UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007
 
 
OR
 
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
 
 
COMMISSION FILE NUMBER 000-26497
 
 
SALEM COMMUNICATIONS CORPORATION
 
 
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 

DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
  
77-0121400
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
     
4880 SANTA ROSA ROAD CAMARILLO, CALIFORNIA
(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
  
93012
( ZIP CODE)
 
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-0400
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
                                       
 Yes [X ]  
    No  [   ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
                                                                                                   
 Large accelerated filer [   ]      
 Accelerated filer  [X ]   
 Non-accelerated filer  [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes [   ]    No  [ X ]
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class A
  
Outstanding at August 3, 2007
Common Stock, $0.01 par value per share
  
18,296,324 shares


Class B
  
Outstanding at August 3, 2007
Common Stock, $0.01 par value per share
  
5,553,696 shares

 
 
SALEM COMMUNICATIONS CORPORATION
 
 
INDEX
 
     
PAGE NO.
       
COVER PAGE
 
  
INDEX
    
PART I - FINANCIAL INFORMATION
 
  
 
Item 1.   Financial Statements
  
2
 
Item 2.   Management’s Discussion and Analysis of Financial Condition
               and Results of Operations
 
19
 
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
  
31
 
Item 4.   Controls and Procedures
 
32
PART II - OTHER INFORMATION
  
33
 
Item 1.    Legal Proceedings
 
33
 
Item 1A. Risk Factors
  
33
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
  
33
 
Item 3.   Defaults Upon Senior Securities
 
33
 
Item 4.   Submission of Matters to a Vote of Security Holders
  
33
 
Item 5.   Other Information
 
33
 
Item 6.   Exhibits
  
33
SIGNATURES
 
48
EXHIBIT INDEX
  
49

 
FORWARD–LOOKING STATEMENTS
 
 
      From time to time, in both written reports (such as this report) and oral statements, Salem Communications Corporation (“Salem” or the “company,” including references to Salem by “we,” “us” and “our”) makes “forward-looking statements” within the meaning of federal and state securities laws. Disclosures that use words such as the company “believes,” “anticipates,” “expects,” “intends,” “will,” “may” or “plans” and similar expressions are intended to identify forward-looking statements, as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the company’s current expectations and are based upon data available to the company at the time the statements are made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. These risks, as well as other risks and uncertainties, are detailed in Salem’s reports on Forms 10-K, 10-Q and 8-K filed with or furnished to the Securities and Exchange Commission. Forward-looking statements made in this report speak as of the date hereof. Except as required by law, the company undertakes no obligation to update or revise any forward-looking statements made in this report. Any such forward-looking statements, whether made in this report or elsewhere, should be considered in context with the various disclosures made by Salem about its business. These projections or forward-looking statements fall under the safe harbors of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
 
PART I - FINANCIAL INFORMATION
 
 
SALEM COMMUNICATIONS CORPORATION
 
 
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)     
 

 
SALEM COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
     
December 31,
2006
  
June 30, 2007
     
(Note 1)
  
(Unaudited)
ASSETS
Current assets:
                
 
Cash and cash equivalents
 
$
710
 
 
$
752
 
 
Trade accounts receivable (net of allowance for doubtful accounts of $7,606 in 2006 and $7,454 in 2007)
    
31,984
      
31,335
  
 
Other receivables
 
 
551
 
 
 
581
 
 
Prepaid expenses
    
2,330
      
2,416
  
 
Income tax  receivable
    
—
      
39
  
 
Deferred income taxes
 
 
5,020
 
 
 
5,009
 
Total current assets
  
 
40,595
    
 
40,132
  
Property, plant and equipment (net of accumulated depreciation of $74,766 in 2006 and $78,493 in 2007)
 
 
128,713
 
 
 
130,808
 
Broadcast licenses
    
476,544
      
472,463
  
Goodwill
 
 
20,606
 
 
 
20,463
 
Other indefinite-lived intangible assets
    
2,892
      
2,892
  
Amortizable intangible assets (net of accumulated amortization of $10,846 in 2006 and $12,433 in 2007)
    
8,368
      
7,098
  
Bond issue costs
 
 
593
 
 
 
518
 
Bank loan fees
    
2,996
      
2,488
  
Fair value of interest rate swap agreements
 
 
1,290
 
 
 
2,663
 
Other assets
  
 
3,667
    
 
4,449
  
Total assets
 
$
686,264
 
 
$
683,974
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
Accounts payable
  
$
3,421
    
$
1,496
  
 
Accrued expenses
 
 
6,446
 
 
 
6,264
 
 
Accrued compensation and related expenses
    
7,033
      
7,412
  
 
Accrued interest
    
4,275
      
2,252
  
 
Deferred revenue
 
 
4,050
 
 
 
4,565
 
 
Current portion of long-term debt and capital lease obligations
    
2,048
      
3,683
  
 
Income taxes payable
 
 
22
 
 
 
—
 
Total current liabilities
    
27,295
      
25,672
  
Long-term debt and capital lease obligations, less current portion
 
 
358,978
 
 
 
344,951
 
Deferred income taxes
 
 
53,935
 
 
 
60,810
 
Deferred revenue
    
7,063
      
7,303
  
Other liabilities
 
 
1,277
 
 
 
1,204
 
Total liabilities
  
 
448,548
    
 
439,940
  
Commitments and contingencies
Stockholders’ equity:
 
Class A common stock, $0.01 par value; authorized 80,000,000 shares; 20,424,242 issued and 18,293,824 outstanding at December 31, 2006 and 20,426,742 issued and 18,296,324 outstanding at June 30, 2007
 
 
204
 
 
 
204
 
 
Class B common stock, $0.01 par value; authorized 20,000,000 shares; 5,553,696 issued and outstanding shares at December 31, 2006 and June 30, 2007
    
56
      
56
  
 
Additional paid-in capital
 
 
221,466
 
 
 
223,131
 
 
Retained earnings
    
47,433
      
51,262
  
 
Treasury stock, at cost (2,130,418 shares at December 31, 2006 and June 30, 2007)
    
(32,218)
      
(32,218)
  
 
Accumulated other comprehensive income
  
 
775
    
 
1,599
  
Total stockholders’ equity
 
 
237,716
 
 
 
244,034
 
Total liabilities and stockholders’ equity
  
$
686,264
    
$
683,974
  
See accompanying notes

 
 
SALEM COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
(Unaudited)
 
   
Three Months Ended
  
Six Months Ended
   
June 30,
  
June 30,
 
2006
 
2007
  
2006
 
2007
Net broadcasting revenue
$    53,381
  
$    53,650
  
$    102,155
  
$    104,090
Non-broadcast revenue
4,684
  
6,388
  
7,936
  
12,042
Total revenue
58,065
  
60,038
  
110,091
  
116,132
Operating expenses:
              
