (Dollars in thousands) Current: Federal $— $— $— State 269 249 229 269 249 229 Deferred: Federal 3,932 6,234 4,938 State 564 212 (595) 4,496 6,446 4,343 Provision for income taxes $4,765 $6,695 $4,572 Consolidated deferred tax assets and liabilities consist of the following: December 31, 2015 2016 (Dollars in thousands) Deferred tax assets: Financial statement accruals not currently deductible $9,699 $9,324 Net operating loss, AMT credit and other carryforwards 71,593 71,215 State taxes 114 87 Other 3,785 3,394 Total deferred tax assets 85,191 84,020 Valuation allowance for deferred tax assets (2,771) (4,487)Net deferred tax assets $82,420 $79,533 Deferred tax liabilities: Excess of net book value of property and equipment and software for financial reportingpurposes over tax basis $2,826 $2,096 Excess of net book value of intangible assets for financial reporting purposes over tax basis 127,078 128,988 Interest rate swap (315) (193)Unrecognized tax benefits 100 — Other — — Total deferred tax liabilities 129,689 130,891 Net deferred tax liabilities $(47,269) $(51,358) The following table reconciles the above net deferred tax liabilities to the financial statements: December 31, 2015 2016 (Dollars in thousands) Deferred income tax asset per balance sheet $9,813 $9,411 Deferred income tax liability per balance sheet (57,082) (60,769) $(47,269) $(51,358) 132Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. A reconciliation of the statutory federal income tax rate to the provision for income tax is as follows: Year Ended December 31, 2014 2015 2016 (Dollars in thousands) Statutory federal income tax rate (at 35%) $3,584 $6,246 $4,706 Effect of state taxes, net of federal 292 458 (486)Permanent items 613 445 266 State rate change 166 23 (1,664)Valuation allowance 84 (181) 1,763 Other, net 26 (296) (13)Provision for income taxes $4,765 $6,695 $4,572 At December 31, 2016, we had net operating loss carryforwards for federal income tax purposes of approximately $150.7 million that expire in 2020 through2034 and for state income tax purposes of approximately $1,021.2 million that expire in years 2017 through 2036. For financial reporting purposes atDecember 31, 2016 we had a valuation allowance of $4.5 million, net of federal benefit, to offset $4.2 million of the deferred tax assets related to the state netoperating loss carryforwards and $0.3 million associated with asset impairments. Our evaluation was performed for tax years that remain subject toexamination by major tax jurisdictions, which range from 2012 through 2015. The amortization of our indefinite-lived intangible assets for tax purposes but not for book purposes creates deferred tax liabilities. A reversal of deferred taxliabilities may occur when indefinite-lived intangibles: (1) become impaired; or (2) are sold, which would typically only occur in connection with the sale ofthe assets of a station or groups of stations or the entire company in a taxable transaction. Due to the amortization for tax purposes and not book purposes ofour indefinite-lived intangible assets, we expect to continue to generate deferred tax liabilities in future periods exclusive of any impairment losses in futureperiods. These deferred tax liabilities and net operating loss carryforwards result in differences between our provision for income tax and cash paid for taxes. NOTE 14. COMMITMENTS AND CONTINGENCIES The Company enters into various agreements in the normal course of business that contain minimum guarantees. These minimum guarantees are often tied tofuture 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 that mayhave additional payments due upon the achievement of certain performance targets. The fair value of the contingent earn-out consideration is estimated as ofthe acquisition date as the present value of the expected contingent payments as determined using weighted probabilities of the expected payment amounts.We review the probabilities of possible future payments to estimate the fair value of any contingent earn-out consideration on a quarterly basis over the earn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the acquired businessincrease or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent earn-out consideration liability will increase ordecrease, up to the contracted limit, as applicable. Changes in the estimated fair value of the contingent earn-out consideration are reflected in our results ofoperations in the period in which they are identified. Changes in the estimated fair value of the contingent earn-out consideration may materially impact andcause 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. Suchmatters are subject to many uncertainties and outcomes that are not predictable with assurance. We evaluate claims based on what we believe to be bothprobable and reasonably estimable. With the exception of the matter described below, we are unable to ascertain the ultimate aggregate amount of monetaryliability or the financial impact with respect to these matters. The company maintains insurance that may provide coverage for such matters. In April 2016, pursuant to a counterclaim to a collection suit initiated by Salem, an award was issued against Salem for breach of contract and attorney fees.While we have filed an appeal against the award as well as a malpractice lawsuit against the lawyer that represented Salem in the suit, we recorded a legalreserve of $0.5 million as of March 31, 2016. This reserve represents the total possible loss contingency without third party recoveries from our appeal,malpractice lawsuit or insurance claims. There have been no changes in our estimates as of the date of this filing. The company believes, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect uponthe Company’s 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 $19.8 million,$19.1 million and $17.9 million in 2016, 2015 and 2014, respectively. 133Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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, 2016, are as follows: Related Parties Other Total (Dollars in thousand) 2017 $1,560 $11,698 $13,258 2018 852 11,282 12,134 2019 592 10,601 11,193 2020 606 10,033 10,639 2021 591 8,533 9,124 Thereafter 5,712 32,109 37,821 $9,913 $84,256 $94,169 NOTE 15. STOCK INCENTIVE PLAN Our Amended and Restated 1999 Stock Incentive Plan (the “Plan”) provides for grants of equity-based awards to employees, non-employee directors andofficers, and advisors of the company (“Eligible Persons”). The Plan is designed to promote the interests of the company using equity investment interests toattract, motivate, and retain individuals. A maximum of 5,000,000 shares of common stock are authorized under the Plan. All awards have restriction periods tied primarily to employment and/orservice. The Plan allows for accelerated or continued vesting in certain circumstances as defined in the Plan including death, disability, a change in control,and termination or retirement. The company Board of Directors, or a committee appointed by the Board, has discretion subject to limits defined in the Plan, tomodify the terms of any outstanding award. The Plan does not allow insiders, or key employees and directors to exercise awards during pre-defined blackout periods. Insiders may participate in plansestablished pursuant to Rule 10b5-1 under the Exchange Act that allow them to exercise awards subject to pre-established criteria. We recognize non-cash stock-based compensation expense based on the estimated fair value of awards in accordance with FASB ASC Topic 718“Compensation—Stock Compensation.” Stock-based compensation expense fluctuates over time as a result of the vesting periods for outstanding awards andthe number of awards that actually vest. The following table reflects the components of stock-based compensation expense recognized in the Consolidated Statements of Operations for the yearsended December 31, 2014, 2015 and 2016: Year Ended December 31, 2014 2015 2016 (Dollars in thousands) Stock option compensation expense included in corporate expenses $1,025 $474 $378 Restricted stock shares compensation expense included in corporate expenses — 34 24 Stock option compensation expense included in broadcast operating expenses 325 130 85 Stock option compensation expense included in Internet operating expenses 165 92 60 Stock option compensation expense included in publishing operating expenses 61 41 35 Total stock-based compensation expense, pre-tax $1,576 $771 $582 Tax benefit (expense) from stock-based compensation expense (630) (308) (233)Total stock-based compensation expense, net of tax $946 $463 $349 Stock option and restricted stock grants Eligible employees may receive stock option awards annually with the number of shares and type of instrument generally determined by the employee’ssalary grade and performance level. Incentive and non-qualified stock option awards allow the recipient to purchase shares of the company common stock ata set price, not to be less than the closing market price on the date of award, for no consideration payable by the recipient. The related number of sharesunderlying the stock option is fixed at the time of the grant. Options generally vest over a four-year period with a maximum term of five years from thevesting date. In addition, certain management and professional level employees may receive stock option awards upon the commencement of employment. The Plan also allows for awards of restricted shares, which are typically granted annually to non-employee directors of the company. Awards granted to non-employee directors are made in exchange for their services to the company as directors and therefore, the guidance in FASB ASC Topic 505-50 “EquityBased Payments to Non Employees” is not applicable. Restricted stock awards contain transfer restrictions under which they cannot be sold, pledged,transferred or assigned until the period specified in the award, generally one to five years. Restricted stock awards are independent of option grants and aregranted at no cost to the recipient other than applicable taxes owed by the recipient. The awards are considered issued and outstanding from the date of grant. 134Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 each award is estimated as of the date of the grant using the Black-Scholes valuation model. 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 commensurate with the expected term ofthe award. Expected dividends reflect the amount of quarterly distributions authorized and declared on our Class A and Class B common stock as of the grantdate. The expected term of the awards are based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rates forperiods 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 valuation modelwere as follows for the years ended December 31, 2014, 2015 and 2016: Year Ended December 31, 2014 2015 2016 Expected volatility 74.98% 52.37% 47.03%Expected dividends 2.70% 4.28% 5.36%Expected term (in years) 7.8 3.0 7.4 Risk-free interest rate 2.27% 0.85% 1.64% Activity with respect to the company’s option awards during the three years ended December 31, 2015 is as follows (Dollars in thousands, except weightedaverage exercise price and weighted average grant date fair value): Options Shares Weighted AverageExercise Price Weighted AverageGrant Date Fair Value Weighted AverageRemaining Contractual Term AggregateIntrinsic Value 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 Outstanding at January 1, 2016 1,581,123 $4.87 $3.39 4.3years $1,738 Granted 549,500 4.85 1.33 — Exercised (336,996) 2.95 2.02 1,418 Forfeited or expired (73,627) 8.06 3.07 3 Outstanding at December 31, 2016 1,720,000 $5.12 $2.89 4.5 years $2,428 Exercisable at December 31, 2016 841,625 5.56 3.94 2.9 years 948 Expected to Vest 834,017 $5.11 $2.91 4.5 years $1,442 The aggregate intrinsic value represents the difference between the company’s closing stock price on December 31, 2016 of $6.25 and the option exerciseprice of the shares for stock options that were in the money, multiplied by the number of shares underlying such options. The total fair value of optionsvested during the years ended December 31, 2016, 2015 and 2014 was $1.1 million, $1.5 million and $1.9 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, 2015, the company granted restricted stock awards to non-employee directors that vest one year from the date of issuance. Theserestricted stock awards contained transfer restrictions under which they could not be sold, pledged, transferred or assigned until the sooner of the fifthanniversary from the grant date or the day after the non-employee director is no longer a member of the company’s board. The restricted stock awards wereindependent of option grants and were granted at no cost to the recipient other than applicable taxes owed by the recipient. The awards were consideredissued 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. Activitywith respect to the company’s restricted stock awards during the year ended December 31, 2016 is as follows: 135Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Restricted Stock Awards Shares Weighted Average Grant DateFair Value Weighted Average RemainingContractual Term Aggregate IntrinsicValue Non-Vested at January 1, 2016 10,000 $5.83 0.2 years $40 Granted — — — — Lapsed (10,000) (5.83) — 52 Forfeited or expired — — — — Outstanding at December 31, 2016 — $— — $— As of December 31, 2016, there was $0.4 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 2.0 years. Additional information regarding options outstanding as of December 31, 2016, 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 $2.38 - $2.56 147,375 2.4 $2.38 147,375 $2.38 $2.57 - $4.42 290,500 4.6 2.76 86,500 2.80 $4.43 - $4.85 541,000 6.7 4.85 — — $4.86 - $6.65 91,250 1.7 5.30 86,250 5.33 $6.66 - $7.54 619,875 3.6 6.92 506,750 6.92 $7.55 - $8.76 30,000 4.8 8.37 14,750 8.37 1,720,000 4.5 $5.12 841,625 $5.56 NOTE 16. 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. Relatedparties include our directors, executive officers, nominees to become a director, any person beneficially owning more than 5% of any class of our stock,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 or principal or inwhich the person has a 10% or greater beneficial ownership interest. The policy covers material transactions in which a related party had, has or will have adirect or indirect interest. On December 15, 2016, we entered into a related party LMA with East Bay Broadcasting, LLC, a company owned by Edward G. Atsinger III, Chief ExecutiveOfficer and Stuart W. Epperson, Chairman of the Board, to operate radio station KTRB-AM in San Francisco, California. We had been operating the stationunder an LMA agreement with an unrelated third party as of June 24, 2016. Our Nominating and Corporate Governance Committee reviewed the related partyLMA and determined that the terms of the transaction were no less favorable to Salem than those that would be available in a comparable transaction in arm’slength dealings with an unrelated third party. On October 19, 2016, we acquired a construction permit for an FM translator in Palm Coast, Florida for $65,000 in cash from Delmarva EducationalAssociation Corporation, a related party entity which Nancy A. Epperson, the wife of the Chairman of the Board, and Stuart W. Epperson Jr., the son of theChairman of the Board, serve as directors. The FM translator will be used by our WTWD-AM radio station in Tampa, Florida. On October 12, 2016, we acquired an FM translator in Lake City, Florida for $65,000 in cash from Delmarva Educational Association Corporation, a relatedparty entity which Nancy A. Epperson, the wife of the Chairman of the Board, and Stuart W. Epperson Jr., the son of the Chairman of the Board, serve asdirectors. The FM translator will be used by our WBZW-AM radio station in Orlando, Florida. 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 are located.Salem has entered into a lease agreement with this trust. Rental expense related to this lease included in operating expense for 2016, 2015 and 2014amounted to $185,000, $180,000 and $175,000, 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. Rentalexpense under these leases included in operating expense for 2016, 2015 and 2014 amounted to $1.5 million, $1.3 million and $1.3 million, respectively. On September 2, 2016, we entered into a related party lease with trusts created for the benefit of Edward G. Atsinger III, Chief Executive Officer, and Stuart W.Epperson, Chairman of the Board. The lease is for real property located in East Carondelet, Illinois that is used as the night site location for KXFN-AM in ourSt. Louis, Missouri market. Our Nominating and Corporate Governance Committee reviewed the lease and lease terms and determined that the terms of thetransaction were no less favorable to Salem than those that would be available in a comparable transaction in arm’s length dealings with an unrelated thirdparty. 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 Stuart W.Epperson, Chairman of the Board. The lease is for real property located in Brighton, Colorado that is used to operate radio station KNUS-AM in our Denver,Colorado market. Our Nominating and Corporate Governance Committee reviewed the lease and lease terms and determined that the terms of the transactionwere no less favorable to Salem than those that would be available in a comparable transaction in arm’s length dealings with an unrelated third party. 136Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 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 radio stations inVirginia, 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. 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 Truth For Life is a non-profit organization that is a customer of Salem Media Group, Inc. During 2016, 2015 and 2014, the company billed Truth For Lifeapproximately $2.2 million, respectively, for airtime on its stations. Mr. Riddle, a director of the company, joined the Truth for Life board in October 2010and 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 2016, 2015 and 2014, the company billed Know the Truthapproximately $0.4 million, $0.4 million and $0.5 million, respectively, for airtime on its stations. Mr. Riddle, a director of the company, joined the Knowthe Truth board in 2010 and remains a member of this board. The Truth Network – Stuart W. Epperson Jr. The Truth Network provides original and broadcast Christian radio that is a customer of Salem Media Group, Inc. During 2016, the company billed The TruthNetwork approximately $11,000 for airtime on its stations. Mr. Epperson Jr., is the CEO and President of the company. Split-Dollar Life Insurance Salem has maintained split-dollar life insurance policies for its Chairman and Chief Executive Officer since 1997. Since 2003, the company has been theowner of the split-dollar life insurance policies and is entitled to recover all of the premiums paid on these policies. The company records an asset based onthe lower of the aggregate premiums paid or the insurance cash surrender value. The premiums were $386,000 for each of the years ended December 31, 2016,2015 and 2014. As of December 31, 2016, 2015, and 2014, the company recorded the net cash surrender value of these policies as assets of $1.0 million, $0.6million and $0.2 million, respectively. The cumulative premiums paid on these policies were $2.6 million, $2.5 million and $1.9 million, respectively.Benefits above and beyond the cumulative premiums paid will go to the beneficiary trusts established by each of the Chairman and Chief 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. As approvedby the independent members of the company’s board of directors, the company rents these aircraft on an hourly basis at what the company believes aremarket rates and uses them for general corporate needs. Total rental expense for these aircraft for 2016, 2015 and 2014 amounted to approximately $301,000,$133,000 and $274,000, respectively. NOTE 17. 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 company match is currently 50% on the first 5% of the amounts contributed by each participant. During theyears ending December 31, 2016, 2015 and 2014, the company contributed and expensed $1.9 million, $1.9 million and $1.7 million, respectively, into the401(k) Plan. 137Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 18. EQUITY TRANSACTIONS We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation-Stock Compensation.” As a result, $0.6million, $0.8 million and $1.6 million of non-cash stock-based compensation expense has been recorded to additional paid-in capital for the years endedDecember 31, 2016, 2015, and 2014, respectively. 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, financial andlegal requirements, and other factors. The current policy of the Board of Directors is to review each of these factors on a quarterly basis to determine theappropriate amount, if any, to allocate toward a cash distribution with the general principle of using approximately 20% of Adjusted EBITDA less cash paidfor capital expenditures, less cash paid for income taxes, and less cash paid for interest. Adjusted EBITDA is a non-GAAP financial measure defined in Item 2,Management’s Discussion and Analysis of Financial Condition and Results of Operations included with this annual report on Form 10-K. The following table shows distributions that have been declared and paid since January 1, 2015: Announcement Date Payment Date Amount Per Share Cash Distributed (in thousands) December 7, 2016 December 31, 2016 $0.0650 $1,678 September 9, 2016 September 30, 2016 $0.0650 $1,679 June 2, 2016 June 30, 2016 $0.0650 $1,664 March 10, 2016 April 5, 2016 $0.0650 $1,657 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 Based on the number of shares of Class A and Class B currently outstanding, we expect to pay total annual distributions of approximately $6.8 million for theyear ended December 31, 2017. NOTE 19. 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 2015 2016 2015 2016 2015 2016 2015 2016 (Dollars in thousands, except per share data) Total revenue $61,856 $64,575 $67,293 $67,779 $67,491 $71,272 $69,147 $70,695 Operating income 5,703 6,083 9,254 9,702 8,800 8,835 9,265 3,458 Net income $295 $353 $3,523 $3,356 $2,077 $2,192 $5,255 $2,972 Basic earnings per share Class A and Class Bcommon stock $0.01 $0.01 $0.14 $0.13 $0.08 $0.08 $0.20 $0.11 Diluted earnings per share Class A and B Classcommon stock $0.01 $0.01 $0.14 $0.13 $0.08 $0.08 $0.20 $0.11 Weighted average Class A and Class B sharesoutstanding – basic 25,346,499 25,485,234 25,429,127 25,551,445 25,459,962 25,815,242 25,471,342 25,826,230 Weighted average Class A and Class B sharesoutstanding – diluted 25,921,118 25,802,958 25,829,493 26,052,649 25,907,651 26,183,182 25,893,015 26,101,172 138Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 20. SEGMENT DATA FASB ASC Topic 280, “Segment Reporting,” requires companies to provide certain information about their operating segments. We have three operatingsegments: (1) Broadcast, (2) Digital Media and (3) Publishing. During the third quarter of 2016, we reclassed Salem Consumer Products, our e-commerce business that sells books, DVD’s and editorial content developedby our on-air personalities, from our Digital Media segment to our Broadcast segment. With this reclassification, all revenue and expenses generated by on-air hosts, including broadcast programs and e-commerce product sales are consolidated to assess the financial performance of each network program. Our operating segments reflect how our chief operating decision makers, which we define as a collective group of senior executives, assess the performance ofeach operating segment and determine the appropriate allocations of resources to each segment. We continue to review our operating segment classificationsto align with operational changes 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 defined by Salem, is not necessarilycomparable to other similarly titled captions of other companies. 139Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 financial information for each operating segment as of December 31, 2016, 2015 and 2014 based on the new composition of ouroperating segments: Broadcast DigitalMedia Publishing UnallocatedCorporate Consolidated (Dollars in thousands) Year Ended December 31, 2016 Net revenue $202,016 $46,777 $25,528 $— $274,321 Operating expenses 146,283 36,290 26,209 14,994 223,776 Net operating income (loss) before depreciation, amortization, impairments, change in estimated fairvalue of contingent earn-out consideration (gain) loss on the sale or disposal of assets $55,733 $10,487 $(681) $(14,994) $50,545 Depreciation 7,592 3,092 675 846 12,205 Amortization 86 4,304 680 1 5,071 Impairment of long-lived assets 700 — — — 700 Impairment of indefinite-lived long-term assets other than goodwill 6,540 — 501 — 7,041 Impairment of goodwill — 32 — — 32 Impairment of amortizable intangible assets — 8 — — 8 Change in estimated fair value of contingent earn-out consideration — (146) (543) — (689)(Gain) loss on the sale or disposal of assets (2,122) 236 (21) 6 (1,901)Operating income (loss) $42,937 $2,961 $(1,973) $(15,847) $28,078 Year Ended December 31, 2015 Net revenue $197,184 $44,761 $23,842 $— $265,787 Operating expenses 140,819 35,380 24,774 15,146 216,119 Net operating income (loss) before depreciation, amortization, impairments, change in estimated fairvalue of contingent earn-out consideration (gain) loss on the sale or disposal of assets $56,365 $9,381 $(932) $(15,146) $49,668 Depreciation 7,726 3,091 637 963 12,417 Amortization 96 4,685 542 1 5,324 Impairment of goodwill 439 — — — 439 Change in estimated fair value of contingent earn-out consideration — (478) (1,237) — (1,715)(Gain) loss on the sale or disposal of assets 219 11 (58) 9 181 Operating income (loss) $47,885 $2,072 $(816) $(16,119) $33,022 Year Ended December 31, 2014 Net revenue $194,094 $45,691 $26,751 $— $266,536 Operating expenses 139,206 35,590 26,143 17,092 218,031 Net operating income (loss) before depreciation, amortization, impairments, change in estimated fairvalue of contingent earn-out consideration (gain) loss on the sale or disposal of assets $54,888 $10,101 $608 $(17,092) $48,505 Depreciation 7,988 2,987 529 1,125 12,629 Amortization 109 4,874 1,212 1 6,196 Impairment of indefinite-lived long-term assets other than goodwill — — 34 — 34 Impairment of goodwill — — 45 — 45 Change in estimated fair value of contingent earn-out consideration — 325 409 — 734 (Gain) loss on the sale or disposal of assets 231 25 (5) — 251 Operating income (loss) $46,560 $1,890 $(1,616) $(18,218) $28,616 Broadcast DigitalMedia Publishing UnallocatedCorporate Consolidated (Dollars in thousands) As of December 31, 2016 Inventories, net $— $300 $370 $— $670 Property and equipment, net 86,976 6,634 1,779 7,401 102,790 Broadcast licenses 388,517 — — — 388,517 Goodwill 3,581 20,136 1,888 8 25,613 Other indefinite-lived intangible assets — — 332 — 332 Amortizable intangible assets, net 407 9,927 4,069 5 14,408 As of December 31, 2015 Inventories, net $— $505 $388 $— $893 Property and equipment, net 88,894 6,927 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 140Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 financial information for each operating segment as of December 31, 2015 and 2014 with a comparison of the results under the priorcomposition of our operating segments as compared to the new composition: Year ended December 31, 2014 2015 Original Updated Original Updated (Dollars in thousands) Revenues by Segment: Net Broadcast Revenue $192,923 $194,094 $196,090 $197,184 Net Digital Media Revenue 46,862 45,691 45,855 44,761 Net Publishing Revenue 26,751 26,751 23,842 23,842 Total Net Revenue $266,536 $266,536 $265,787 $265,787 Operating expenses by segment: Broadcast Operating Expenses $138,564 $139,206 $140,230 $140,819 Digital Media Operating Expenses 36,232 35,590 35,969 35,380 Publishing Operating Expenses 26,143 26,143 24,774 24,774 Unallocated Corporate Expenses 17,092 17,092 15,146 15,146 $218,031 $218,031 $216,119 $216,119 Net operating income (loss) before depreciation, amortization, impairments and (gain)loss on the sale or disposal of assets $48,505 $48,505 $49,668 $49,668 NOTE 21. SUBSEQUENT EVENTS On March 8, 2017, 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 March 31, 2017, to all Class A and Class B common stockholders of record as of March 20, 2017. On March 1, 2017, we closed on the acquisition of an FM translator in Roseburg, Oregon for $45,000 in cash. The FM translator will be used in our Portland,Oregon market. On February 28, 2017, we repaid $3.0 million in principal on our Term Loan B and paid interest due through that date. We recorded a $6,300 pre-tax loss onthe early retirement of long-term debt related to the unamortized discount and $17,000 in bank loan fees associated with the principal repayment. On January 30, 2017, we repaid $2.0 million in principal on our Term Loan B and paid interest due through that date. We recorded a $4,500 pre-tax loss onthe early retirement of long-term debt related to the unamortized discount and $12,270 in bank loan fees associated with the principal repayment. On January 16, 2017, we closed on the acquisition of an FM translator in Astoria, Florida for $33,000 in cash. The FM translator will be relocated to theSeattle, Washington market for use by our KGNW-AM radio station. On January 6, 2017, we closed on the acquisition of an FM translator construction permit in Mohave Valley, Arizona for $20,000 in cash. The FM translatorwill be relocated to the San Diego, California market for use by our KCBQ-AM radio. Subsequent events reflect all applicable transactions through the date of the filing. 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 to bedisclosed in our reports pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rulesand forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures,management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving thedesired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and 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 the participation ofsenior management, including our Chief Executive Officer and our Chief Financial Officer, of our disclosure controls and procedures, as such term is definedunder 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 this evaluation, as aresult of the material weakness in internal control over financial reporting discussed below, our Chief Executive Officer and our Chief Financial Officerconcluded that our disclosure controls and procedures was not effective at the reasonable assurance level as of the end of the period covered by this report. 141Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. (b) Management’s Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequateinternal 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, 2016 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 this evaluation, our management has concluded, as a result of the material weakness in internal control over financial reporting discussed below,that our internal control over financial reporting was not effective as of December 31, 2016. However, we believe that the financial statements included inthis report present fairly, in all material respects, our financial condition, results of operations and cash flows for the periods presented. In November 2016, management identified a control deficiency with respect to the precision of the review of the calculation of our valuation allowance forcertain deferred tax assets, and concluded that such deficiency constituted a material weakness in internal control over financial reporting. Management has reviewed and revised its policies and procedures with respect to controls over the review and verification of the accuracy of the calculationof the valuation allowance for certain deferred tax assets to ensure that all reasonable steps are taken to correct this material weakness. Management hasenhanced the precision of the controls, including hiring a Tax Director, however, the deficiency will not be considered remediated until internal controls areoperational for a period of time and tested, and management concludes that the controls are operating effectively. Based on our assessment, we consider thatthe material weakness related to the precision of the review of the calculation of the provision for income taxes not to have been fully remediated and is stillpresent as of December 31, 2016 as the remedial measures have not operated effectively for a sufficient period of time for management to conclude, throughtesting, that the applicable controls have operated effectively for a sufficient period of time. (c) Attestation Report of Registered Public Accounting Firm. The effectiveness of our internal control over financial reporting as of December 31, 2016 hasbeen audited by Crowe Horwath LLP, an independent registered public accounting firm, as stated in their report which is included herein. (d) Changes in Internal Control Over Financial Reporting. Except for the activities taken to remediate the material weakness described above, there has beenno change in our internal control over financial reporting during the quarter ended December 31, 2016 that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting. 142Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Stockholders ofSalem Media Group, Inc.Camarillo, California We have audited Salem Media Group, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2016, based on criteria establishedin the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). TheCompany's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Ourresponsibility 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, and performing such other procedures as weconsidered 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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibilitythat a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The followingmaterial weakness has been identified and included in management's report. In November 2016, management concluded that a control deficiency withrespect to the precision of the review of the calculation of the valuation allowance for certain deferred tax assets constituted a material weakness in internalcontrol over financial reporting. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the2016 financial statements, and this report does not affect our report dated March 10, 2017 on those financial statements. In our opinion, because of the effects of the material weakness described above, the Company has not maintained effective internal control over financialreporting as of December 31, 2016, based on criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetof the Company as of December 31, 2016, and the related statements of operations, stockholders' equity, and cash flows for the year ended December 31,2016 and our report dated March 10, 2017 expressed an unqualified opinion on those financial statements. /s/ Crowe Horwath LLP Sherman Oaks, CaliforniaMarch 10, 2017 143Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 AND EXECUTIVEOFFICERS 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 “EXECUTIVE COMPENSATION,”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 the heading“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 ACCOUNTING FEESAND SERVICES,” expected to be filed within 120 days of our fiscal year end. 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, 2016, 2015 and 2014 is filed as part of thisreport and should be read in conjunction with the consolidated financial statements. 144Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 16. FORM 10-K SUMMARY SALEM MEDIA GROUP, INC.Schedule II – Valuation & Qualifying Accounts (Dollars in thousands) 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, 2014 Allowance for Doubtful Accounts andSales Returns $10,809 $9,149 $(7,231) $12,727 Year Ended December 31, 2015 Allowance for Doubtful Accounts andSales Returns 12,727 8,325 (7,573) 13,479 Year Ended December 31, 2016 Allowance for Doubtful Accounts andSales Returns 13,479 5,369 (8,428) 10,420 Year Ended December 31, 2014 Allowance for Inventory Reserves — 2,891 (1,664) 1,227 Year Ended December 31, 2015 Allowance for Inventory Reserves 1,227 628 — 1,855 Year Ended December 31, 2016 Allowance for Inventory Reserves 1,855 406 (35) 2,226 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 RestatedCertificate ofIncorporation of theCompany. 8-K 333-41733-29 04/14/99 3.1 3.02 Certificate of Amendmentof Certificate ofIncorporation of theCompany. 8-K 000-26497 02/23/15 3.1 3.03 Second Amended andRestated Bylaws of theCompany. 8-K 000-26497 02/23/15 3.2 4.01 Specimen of Class Acommon stock certificate. S-1/A 333-76649 Declared Effective06/30/99 4.09 10.01 Employment Agreement,dated July 1, 2016between SalemCommunications HoldingCorporation and EdwardG. Atsinger III. 8-K 000-26497 06/13/16 99.1 10.02 Employment Agreement,dated July 1, 2016between SalemCommunications HoldingCorporation and Stuart W.Epperson. 10-Q 000-26497 08/05/16 10.1 145Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Agreementdated January 1, 2017between SalemCommunications HoldingCorporation and Evan D.Masyr. 8-K 000-26497 01/04/17 99.1 10.04 Employment Agreementdated January 1, 2017between SalemCommunications HoldingCorporation and DavidSantrella. 8-K 000-26497 01/04/17 99.2 10.05 Employment Agreement,effective as of September15, 2014, between SalemCommunications HoldingCorporation and DavidA.R. Evans. 8-K 000-26497 09/19/14 99.1 10.06.01 Antenna/tower leasebetween CaronBroadcasting, Inc. (KFXN-AM) and The AtsingerFamily Trust and StuartW. Epperson RevocableLiving Trust, expiring in2036. 8-K 000-26497 09/08/16 10.3 10.06.02 Antenna/tower/studiolease between CommonGround Broadcasting, Inc.(KKMS-AM/Eagan,Minnesota) and Messrs.Atsinger and Eppersonexpiring in 2036. 8-K 000-26497 09/08/16 10.2 10.06.03 Antenna/tower lease(KFAX-FM/Hayward,California) and SalemBroadcasting Company, apartnership consisting ofMessrs. Atsinger andEpperson, expiring in2023. 8-K 000-26497 04/14/08 10.06.21 10.06.04 Antenna/tower leasebetween Salem Media ofTexas, Inc. (KSLR-AM/San Antonio, Texas)and Epperson-Atsinger1983 Family Trustexpiring 2017. S-4 333-41733-29 01/29/98 10.05.19 10.06.04.01 Amendment to Lease toAntenna/tower leasebetween Salem Media ofTexas, Inc. (KSLR-AM/San Antonio, TX) andEpperson-Atsinger 1983Family Trust expiring2017. 10-K 000-26497 03/17/08 10.06.13.01 146Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 FiledHerewith10.06.04.02 Second Amendment toLease to Antenna/towerlease between SalemMedia of Texas, Inc.(KSLR-AM/San Antonio,TX) and Epperson-Atsinger 1983 FamilyTrust expiring 2017. 10-K 000-26497 03/17/08 10.06.13.02 10.06.05 Antenna/tower leasebetween InspirationMedia, Inc. (KLFE-AM/Seattle, Washington)and The Atsinger FamilyTrust and Stuart W.Epperson RevocableLiving Trust expiring in2023. 8-K 000-26497 04/14/08 10.06.22 10.06.06 Antenna/tower/studiolease betweenPennsylvania MediaAssociates, Inc. (WNTP-AM/WFIL-AM/Philadelphia,Pennsylvania) and TheAtsinger Family Trust andStuart W. EppersonRevocable Living Trustexpiring 2023. 8-K 000-26497 04/14/08 10.06.27 10.06.07 Antenna/tower leasebetween New InspirationBroadcasting Co., Inc.: assuccessor in interest toRadio 1210, Inc. (KPRZ-AM/San Marcos,California) and TheAtsinger Family Trustexpiring in 2028. S-4 333-41733-29 01/29/98 10.05.12 10.06.08 Lease Agreement betweenSalem Media of Colorado,Inc. (KNUS-AM/Denver-Boulder, Colorado) andMessrs. Atsinger andEpperson expiring 2036. 8-K 000-26497 03/03/16 10.1 10.06.09 Antenna/tower leasebetween Salem Media ofOregon, Inc. (KPDQ-AM/FM/Portland,Oregon), and Messrs.Atsinger and Eppersonexpiring 2023. 8-K 000-26497 04/14/08 10.06.24 147Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 FiledHerewith10.06.10 Antenna/tower leasebetween South TexasBroadcasting, Inc. (KNTH-AM/Houston-Galveston,Texas) and AtsingerFamily Trust and StuartW. Epperson RevocableLiving Trust expiring2023. 8-K 000-36497 04/14/08 10.06.23 10.06.11 Antenna/tower leasebetween New InspirationBroadcasting Company,Inc. (KFIA-AM/Sacramento,California) and TheAtsinger Family Trust andStuart W. EppersonRevocable Living Trustexpiring 2036. 8-K 000-26497 09/08/16 10.1 10.06.12 Antenna/tower leasebetween InspirationMedia of Texas, Inc.(KTEK-AM/Alvin, Texas)and the Atsinger FamilyTrust and The Stuart W.Epperson RevocableLiving Trust expiring2018. 10-K 000-26497 03/31/99 10.05.23 10.06.13 Antenna/tower leasebetween PennsylvaniaMedia Associates Inc.(WTLN-AM/ Orlando,Florida) and AtsingerFamily Trust and StuartW. Epperson, revocableliving trust expiring 2045. 10-K 000-26497 03/16/07 10.05.25 10.06.14 Lease Agreement, datedApril 8, 2008, betweenInspiration Media, Inc.(KDOW-AM/Palo Alto,CA) and PrincipalShareholders expiring2023. 8-K 000-26497 04/14/08 10.06.20 10.06.15 Lease Agreement, datedApril 8, 2008, betweenNew InspirationBroadcasting Company,Inc. (KFAX-AM/SanFrancisco, CA) andPrincipal Shareholdersexpiring 2023. 8-K 000-26497 04/14/08 10.06.21 148Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 FiledHerewith10.06.16 Lease Agreement, datedApril 8, 2008, betweenInspiration Media, Inc.(KLFE-AM/Seattle, WA)and PrincipalShareholders expiring2023. 8-K 000-26497 04/14/08 10.06.22 10.06.17 Lease Agreement, datedApril 8, 2008, betweenSouth TexasBroadcasting, Inc. (KNTH-AM/Houston, TX) andPrincipal Shareholdersexpiring 2023. 8-K 000-26497 04/14/08 10.06.23 10.06.18 Lease Agreement, datedApril 8, 2008, betweenSalem Media of Oregon,Inc. (KPDQ-AM/Portland,OR) and PrincipalShareholders expiring2023. 8-K 000-26497 04/14/08 10.06.24 10.06.19 Lease Agreement, datedApril 8, 2008, betweenCommon GroundBroadcasting, Inc. (KPXQ-AM/Glendale, AZ) andPrincipal Shareholdersexpiring 2023. 8-K 000-26497 04/14/08 10.06.25 10.06.20 Lease Agreement, datedApril 8, 2008, betweenSalem Media of Texas,Inc. (KSLR-AM/SanAntonio, TX/night sight)and PrincipalShareholders expiring2023. 8-K 000-26497 04/14/08 10.06.26 10.07.01 Asset PurchaseAgreement, dated May 25,2016, by and betweenPennsylvania MediaAssociates, Inc. andDelmarva EducationalAssociation (FMTranslator W224BU, LakeCity, Florida). X 149Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 FiledHerewith10.07.02 Asset PurchaseAgreement, dated May 18,2016, by and betweenPennsylvania MediaAssociates, Inc. andDelmarva EducationalAssociation (FMTranslator W222BT, PalmCoast, Florida) (the “PalmCoast APA”). X10.07.02.01 First Amendment to PalmCoast APA dated May 25,2016. X10.07.02.02 Second Amendment toPalm Coast APA datedJuly 27, 2016. X10.07.02.03 Third Amendment to PalmCoast APA dated July 29,2016. X10.07.02.04 First Assignment andAssumption of PurchaseAgreement dated July 27,2016 from PennsylvaniaMedia Associates, Inc. toCaron Broadcasting, Inc. X10.07.02.05 Second Assignment andAssumption of AssetPurchase Agreement datedJuly 29, 2016 from CaronBroadcasting, Inc. toSouth TexasBroadcasting, Inc. X10.07.03 Local MarketingAgreement, datedDecember 15, 2016 byand between NewInspiration BroadcastingCompany, Inc. and EastBay Broadcasting, LLC(KTRB-AM, SanFrancisco, California). 8-K 000-26497 12/20/16 10.1 10.08.01 Amended and Restated1999 Stock Incentive Plan(as amended and restatedthrough June 3, 2009). 8-K 000-26497 06/09/09 10.08.04.01 10.08.02 Form of stock option grantfor Amended and Restated1999 Stock IncentivePlan. 10-K 000-26497 03/16/05 10.08.02 150Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Form of restricted stockoption grant for Amendedand Restated 1999 StockIncentive Plan. 10-Q 000-26497 11/09/05 10.01 10.09 Management ServicesAgreement by and amongSalem and SalemCommunications HoldingCorporation, dated August25, 2000 (incorporated byreference to previouslyfiled exhibit 10.11). 10-Q 000-26497 05/15/01 10.11 10.10.01 Credit Agreement, datedas of March 14, 2013, byand among SalemCommunicationsCorporation, as theborrower, Wells FargoBank, NationalAssociation, asAdministrative Agent,Swing Line Lender andL/C Issuer and the otherLenders party thereto,Wells Fargo Securities,LLC, SunTrust RobinsonHumphrey, Inc., andRabobank, N.A., as JointLead Arrangers and JointBookrunners, SunTrustBank, as SyndicationAgent, and Rabobank,N.A. as DocumentationAgent. 8-K 000-26497 03/14/13 10.1 10.10.02 Security Agreement, datedas of March 14, 2013, byand among SalemCommunicationsCorporation, as Borrowerand the Guarantors partythereto and Wells FargoBank, NationalAssociation, asAdministrative Agent. 8-K 000-26497 03/14/13 10.2 14 Code of Ethics - - - - X21 Subsidiaries of SalemMedia Group, Inc. - - - - X 151Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 FiledHerewith23.1 Consent of SingerLewakLLP, IndependentRegistered PublicAccounting Firm. - - - - X23.2 Consent of CroweHorwath LLP,Independent RegisteredPublic Accounting Firm. - - - - X23.3 Consent of NobleFinancial Capital MarketsCapital Markets datedMarch 4, 2015. - - - - X31.1 Certification of Edward G.Atsinger III Pursuant toRules 13a-14(a) and 15d-14(a) under the ExchangeAct. - - - - X31.2 Certification of Evan D.Masyr Pursuant to Rules13a-14(a) and 15d-14(a)under the Exchange Act. - - - - X32.1 Certification of Edward G.Atsinger III Pursuant to 18U.S.C. Section 1350. - - - - X32.2 Certification of Evan D.Masyr Pursuant to 18U.S.C. Section 1350. - - - - X101 The following financialinformation from theAnnual Report on Form10-K for the fiscal yearended December 31, 2016,formatted in XBRL(Extensible BusinessReporting Language) andfurnished electronicallyherewith: (i) theConsolidated BalanceSheets (ii) ConsolidatedStatements of Operations(iii) the ConsolidatedStatement ofStockholders’ Equity (iv)the ConsolidatedStatements of Cash Flows(v) the Notes to theConsolidated FinancialStatements. - - - - X 152Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 10, 2017 By: /s/ EDWARD G. ATSINGER III Edward G. Atsinger III Chief Executive OfficerMarch 10, 2017 By: /s/ EVAN D. MASYR Evan D. Masyr Executive Vice President and Chief Financial Officer 153Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 10, 2017 /s/ EVAN D. MASYR Executive Vice President and Chief Financial Officer Evan D. Masyr (Principal Financial Officer and Principal Accounting Officer) March 10, 2017 /s/ STUART W. EPPERSON Chairman Stuart W. Epperson March 10, 2017 /s/ ROLAND S. HINZ Director Roland S. Hinz March 10, 2017 /s/ JONATHAN VENVERLOH Director Jonathan Venverloh March 10, 2017 /s/ RICHARD A. RIDDLE Director Richard A. Riddle March 10, 2017 /s/ JAMES KEET LEWIS Director James Keet Lewis March 10, 2017 /s/ ERIC HALVORSON Director Eric Halvorson March 10, 2017 /s/ EDWARD C. ATSINGER Director Edward C. Atsinger March 10, 2017 /s/ STUART W. EPPERSON JR. Director Stuart W. Epperson Jr. March 10, 2017 154Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Exhibits10.07.01 Asset Purchase Agreement, dated May 25, 2016, by and between Pennsylvania Media Associates, Inc. and Delmarva EducationalAssociation (FM Translator W224BU, Lake City, Florida).10.07.02 Asset Purchase Agreement, dated May 18, 2016, by and between Pennsylvania Media Associates, Inc. and Delmarva EducationalAssociation (FM Translator W222BT, Palm Coast, Florida) (the “Palm Coast APA”).10.07.02.01 First Amendment to Palm Coast APA dated May 25, 2016.10.07.02.02 Second Amendment to Palm Coast APA dated July 27, 2016.10.07.02.03 Third Amendment to Palm Coast APA dated July 29, 2016.10.07.02.04 First Assignment and Assumption of Purchase Agreement dated July 27, 2016 from Pennsylvania Media Associates, Inc. to CaronBroadcasting, Inc.10.07.02.05 Second Assignment and Assumption of Asset Purchase Agreement dated July 29, 2016 from Caron Broadcasting, Inc. to South TexasBroadcasting, Inc.14 Code of Ethics21 Subsidiaries of Salem Media Group Inc.23.1 Consent of SingerLewak LLP, Independent Registered Public Accounting Firm.23.2 Consent of Crowe Horwath LLP, Independent Registered Public Accounting Firm. 23.3 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, 2016, 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 ofCash Flows (v) the Notes to the Consolidated Financial Statements. 155 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 10.07.01 FINAL ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (this “Agreement”) is made as of this 25th day of May, 2016, by and among Delmarva Educational Association, aFlorida not-for-profit corporation (“Seller”), and Pennsylvania Media Associates, Inc., a Pennsylvania corporation (“Buyer”). Recitals A. Seller is the Federal Communications Commission (“FCC”) licensee of FM translator station, W224BU, licensed to Lake City, FL, (FacilityID No. 144428) (the “Translator”). B. Seller has agreed to sell the Translator to Buyer, and Buyer has agreed to purchase certain assets relating to the Translator from Seller, on theterms and conditions set forth herein. Agreements In consideration of the foregoing, and the mutual covenants and agreements set forth below, Seller and Buyer hereby agree as follows: 1. Assignment Application. The parties shall cooperate in the prompt preparation and filing of an application with the FCC for consent to theassignment of the FCC Translator licenses, permits and authorizations (including pending licenses, permits and authorizations), and any renewals,extensions, amendments or modifications thereof, for the operation of the Translator (the “License”) from Seller to Buyer (the “Assignment Application”).Such application is to be filed as soon as is practicable. The parties shall cooperate in the diligent submission of any additional information requested orrequired by the FCC with respect to such application, and shall take all steps reasonably required for the expeditious prosecution of the AssignmentApplication to a favorable conclusion, and shall diligently oppose any objections to, appeals from or petitions to reconsider such approval of the FCC, to theend that the FCC order granting consent to the assignment of the License may be obtained as soon as practicable, provided, however, that in the event theapplication for assignment of the License has been designated for hearing, then the party which is not the subject of the hearing (or which is not the partywhose alleged actions or omissions resulted in the designation for hearing) may elect to terminate this Agreement upon written notice to the other party.. 2. Assets to be Conveyed. On the Closing Date, as defined in Section 6 hereof, Seller will sell, assign, transfer, convey and deliver to Buyer: a. the License; b. Except for supplies and other incidental items which in the aggregate are not of material value, all tangible personal property usedor useful in the operation of the Translator which Buyer elects to purchase (the “Tangible Personal Property”), together with suchmodifications, replacements, improvements and additional items made or acquired between the date hereof and the Closing Date. Sellershall provide a complete itemized list of all tangible personal property used or useful in the operation of the Translator to Buyer withinthirty (30) days after the date of this Agreement, and Buyer will inform Seller within thirty (30) days of the receipt of the list what specifictangible personal property Buyer elects to purchase as part of this transaction; and Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW224BUPage 2 of 10 c. any files, records, and intangible property or property rights, including but not limited to intellectual property and goodwill, ofSeller related to the Translator. The foregoing assets (the “Purchased Assets”) are to be conveyed by Seller to Buyer through an assignment and any other document of transfer (the“Closing Documents”) customary for such purpose and satisfactory in form and substance to Buyer, Seller, and their respective counsel. The Purchased Assetsare to be conveyed to Buyer free and clear of any claims, liabilities, mortgages, deeds of trust, assignments, liens, pledges, conditions, exceptions, restrictions,limitations, charges, security interests or other encumbrances of any nature whatsoever (collectively, “Liens”). The Purchased Assets specifically shall not include: (i) any real property interests of Seller, whether owned or leased, relating to the Translator; (ii)any contracts entered into by Seller relating to the Translator; or (iii) any cash or cash equivalents. 3. No Liabilities Assumed. Buyer shall not assume or in any manner be liable for any debts, liens, obligations or liabilities of Seller, whetherexpress or implied, known or unknown, contingent or absolute. 4. Purchase Price. The Purchase Price (“Purchase Price”) to be paid on the Closing Date by Buyer for the Purchased Assets shall be Sixty FiveThousand Dollars $65,000), to be paid to Seller at Closing by wire transfer by Buyer of immediately available funds to Seller. 5. Allocation of the Purchase Price; Adjustments to Purchase Price. Buyer and Seller shall agree to an allocation of the Purchase Price asreasonably established by Buyer. Buyer and Seller shall use such allocation for all reporting purposes in connection with federal, state and local income and,to the extent permitted under applicable law, franchise taxes. Buyer and Seller agree to report such allocation to the Internal Revenue Service in the formrequired by Treasury Regulation § 1.1060-1T. All operating income and operating expenses of the Translator shall be adjusted and allocated between Seller and Buyer, and an adjustment in thePurchase Price shall be made as provided in this Section, to the extent necessary to reflect the principle that all such income and expenses attributable to theoperation of the Translator on or before the Closing Date shall be for the account of Seller, and all income and expenses attributable to the operation of theTranslator after the Closing Date shall be for the account of Buyer. To the extent not inconsistent with the express provisions of this Agreement, theallocations made pursuant to this Paragraph shall be made in accordance with generally accepted accounting principles. Adjustments pursuant to this Sectionshall be made at Closing to the extent practicable. Further prorations and adjustments shall be made by Buyer and Seller no later than (90) days following theClosing Date, or such later date as shall be mutually agreed to by Seller and Buyer. In the event Buyer and Seller cannot agree on the prorations andadjustments under this subsection, the parties will refer the disagreement to a firm of independent certified public accountants, mutually acceptable to Sellerand Buyer, whose decision shall be final. The fees and expenses of such accountants shall be paid by the party who does not prevail on the disputed mattersdecided by the accountants. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW224BUPage 3 of 10 6. Closing. The Closing, or the Closing Date, as used throughout this Agreement, shall take place within five (5) business days after the FCCshall have consented to assignment of the License to Buyer and, unless waived by Buyer, in Buyer’s sole discretion, such consent shall have become a FinalOrder, subject to satisfaction of or waiver of the other conditions precedent set forth herein. The term “Final Order” means such consent shall no longer besubject to review, reconsideration, appeal, or remand under applicable laws and the rules of the FCC. 7. Representations and Warranties of Seller. Seller hereby represents and warrants to Buyer that: a. Seller is, and as of the Closing Date will be, a not-for-profit corporation, duly organized, validly existing and in good standing inthe State of Florida. Seller has the requisite power and authority to enter into and fulfill its obligations under this Agreement b. The execution and delivery of this Agreement and the consummation of the transaction contemplated hereby have or will be dulyauthorized and approved by all necessary action on the part of Seller prior to Closing. No other or further corporate act on the part of Seller is necessary toauthorize this Agreement or the consummation of the transaction contemplated hereby. This Agreement constitutes the legal, valid and binding obligation ofSeller, enforceable in accordance with its terms. c. Subject to obtaining the approval of the FCC, the execution, delivery and performance of this Agreement (i) does not require theconsent of any third party, and (ii) will not conflict with, result in a breach of, or constitute a default under any agreement or instrument to which Seller is aparty or by which Seller is bound, or under any law, judgment, order, decree, rule or regulation of any court or governmental body which is applicable toSeller or the Translator. d. Seller knows of no reason related to its qualifications which would disqualify it from owning or operating the Translator orassigning the License to Buyer. The License is valid and in full force and effect and constitutes all of the authorizations issued by the FCC in connectionwith the construction and/or operation of the Translator as provided in the License. Other than as set forth in the publicly available FCC records, the Licenseis not subject to any restriction or condition that would limit in any respect the construction and/or operation of the FM translator as now intended. There isnot pending or threatened any action by or before the FCC to revoke, suspend, cancel, rescind or modify the License (other than proceedings relating to FCCrules of general applicability), and there is no order to show cause, notice of violation, notice of apparent liability, or notice of forfeiture or complaint by orbefore the FCC, pending or threatened, against Seller regarding the Translator. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW224BUPage 4 of 10 e. Seller has complied in all material respects with all requirements to file reports, applications and other documents with the FCCwith respect to the Translator, and all such reports, applications and documents are complete and correct in all material respects. f. Seller has, and on the Closing Date will have, good and marketable title to all the Purchased Assets, free and clear, of all claims andLiens. The list of tangible personal property to be provided by Seller pursuant to Section 2b shall be complete and accurate. The Tangible Personal Propertyused to a material extent in the operation of the Translator in the manner in which it is now operated is in good operating condition subject only to ordinarywear and tear. g. Between now and the date of Closing, Seller shall not, without the consent of Buyer, enter into any leases or contracts pertaining tothe Purchased Assets that do not expire as of the Closing Date, or remain Seller’s sole responsibility thereafter, or dispose of any of the Purchased Assetsexcept those for which a replacement or repair is provided, or agree to sell any of the Purchased Assets. h. There is and will be no claim, action, litigation, government inquiry, government proceeding or other similar matter, pending orthreatened, pertaining to the Purchased Assets. There is no basis for any such claim, action, litigation, government inquiry, government proceeding or othersimilar matter, which would individually or in the aggregate materially adversely affect the Purchased Assets. i. No insolvency proceedings of any character including without limitation, bankruptcy, receivership, reorganization, composition orarrangement with creditors, voluntary or involuntary, affecting the Seller or the Purchased Assets, are pending or threatened, and Seller has made noarrangement for the benefit of creditors, nor taken any action with a view to, or which would constitute the basis for the institution of, any such insolvencyproceedings. j. Seller has filed all federal, state and local tax returns which are required to be filed, and has paid all taxes and all assessments to theextent that such taxes and assessments have become due, other than such returns, taxes and assessments, the failure to file or pay would not, individually or inthe aggregate, materially adversely affect the Purchased Assets. k. No agent, broker, investment banker, or other person or firm acting on behalf of or under the authority of Seller or any affiliate ofSeller is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee, directly or indirectly, from Buyer in connection withtransactions contemplated by this Agreement. l. None of the representations or warranties made by Seller, nor any statement made in any document or certificate furnished by Sellerpursuant to this Agreement contains or will contain at the Closing, any untrue statement of a material fact, or omits or will omit at the Closing, to state anymaterial fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, notmisleading. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW224BUPage 5 of 10 8. Representations and Warranties of Buyer. Buyer hereby represents and warrants to Seller that: a. Buyer is, and as of the Closing Date will be, a corporation duly organized, validly existing and in good standing in the State ofPennsylvania. This Agreement constitutes a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms. b. The execution and delivery of this Agreement and the consummation of the transaction contemplated hereby have or will be dulyauthorized and approved by all necessary action on the part of Buyer prior to Closing. No other or further corporate act on the part of Buyer is necessary toauthorize this Agreement or the consummation of the transaction contemplated hereby. This Agreement constitutes the legal, valid and binding obligation ofBuyer, enforceable in accordance with its terms. c. Buyer knows of no reason related to its qualifications that would disqualify it from acquiring the Translator from Seller. d. Buyer has the financial resources necessary to consummate the transaction contemplated by this Agreement. e. No agent, broker, investment banker, or other person or firm acting on behalf of or under the authority of Buyer or any affiliate ofBuyer is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee, directly or indirectly, from Seller in connection withtransactions contemplated by this Agreement. f. None of the representations or warranties made by Buyer, nor any statement made in any document or certificate furnished by Buyerpursuant to this Agreement contains or will contain at the Closing, any untrue statement of a material fact, or omits or will omit at the Closing, to state anymaterial fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, notmisleading. 9. Expenses. Except as are otherwise specified in Section 10 herein, all expenses involved in the preparation and consummation of thisAgreement shall be borne by the party incurring such expense, provided, however, that the filing fee for the FCC assignment application shall be borneequally by Buyer and Seller. 10. Modification of the License. Seller hereby grants its consent for Buyer to file in Buyer’s name, pursuant to Section 73.3517(a) of the FCC’srules, an application on FCC Form 349 to modify the facilities authorized under the License (the “Minor Mod Application”). Such application shall beprepared and filed in accordance with the procedure specified by the FCC pursuant to MB Docket 13-249 to request modifications to the License and/or achange in the transmitter site for the Translator to a location designated by Buyer which, if approved by the FCC, will permit the Translator to be used as afill-in for Buyer's Class C or Class D AM radio station WBZW(AM). Such Minor Mod Application shall include a request that the Permit expiration date betolled for a period to include reasonable construction time following the grant of (a) the Assignment Application and (b) the Minor Mod Application.Notwithstanding anything to the contrary contained herein, Buyer will assume all the expenses, duties of prosecution (including, without limitation,reasonable technical modifications and good-faith negotiations to settle mutually exclusive FM modification applications filed by third-parties), and riskattendant to the Minor Mod Application, the post-closing construction, and use of the Translator. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW224BUPage 6 of 10 11. Seller’s Closing Conditions. All obligations of Seller to consummate the transactions contemplated by this Agreement are subject to thefulfillment, on or prior to the Closing Date, of each of the following conditions which, except for the initial consent of the FCC to the assignment, may bewaived in whole or in part by Seller: a. the FCC shall have consented to the assignment of the License to Buyer without any condition materially adverse to Seller; b. Buyer shall have delivered the balance of the Purchase Price in the manner specified in Section 3 hereof; and 12. Buyer’s Closing Conditions. All obligations of Buyer to consummate the transactions contemplated by this Agreement are subject to thefulfillment, on or prior to the Closing Date, of each of the following conditions which, except for the initial consent of the FCC to the assignment, may bewaived in whole or in part by Buyer: a. the FCC shall have consented to the assignment of the License to Buyer without any condition materially adverse to Buyer, andsuch consent shall have become a Final Order; b. Seller shall have executed and delivered to Buyer the Closing Documents and conveyed the Purchased Assets to Buyer inaccordance with this Agreement; c. all representations and warranties of Seller made herein shall be true and correct in all material respects as of the Closing Date; and d. as of the Closing Date, Seller shall have complied in all material respects with all covenants and conditions of this Agreement. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW224BUPage 7 of 10 13. Termination. This Agreement may be terminated by the parties as follows: a. If either Buyer or Seller shall be in material breach of this Agreement, and such breach is not cured after twenty (20) days’ writtennotice from the other party or, if the breach is not of a type that can be cured within such time period, then after a reasonable time to cure such breach so longas the breaching party has commenced good faith diligent efforts to cure such breach within said time period and thereafter diligently pursues such cure tocompletion, then the other party, if not then in material breach itself, may terminate this Agreement. In the event of a material breach of this Agreement bySeller, instead of termination of this Agreement and seeking damages from Seller, Buyer shall alternatively have the right to seek and obtain specificperformance of the terms of this Agreement, it being agreed by Seller that the Purchased Assets are unique assets. If any action is brought by Buyer pursuantto this subsection to enforce this Agreement, Seller shall waive the defense that there is an adequate remedy at law. In the event of termination of thisAgreement by Seller as a result of an uncured breach of this Agreement by Buyer, Seller’s sole and exclusive remedy shall be payment from Buyer to Seller ofthe amount of $6,500.00 as liquidated damages. THE DELIVERY OF THE LIQUIDATED DAMAGES AMOUNT TO SELLER SHALL BE CONSIDEREDLIQUIDATED DAMAGES AND NOT A PENALTY, AND SHALL BE THE RECIPIENT’S SOLE REMEDY AT LAW OR IN EQUITY FOR A BREACHHEREUNDER IF CLOSING DOES NOT OCCUR. BUYER AND SELLER EACH ACKNOWLEDGE AND AGREE THAT THIS LIQUIDATED DAMAGEAMOUNT IS REASONABLE IN LIGHT OF THE ANTICIPATED HARM WHICH WILL BE CAUSED BY A BREACH OF THIS AGREEMENT, THEDIFFICULTY OF PROOF OF LOSS, THE INCONVENIENCE AND NON-FEASIBILITY OF OTHERWISE OBTAINING AN ADEQUATE REMEDY, AND THEVALUE OF THE TRANSACTION TO BE CONSUMMATED HEREUNDER. b. If the FCC or a court shall have issued an order or taken any other action, in any case having the effect of permanently restraining,enjoining or otherwise prohibiting or making the transaction not feasible, and such order or other action is finally determined, then either party mayterminate this Agreement provided, however, that the right to terminate this Agreement under this Section 13(b) shall not be available to a party whose failureto fulfill any obligation under this Agreement shall have been the principal cause of, or shall have resulted in, such order or action. c. If the Closing has not occurred within twelve (12) months after the date of this Agreement, then either party may terminate thisAgreement, provided, however, that the right to terminate this Agreement under this Section 13(c) shall not be available to any party whose failure to fulfillany obligation under this Agreement shall have been the principal cause of, or shall have resulted in unreasonable delay in the Closing. 14. Survival. The representations and warranties of Buyer and Seller set forth above shall survive the Closing Date for a period of twelve (12)months (the “Survival Period”), except that for any representation or warranty of Buyer or Seller as to such party’s qualifications and authority toconsummate the transactions contemplated hereby, title of the parties to the Purchased Assets, any tax obligations of Seller, or the Purchased Assets beingfree and clear of any liens the Survival Period shall be indefinite. Seller indemnifies and holds Buyer harmless from any loss, liability, damage or expense(including legal and other expenses incident thereto) arising from or pertaining to (a) ownership of the Purchased Assets prior to the date of Closing or (b)breach of any covenants, representations or warranties of this Agreement, by Seller. Buyer indemnifies and holds Seller harmless from any loss, liability,damage or expense (including legal and other expenses incident thereto) arising from or pertaining to (a) ownership or operation of the Purchased Assetssubsequent to the date of Closing or (b) breach of any covenants, representations or warranties in this Agreement, by Buyer. No claims may be brought underthis Agreement unless written notice describing in reasonable detail the nature and basis of such claim is given on or prior to the last day of the SurvivalPeriod. In the event such notice is given, the right to indemnification with respect thereto under this provision shall survive the applicable Survival Perioduntil such claim is finally resolved and any obligations with respect thereto are fully satisfied, and the indemnifying party shall be entitled at its own expenseto compromise or defend against the claim with counsel reasonably satisfactory to the indemnified party; provided, that once the defense thereof is assumedby the indemnifying party, the indemnifying party shall keep the indemnified party advised of all developments in the defense thereof and any relatedlitigation, and the indemnified party shall be entitled at all times to participate in the defense thereof at its own expense. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW224BUPage 8 of 10 15. Control of Translator. Between the date of this Agreement and the Closing Date, Buyer shall not control the Translator, which shall remainthe sole responsibility and under the control of Seller, subject to Seller's compliance with this Agreement. 16. Entire Agreement. This Agreement, together with all exhibits and schedules hereto, constitute the entire agreement between the parties andsupersede any prior negotiations, agreements, understandings or arrangements between the parties with respect to the subject matter hereof. 17. Amendments and Waivers. No term or provision of this Agreement may be amended, waived, discharged or terminated orally but only byan instrument in writing signed by the party against whom the enforcement of such amendment, waiver, discharge or termination is sought. Any waiver shallbe effective only in accordance with its express terms and conditions. 18. Construction and Enforcement. This Agreement shall be construed and enforced in accordance with the internal laws of the State ofFlorida. Any disputes arising out of this Agreement shall be resolved in state or federal court in Florida. 19. Successors and Assigns. This Agreement shall inure to the benefit of and be binding on the permitted successors and assigns of the partieshereto. This Agreement and any rights hereunder shall not be assignable by either party hereto without the prior written consent of the other party.Notwithstanding the foregoing, Buyer may in its sole and absolute discretion, assign all of its right, title, interest and obligation under this Agreement to anyentity controlled by, or under common control with Buyer, including any subsidiary of Salem Media Group, Inc. 20. Cooperation. Both before and after the Closing, Seller and Buyer shall each cooperate, take such actions and execute and deliver suchdocuments as may be reasonably requested by the other party in order to carry out the provisions of this Agreement. 21. Notices. All notices hereunder shall be delivered in writing and shall be deemed to have been duly given if delivered and received bycertified or registered mail, return receipt requested, or by expedited courier service, to the following addresses or such other addresses as any party mayprovide by written notice: Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW224BUPage 9 of 10 To Seller:Delmarva Educational Foundation3780 Will Scarlet RoadWinston-Salem, North Carolina 27104Attention: Nancy Epperson President To Buyer:Pennsylvania Media Associates, Inc.4880 Santa Rosa RoadCamarillo, California 93012Attention: Christopher J. Henderson, Senior Vice President/Secretary 22. Exclusivity. While this Agreement is in effect, Seller agrees not to engage in any discussions or negotiations concerning any potential saleof the Purchased Assets to any party other than Buyer or its assigns. 23. Attorneys’ Fees. If any action at law or equity is brought, whether in a judicial proceeding or arbitration, to enforce or interpret anyprovision of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees and expenses from the other party, which fees andexpenses shall be in addition to any other relief, which may be awarded. 24. Counterparts. This Agreement may be signed in counterparts with the same effect as if the signature on each counterpart were upon thesame instrument. Executed copies of this Agreement transmitted by facsimile or other electronic means shall be valid and binding. [The remainder of this page has been intentionally left blank. Signatures appear on the next page.] Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW224BUPage 10 of 10 [Signature page to Asset Purchase Agreement] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SELLER: DELMARVA EDUCATIONAL ASSOCIATION By:/s/ Nancy. A. Epperson Nancy A. Epperson President BUYER: PENNSYLVANIA MEDIA ASSOCIATES, INC. By:/s/ Christopher J. Henderson Christopher J. Henderson Senior Vice President/Secretary Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 10.07.02 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (this “Agreement”) is made as of this 18th day of May, 2016, by and among Delmarva Educational Association, aFlorida not-for-profit corporation (“Seller”), and Pennsylvania Media Associates, Inc., a Pennsylvania corporation (“Buyer”). Recitals A. Seller is the holder of a Federal Communications Commission (“FCC”) construction permit for a new FM translator station, W222BT toserve the community of Palm Coast, FL, (Facility ID No. 142973, FCC File No. BNPFT 20130815ABU) (the “Permit”). B. Seller has agreed to sell the Permit to Buyer, and Buyer has agreed to purchase the Permit from Seller, on the terms and conditions set forthherein. Agreements In consideration of the foregoing, and the mutual covenants and agreements set forth below, Seller and Buyer hereby agree as follows: 1. Assignment Application. The parties shall cooperate in the prompt preparation and filing of an application with the FCC for consent to theassignment of the Permit from Seller to Buyer (the “Assignment Application”). Such application is to be filed as soon as is practicable. The parties shallcooperate in the diligent submission of any additional information requested or required by the FCC with respect to such application, and shall take all stepsreasonably required for the expeditious prosecution of the Assignment Application to a favorable conclusion, and shall diligently oppose any objections to,appeals from or petitions to reconsider such approval of the FCC, to the end that the FCC order granting consent to the assignment of the Permit may beobtained as soon as practicable, provided, however, that in the event the application for assignment of the Permit has been designated for hearing, then theparty which is not the subject of the hearing (or which is not the party whose alleged actions or omissions resulted in the designation for hearing) may elect toterminate this Agreement upon written notice to the other party.. 2. Assets to be Conveyed. On the Closing Date, as defined in Section 6 hereof, Seller will sell, assign, transfer, convey and deliver to Buyer: a. the Permit; and b. any files, records, and intangible property or property rights of Seller related to the Permit. The foregoing assets (the “Purchased Assets”) are to be conveyed by Seller to Buyer through an assignment and any other document of transfer (the“Closing Documents”) customary for such purpose and satisfactory in form and substance to Buyer, Seller, and their respective counsel. The Purchased Assetsare to be conveyed to Buyer free and clear of any claims, liabilities, mortgages, deeds of trust, assignments, liens, pledges, conditions, exceptions, restrictions,limitations, charges, security interests or other encumbrances of any nature whatsoever (collectively, “Liens”). Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW222BTPage 2 of 9 3. No Liabilities Assumed. Buyer shall not assume or in any manner be liable for any debts, liens, obligations or liabilities of Seller, whetherexpress or implied, known or unknown, contingent or absolute. 4. Purchase Price. The Purchase Price (“Purchase Price”) to be paid on the Closing Date by Buyer for the Purchased Assets shall be Sixty FiveThousand Dollars $65,000), to be paid to Seller at Closing by wire transfer by Buyer of immediately available funds to Seller. 5. Allocation of the Purchase Price. Buyer and Seller shall agree to an allocation of the Purchase Price as reasonably established by Buyer.Buyer and Seller shall use such allocation for all reporting purposes in connection with federal, state and local income and, to the extent permitted underapplicable law, franchise taxes. Buyer and Seller agree to report such allocation to the Internal Revenue Service in the form required by Treasury Regulation§ 1.1060-1T. 6. Closing. The Closing, or the Closing Date, as used throughout this Agreement, shall take place within five (5) business days after the FCCshall have consented to assignment of the Permit to Buyer and, unless waived by Buyer, in Buyer’s sole discretion, such consent shall have become a FinalOrder, subject to satisfaction of or waiver of the other conditions precedent set forth above. The term “Final Order” means such consent shall no longersubject to review, reconsideration, appeal, or remand under applicable laws and the rules of the FCC. 7. Representations and Warranties of Seller. Seller hereby represents and warrants to Buyer that: a. Seller is, and as of the Closing Date will be, a not-for-profit corporation, duly organized, validly existing and in good standing inthe State of Florida. Seller has the requisite power and authority to enter into and fulfill its obligations under this Agreement b. The execution and delivery of this Agreement and the consummation of the transaction contemplated hereby have or will be dulyauthorized and approved by all necessary action on the part of Seller prior to Closing. No other or further corporate act on the part of Seller is necessary toauthorize this Agreement or the consummation of the transaction contemplated hereby. This Agreement constitutes the legal, valid and binding obligation ofSeller, enforceable in accordance with its terms. c. Subject to obtaining the approval of the FCC, the execution, delivery and performance of this Agreement (i) does not require theconsent of any third party, and (ii) will not conflict with, result in a breach of, or constitute a default under any agreement or instrument to which Seller is aparty or by which Seller is bound, or under any law, judgment, order, decree, rule or regulation of any court or governmental body which is applicable toSeller or the Permit. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW222BTPage 3 of 9 d. Seller knows of no reason related to its qualifications which would disqualify it from holding the Permit or assigning the Permit toBuyer. The Permit is valid and in full force and effect and constitutes all of the authorizations issued by the FCC in connection with the construction and/oroperation of the new FM translator as provided in the Permit. Other than as set forth in the publicly available FCC records, the Permit is not subject to anyrestriction or condition that would limit in any respect the construction and/or operation of the FM translator as now intended. There is not pending orthreatened any action by or before the FCC to revoke, suspend, cancel, rescind or modify the Permit (other than proceedings relating to FCC rules of generalapplicability), and there is no order to show cause, notice of violation, notice of apparent liability, or notice of forfeiture or complaint by or before the FCC,pending or threatened, against Seller regarding the Permit. e. Seller has complied in all material respects with all requirements to file reports, applications and other documents with the FCCwith respect to the Permit, and all such reports, applications and documents are complete and correct in all material respects. f. Seller has, and on the Closing Date will have, good and marketable title to all the Purchased Assets, free and clear, of all claims andLiens. g. There are no leases or contracts pertaining to the Purchased Assets, and between now and the date of Closing, Seller shall not,without the consent of Buyer, enter into any leases or contracts pertaining to the Purchased Assets or dispose of or agree to sell any of the Purchased Assets. h. There is and will be no claim, action, litigation, government inquiry, government proceeding or other similar matter, pending orthreatened, pertaining to the Purchased Assets. There is no basis for any such claim, action, litigation, government inquiry, government proceeding or othersimilar matter, which would individually or in the aggregate materially adversely affect the Purchased Assets. i. No insolvency proceedings of any character including without limitation, bankruptcy, receivership, reorganization, composition orarrangement with creditors, voluntary or involuntary, affecting the Seller or the Purchased Assets, are pending or threatened, and Seller has made noarrangement for the benefit of creditors, nor taken any action with a view to, or which would constitute the basis for the institution of, any such insolvencyproceedings. j. Seller has filed all federal, state and local tax returns which are required to be filed, and has paid all taxes and all assessments to theextent that such taxes and assessments have become due, other than such returns, taxes and assessments, the failure to file or pay would not, individually or inthe aggregate, materially adversely affect the Purchased Assets. k. No agent, broker, investment banker, or other person or firm acting on behalf of or under the authority of Buyer or any affiliate ofBuyer is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee, directly or indirectly, from Seller in connection withtransactions contemplated by this Agreement. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW222BTPage 4 of 9 l. None of the representations or warranties made by Seller, nor any statement made in any document or certificate furnished by Sellerpursuant to this Agreement contains or will contain at the Closing, any untrue statement of a material fact, or omits or will omit at the Closing, to state anymaterial fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, notmisleading. 8. Representations and Warranties of Buyer. Buyer hereby represents and warrants to Seller that: a. Buyer is, and as of the Closing Date will be, a corporation duly organized, validly existing and in good standing in the State ofPennsylvania. This Agreement constitutes a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms. b. The execution and delivery of this Agreement and the consummation of the transaction contemplated hereby have or will be dulyauthorized and approved by all necessary action on the part of Buyer prior to Closing. No other or further corporate act on the part of Buyer is necessary toauthorize this Agreement or the consummation of the transaction contemplated hereby. This Agreement constitutes the legal, valid and binding obligation ofBuyer, enforceable in accordance with its terms. c. Buyer knows of no reason related to its qualifications that would disqualify it from acquiring the Permit from Seller. d. Buyer has the financial resources necessary to consummate the transaction contemplated by this Agreement. e. No agent, broker, investment banker, or other person or firm acting on behalf of or under the authority of Buyer or any affiliate ofBuyer is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee, directly or indirectly, from Seller in connection withtransactions contemplated by this Agreement. f. None of the representations or warranties made by Buyer, nor any statement made in any document or certificate furnished by Buyerpursuant to this Agreement contains or will contain at the Closing, any untrue statement of a material fact, or omits or will omit at the Closing, to state anymaterial fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, notmisleading. 9. Expenses. Except as are otherwise specified in Section 10 herein, all expenses involved in the preparation and consummation of thisAgreement shall be borne by the party incurring such expense, provided, however, that the filing fee for the FCC assignment application shall be borneequally by Buyer and Seller. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW222BTPage 5 of 9 10. Modification of the Permit. Seller hereby grants its consent for Buyer to file in Buyer’s name, pursuant to Section 73.3517(a) of the FCC’srules, an application on FCC Form 349 to modify the facilities authorized under the Permit (the “Minor Mod Application”). Such application shall beprepared and filed in accordance with the procedure specified by the FCC pursuant to MB Docket 13-249 to request modifications to the Permit and/or achange in the transmitter site for the Permit to a location designated by Buyer which, if approved by the FCC, will permit the Translator to be used as a fill-infor Buyer's Class C or Class D AM radio station WBZW(AM). Such Minor Mod Application shall include a request that the Permit expiration date be tolledfor a period to include reasonable construction time following the grant of (a) the Assignment Application and (b) the Minor Mod Application.Notwithstanding anything to the contrary contained herein, Buyer will assume all the expenses, duties of prosecution (including, without limitation,reasonable technical modifications and good-faith negotiations to settle mutually exclusive FM modification applications filed by third-parties), and riskattendant to the Minor Mod Application, the post-closing construction, and use of the Permit. 11. Seller’s Closing Conditions. All obligations of Seller to consummate the transactions contemplated by this Agreement are subject to thefulfillment, on or prior to the Closing Date, of each of the following conditions which, except for the initial consent of the FCC to the assignment, may bewaived in whole or in part by Seller: a. the FCC shall have consented to the assignment of the Permit to Buyer without any condition materially adverse to Seller; and b. Buyer shall have delivered the balance of the Purchase Price in the manner specified in Section 3 hereof. 12. Buyer’s Closing Conditions. All obligations of Buyer to consummate the transactions contemplated by this Agreement are subject to thefulfillment, on or prior to the Closing Date, of each of the following conditions which, except for the initial consent of the FCC to the assignment, may bewaived in whole or in part by Buyer: a. the FCC shall have consented to the assignment of the Permit to Buyer without any condition materially adverse to Buyer, and suchconsent shall have become a Final Order; b. Seller shall have executed and delivered to Buyer the Closing Documents and conveyed the Purchased Assets to Buyer inaccordance with this Agreement; c. all representations and warranties of Seller made herein shall be true and correct in all material respects as of the Closing Date; and d. as of the Closing Date, Seller shall have complied in all material respects with all covenants and conditions of this Agreement. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW222BTPage 6 of 9 13. Termination. This Agreement may be terminated by the parties as follows: a. If either Buyer or Seller shall be in material breach of this Agreement, and such breach is not cured after twenty (20) days’ writtennotice from the other party or, if the breach is not of a type that can be cured within such time period, then after a reasonable time to cure such breach so longas the breaching party has commenced good faith diligent efforts to cure such breach within said time period and thereafter diligently pursues such cure tocompletion, then the other party, if not then in material breach itself, may terminate this Agreement. In the event of a material breach of this Agreement bySeller, instead of termination of this Agreement and seeking damages from Seller, Buyer shall alternatively have the right to seek and obtain specificperformance of the terms of this Agreement, it being agreed by Seller that the Purchased Assets are unique assets. If any action is brought by Buyer pursuantto this subsection to enforce this Agreement, Seller shall waive the defense that there is an adequate remedy at law. In the event of termination of thisAgreement by Seller as a result of an uncured breach of this Agreement by Buyer, Seller’s sole and exclusive remedy shall be payment from Buyer to Seller ofthe amount of $6,500.00 as liquidated damages. THE DELIVERY OF THE LIQUIDATED DAMAGES AMOUNT TO SELLER SHALL BE CONSIDEREDLIQUIDATED DAMAGES AND NOT A PENALTY, AND SHALL BE THE RECIPIENT’S SOLE REMEDY AT LAW OR IN EQUITY FOR A BREACHHEREUNDER IF CLOSING DOES NOT OCCUR. BUYER AND SELLER EACH ACKNOWLEDGE AND AGREE THAT THIS LIQUIDATED DAMAGEAMOUNT IS REASONABLE IN LIGHT OF THE ANTICIPATED HARM WHICH WILL BE CAUSED BY A BREACH OF THIS AGREEMENT, THEDIFFICULTY OF PROOF OF LOSS, THE INCONVENIENCE AND NON-FEASIBILITY OF OTHERWISE OBTAINING AN ADEQUATE REMEDY, AND THEVALUE OF THE TRANSACTION TO BE CONSUMMATED HEREUNDER. b. If the FCC or a court shall have issued an order or taken any other action, in any case having the effect of permanently restraining,enjoining or otherwise prohibiting or making the transaction not feasible, and such order or other action is finally determined, then either party mayterminate this Agreement provided, however, that the right to terminate this Agreement under this Section 13(b) shall not be available to a party whose failureto fulfill any obligation under this Agreement shall have been the principal cause of, or shall have resulted in, such order or action. c. If the Closing has not occurred within twelve (12) months after the date of this Agreement, then either party may terminate thisAgreement, provided, however, that the right to terminate this Agreement under this Section 13(c) shall not be available to any party whose failure to fulfillany obligation under this Agreement shall have been the principal cause of, or shall have resulted in unreasonable delay in the Closing. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW222BTPage 7 of 9 14. Survival. The representations and warranties of Buyer and Seller set forth above shall survive the Closing Date for a period of twelve (12)months (the “Survival Period”), except that for any representation or warranty of Buyer or Seller as to such party’s qualifications and authority toconsummate the transactions contemplated hereby, title of the parties to the Purchased Assets, any tax obligations of Seller, or the Purchased Assets beingfree and clear of any liens the Survival Period shall be indefinite. Seller indemnifies and holds Buyer harmless from any loss, liability, damage or expense(including legal and other expenses incident thereto) arising from or pertaining to (a) ownership of the Purchased Assets prior to the date of Closing or (b)breach of any covenants, representations or warranties of this Agreement, by Seller. Buyer indemnifies and holds Seller harmless from any loss, liability,damage or expense (including legal and other expenses incident thereto) arising from or pertaining to (a) ownership or operation of the Purchased Assetssubsequent to the date of Closing or (b) breach of any covenants, representations or warranties in this Agreement, by Buyer. No claims may be brought underthis Agreement unless written notice describing in reasonable detail the nature and basis of such claim is given on or prior to the last day of the SurvivalPeriod. In the event such notice is given, the right to indemnification with respect thereto under this provision shall survive the applicable Survival Perioduntil such claim is finally resolved and any obligations with respect thereto are fully satisfied, and the indemnifying party shall be entitled at its own expenseto compromise or defend against the claim with counsel reasonably satisfactory to the indemnified party; provided, that once the defense thereof is assumedby the indemnifying party, the indemnifying party shall keep the indemnified party advised of all developments in the defense thereof and any relatedlitigation, and the indemnified party shall be entitled at all times to participate in the defense thereof at its own expense. 15. Control of Permit. Between the date of this Agreement and the Closing Date, Buyer shall not control the Permit, which shall remain the soleresponsibility and under the control of Seller, subject to Seller's compliance with this Agreement. 16. Entire Agreement. This Agreement, together with all exhibits and schedules hereto, constitute the entire agreement between the parties andsupersede any prior negotiations, agreements, understandings or arrangements between the parties with respect to the subject matter hereof. 17. Amendments and Waivers. No term or provision of this Agreement may be amended, waived, discharged or terminated orally but only byan instrument in writing signed by the party against whom the enforcement of such amendment, waiver, discharge or termination is sought. Any waiver shallbe effective only in accordance with its express terms and conditions. 18. Construction and Enforcement. This Agreement shall be construed and enforced in accordance with the internal laws of the State ofFlorida. Any disputes arising out of this Agreement shall be resolved in state or federal court in Florida. 19. Successors and Assigns. This Agreement shall inure to the benefit of and be binding on the permitted successors and assigns of the partieshereto. This Agreement and any rights hereunder shall not be assignable by either party hereto without the prior written consent of the other party.Notwithstanding the foregoing, Buyer may in its sole and absolute discretion, assign all of its right, title, interest and obligation under this Agreement to anyentity controlled by, or under common control with Buyer, including any subsidiary of Salem Media Group, Inc. 20. Cooperation. Both before and after the Closing, Seller and Buyer shall each cooperate, take such actions and execute and deliver suchdocuments as may be reasonably requested by the other party in order to carry out the provisions of this Agreement. 21. Notices. All notices hereunder shall be delivered in writing and shall be deemed to have been duly given if delivered and received bycertified or registered mail, return receipt requested, or by expedited courier service, to the following addresses or such other addresses as any party mayprovide by written notice: Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW222BTPage 8 of 9 To Seller:Delmarva Educational Foundation3780 Will Scarlet RoadWinston-Salem, North Carolina 27104Attention: Nancy Epperson President To Buyer:Pennsylvania Media Associates, Inc.4880 Santa Rosa RoadCamarillo, California 93012Attention: Christopher J. Henderson, Senior Vice President/Secretary 22. Exclusivity. While this Agreement is in effect, Seller agrees not to engage in any discussions or negotiations concerning any potential saleof the Purchased Assets to any party other than Buyer or its assigns. 23. Attorneys’ Fees. If any action at law or equity is brought, whether in a judicial proceeding or arbitration, to enforce or interpret anyprovision of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees and expenses from the other party, which fees andexpenses shall be in addition to any other relief, which may be awarded. 24. Counterparts. This Agreement may be signed in counterparts with the same effect as if the signature on each counterpart were upon thesame instrument. Executed copies of this Agreement transmitted by facsimile or other electronic means shall be valid and binding. [The remainder of this page has been intentionally left blank. Signatures appear on the next page.] Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. Asset Purchase AgreementW222BTPage 9 of 9 [Signature page to Asset Purchase Agreement] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SELLER: DELMARVA EDUCATIONAL ASSOCIATION By:/s/ Nancy. A. Epperson Nancy A. Epperson President BUYER: PENNSYLVANIA MEDIA ASSOCIATES, INC. By:/s/ Christopher J. Henderson Christopher J. Henderson Senior Vice President/Secretary Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 10.07.02.01 FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT This First Amendment to the Asset Purchase Agreement (“Amendment”), is entered into as of May 25, 2016, and amends the Asset PurchaseAgreement for FM Translator construction permit W222BT, FCC Facility ID 142973, made and entered into as of the 18th of May, 2016 (the “Agreement”),by and between Delmarva Educational Association (“Seller”) and Pennsylvania Media Associates, Inc. (“Buyer”). RECITAL The purpose of this Amendment is to change the proposed primary station to be designated in the modification of the Permit that Buyer is allowed tofile under the Agreement. AGREEMENT In consideration of the mutual covenants and agreements set forth herein, the parties, intending to be legally bound, hereby agree as follows: 1. Amendment to Section 10. Section 10 of the Agreement shall be amended by deleting the existing second sentence of that Section andreplacing it with the following sentence: “Such application shall be prepared and filed in accordance with the procedure specified by the FCC pursuant toMB Docket 13-249 to request modifications to the Permit and/or a change in the transmitter site for the Permit to a location designated by Buyer which, ifapproved by the FCC, will permit the Translator to be used as a fill-in for Buyer’s Class B AM radio station WTLN(AM).” 2. Continued Effect of the Agreement. All capitalized terms not defined herein shall have the same meaning as in the Agreement. Except asexpressly modified by this Amendment, all other terms and conditions of the Agreement shall remain in full force and effect and be binding on the parties.This Amendment may not be modified, renewed, extended, or discharged except by a further amendment to the Agreement in writing, signed by both parties. 3. Effective Date of this Amendment. This Amendment shall be effective as of May 25, 2016. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first set forth above. PENNSYLVANIA MEDIA ASSOCIATES, INC. DELMARVA EDUCATIONAL ASSOCIATION /s/ Christopher J. Henderson /s/ Nancy. A. EppersonBy: Christopher J. Henderson By: Nancy A. EppersonIts: Senior Vice President/Secretary Its: President Page 1 of 1 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 10.07.02.02 SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT This Second Amendment to the Asset Purchase Agreement (“Amendment”), is entered into as of July 27, 2016, and amends the Asset PurchaseAgreement for FM Translator construction permit W222BT, FCC Facility ID 142973, made and entered into as of the 18th of May, 2016 (the “Agreement”),by and between Delmarva Educational Association (“Seller”) and Pennsylvania Media Associates, Inc. (“Buyer”). RECITAL The purpose of this Amendment is to change the proposed primary station to be designated in the modification of the Permit that Buyer is allowed tofile under the Agreement. AGREEMENT In consideration of the mutual covenants and agreements set forth herein, the parties, intending to be legally bound, hereby agree as follows: 1. Amendment to Section 10. Section 10 of the Agreement shall be amended by deleting the existing second sentence of that Section andreplacing it with the following sentence: “Such application shall be prepared and filed in accordance with the procedure specified by the FCC pursuant toMB Docket 13-249 to request modifications to the Permit and/or a change in the transmitter site for the Permit to a location designated by Buyer which, ifapproved by the FCC, will permit the Translator to be used as a fill-in for Buyer’s AM radio station WGUL(AM).” 2. Continued Effect of the Agreement. All capitalized terms not defined herein shall have the same meaning as in the Agreement. Except asexpressly modified by this Amendment, all other terms and conditions of the Agreement shall remain in full force and effect and be binding on the parties.This Amendment may not be modified, renewed, extended, or discharged except by a further amendment to the Agreement in writing, signed by both parties. 3. Effective Date of this Amendment. This Amendment shall be effective as of July 25, 2016. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first set forth above. PENNSYLVANIA MEDIA ASSOCIATES, INC. DELMARVA EDUCATIONAL ASSOCIATION /s/ Christopher J. Henderson /s/ Nancy. A. EppersonBy: Christopher J. Henderson By: Nancy A. EppersonIts: Senior Vice President/Secretary Its: President Page 1 of 1 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 10.07.02.03 THIRD AMENDMENT TO ASSET PURCHASE AGREEMENT This Third Amendment to the Asset Purchase Agreement (“Amendment”), is entered into as of July 29, 2016, and amends the Asset PurchaseAgreement for FM Translator construction permit W222BT, FCC Facility ID 142973, made and entered into as of the 18th of May, 2016 (the “Agreement”),by and between Delmarva Educational Association (“Seller”) and Pennsylvania Media Associates, Inc., which assigned the Agreement to CaronBroadcasting, Inc. as of July 27, 2016. Caron Broadcasting, Inc. in turn assigned the Agreement to South Coast Broadcasting, Inc. as of July 29, 2016(“Buyer”). RECITAL The purpose of this Amendment is to change the proposed primary station to be designated in the modification of the Permit that Buyer is allowed tofile under the Agreement. AGREEMENT In consideration of the mutual covenants and agreements set forth herein, the parties, intending to be legally bound, hereby agree as follows: 1. Amendment to Section 10. Section 10 of the Agreement shall be amended by deleting the existing second sentence of that Section andreplacing it with the following sentence: “Such application shall be prepared and filed in accordance with the procedure specified by the FCC pursuant toMB Docket 13-249 to request modifications to the Permit and/or a change in the transmitter site for the Permit to a location designated by Buyer which, ifapproved by the FCC, will permit the Translator to be used as a fill-in for Buyer’s AM radio station WTWD.” 2. Continued Effect of the Agreement. All capitalized terms not defined herein shall have the same meaning as in the Agreement. Except asexpressly modified by this Amendment, all other terms and conditions of the Agreement shall remain in full force and effect and be binding on the parties.This Amendment may not be modified, renewed, extended, or discharged except by a further amendment to the Agreement in writing, signed by both parties. 3. Effective Date of this Amendment. This Amendment shall be effective as of July 25, 2016. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first set forth above. SOUTH TEXAS BROADCASTING, INC. DELMARVA EDUCATIONAL ASSOCIATION /s/ Christopher J. Henderson /s/ Nancy. A. EppersonBy: Christopher J. Henderson By: Nancy A. EppersonIts: Senior Vice President/Secretary Its: President Page 1 of 1 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 10.07.02.04 ASSIGNMENT AND ASSUMPTION OF ASSET PURCHASE AGREEMENT This Assignment and Assumption of Asset Purchase Agreement (“Assignment and Assumption”), dated as of July 27, 2016, is entered into by andbetween Pennsylvania Media Associates, Inc., a Pennsylvania corporation (“Assignor”) and Caron Broadcasting, Inc., an Ohio corporation (“Assignee”) andis made pursuant to Section 19 of the Purchase Agreement (hereinafter defined). WHEREAS, Delmarva Educational Assication, a Florida nonprofit corporation (“Seller”) and Assignor entered into an Asset Purchase Agreement,dated as of May 18, 2016 (the “Purchase Agreement”), pursuant to which, among other things, Seller and Assignor agreed that Seller will sell and Assignorwill acquire certain assets relating to the radio broadcast FM translator construction permit W222BT, permitted to Palm Coast, FL, (FCC Facility ID 142973)upon the terms and conditions set forth therein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in the Purchase Agreement and this Assignment andAssumption, the receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee hereby covenant and agree as follows: 1. Assignor hereby assigns, transfers, and conveys to Assignee all of Assignor’s right, title, and interest in and to the Purchase Agreement. 2. Assignee hereby assumes and undertakes to pay, to satisfy, and to discharge the liabilities, obligations, and commitments of Assignor underthe Purchase Agreement from the date hereof. 3. This Assignment and Assumption is intended to effect an assignment to a wholly owned subsidiary of Assignor in connection with theconsummation of the transactions contemplated by the Purchase Agreement, as permitted by Section 19 thereof, and is made without representation andwarranty except as provided in and by the Purchase Agreement. This Assignment and Assumption is in all respects subject to the provisions of the PurchaseAgreement and is not intended in any way to supersede, to limit, or to qualify any provision of the Purchase Agreement. 4. Each of Assignor and, by its acceptance hereof, Assignee covenants and agrees to execute such further documents and instruments and totake such additional actions as may reasonably be requested by Assignee or Assignor, as the case may be, to vest in Assignee any and all of the assets,liabilities, obligations, and commitments being transferred hereby and otherwise to effectuate the intent of this Assignment and Assumption. 5. Unless otherwise defined herein, all capitalized terms used herein have the meanings ascribed to them in the Purchase Agreement. Page 1 of 2 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 6. This Assignment and Assumption may be signed in one or more counterparts, each of which shall be deemed an original and all of whichtogether shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption to be executed and delivered effective as of the date firstwritten above. PENNSYLVANIA MEDIA ASSOCIATES, INC. By Christopher J. Henderson Sr. Vice President and Secretary CARON BROADCASTING, INC. By Christopher J. Henderson Sr. Vice President and Secretary Page 2 of 2 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 10.07.02.05 ASSIGNMENT AND ASSUMPTION OF ASSET PURCHASE AGREEMENT This Assignment and Assumption of Asset Purchase Agreement (“Assignment and Assumption”), dated as of July 29, 2016, is entered into by andbetween Caron Broadcasting, Inc., an Ohio corporation (“Assignor”) and South Texas Broadcasting, Inc., a Texas corporation (“Assignee”) and is madepursuant to Section 19 of the Purchase Agreement (hereinafter defined). WHEREAS, Delmarva Educational Association, a Florida nonprofit corporation (“Seller”) and Pennsylvania Media Associates, Inc. (“PMA”) enteredinto an Asset Purchase Agreement, dated as of May 18, 2016 (the “Purchase Agreement”), pursuant to which, among other things, Seller and Assignor agreedthat Seller will sell and Assignor will acquire certain assets relating to the radio broadcast FM translator construction permit W222BT, permitted to PalmCoast, FL, (FCC Facility ID 142973) upon the terms and conditions set forth therein. WHEREAS, PMA and Assignor entered into an Assignment and Assumption of Asset Purchase Agreement (“First Assignment”) dated as of July 27,2016, pursuant to which PMA’s rights, title and interest in and to the Purchase Agreement were assigned to Assignor. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in the Purchase Agreement and this Assignment andAssumption, the receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee hereby covenant and agree as follows: 1. Assignor hereby assigns, transfers, and conveys to Assignee all of Assignor’s right, title, and interest in and to the Purchase Agreement. 2. Assignee hereby assumes and undertakes to pay, to satisfy, and to discharge the liabilities, obligations, and commitments of Assignor underthe Purchase Agreement from the date hereof. 3. This Assignment and Assumption is intended to effect an assignment to a wholly owned subsidiary of Assignor in connection with theconsummation of the transactions contemplated by the Purchase Agreement, as permitted by Section 19 thereof, and is made without representation andwarranty except as provided in and by the Purchase Agreement. This Assignment and Assumption is in all respects subject to the provisions of the PurchaseAgreement and is not intended in any way to supersede, to limit, or to qualify any provision of the Purchase Agreement. 4. Each of Assignor and, by its acceptance hereof, Assignee covenants and agrees to execute such further documents and instruments and totake such additional actions as may reasonably be requested by Assignee or Assignor, as the case may be, to vest in Assignee any and all of the assets,liabilities, obligations, and commitments being transferred hereby and otherwise to effectuate the intent of this Assignment and Assumption. Page 1 of 2 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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. 5. Unless otherwise defined herein, all capitalized terms used herein have the meanings ascribed to them in the Purchase Agreement. 6. This Assignment and Assumption may be signed in one or more counterparts, each of which shall be deemed an original and all of whichtogether shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption to be executed and delivered effective as of the date firstwritten above. CARON BROADCASTING, INC. By/s/ Christopher J. Henderson Christopher J. Henderson Sr. Vice President and Secretary SOUTH TEXAS BROADCASTING, INC. By/s/ Christopher J. Henderson Christopher J. Henderson Sr. Vice President and Secretary Page 2 of 2 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 Financial Code of Conduct Salem Media Group, Inc. (the “Company”) has always held itself and its directors and employees to the highest standards of ethical behavior in all businessdealings. These standards include an expectation that the integrity of the Company’s financial reporting will never be compromised. All Salem employeesand directors have a primary responsibility to ensure that all Company transactions are properly accounted for in the Company’s accounting records andreflected on the Company’s public reports. It is appropriate to adopt a code of conduct uniquely applicable to financial matters and which supplements the Code of Ethics to which all employees of theCompany are subject. Specifically, each person subject to this Code of Conduct will at all times: 1.If working on financial documents and matters, ensure that external and internal financial data, and other information contained in the Company’spublic reports (a) present the facts in accordance with United States Generally Accepted Accounting Principles (GAAP) fairly and completely, and(b) accurately, timely and understandably set forth the facts they purport to represent.2.Uphold honest and ethical conduct, especially in relation to the handling of actual and apparent conflicts of interest.3.Report any conflicts of interest or any violation or suspected violation of this code of ethics as described below.4.Ensure the Company is in full compliance with the law, all applicable rules and regulations, and Company policy, both in letter and in spirit.5.Refrain from using the Company’s confidential information, Company resources or corporate opportunities learned in the course of one’s work forpersonal advantage without prior written approval from their supervisor. Any person who violates this Code of Conduct is subject to disciplinary action, which may include termination of employment. The same is true of peoplewho know of but fail to report another employee or director’s violation of law or Company policy. Any person who has reason to believe or suspect that this Ethical Code has been violated should immediately report the basis for such belief or suspicion tothe Company. The report can be made through the Company’s Ethics Helpline either telephonically (at 866-224-2163) or via the Internet (atwww.SalemEthics.com). Reports to the Company’s Ethics Helpline may be left anonymously, but the more information provided the greater ability theCompany will have to investigate. Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 10, 2017Powered 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 report dated March 11, 2016, relating to our audit ofthe consolidated financial statements and the financial statement schedule, appearing in this Annual Report on Form 10-K of Salem Media Group, Inc. andsubsidiaries for the year ended December 31, 2016. /s/ SingerLewak LLP Los Angeles, CaliforniaMarch 10, 2017 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 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. 333-212909 on Form S-3 of Salem Media Group, Inc. of our report dated March 10, 2017 relating to the consolidated financialstatements of Salem Media Group, Inc., and our report dated the same date relative to the effectiveness of internal control over financial reporting as ofDecember 31, 2016, appearing in this Annual Report on Form 10-K. /s/ Crowe Horwath LLP Sherman Oaks, California March 10, 2017 Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 23.3 [Noble Financial Capital Markets letterhead] March 7, 2017 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, 2017, 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 Name: Richard H. Giles Title: Managing Director Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, 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 underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external 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 aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, 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 the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): (a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: March 10, 2017 /s/ EDWARD G. ATSINGER III Edward G. Atsinger III Chief Executive Officer Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, 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 underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external 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 aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, 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 the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): (a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: March 10, 2017 /s/ EVAN D. MASYR Evan D. Masyr Executive Vice President and Chief Financial Officer Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, 2016 (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 10, 2017 By: /s/ EDWARD G. ATSINGER III Edward G. Atsinger III Chief Executive Officer Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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, 2016 (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 10, 2017 By: /s/ EVAN D. MASYR Evan D. Masyr Executive Vice President and Chief Financial Officer Source: SALEM MEDIA GROUP, INC. /DE/, 10-K, March 10, 2017Powered 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 10, 2017Powered 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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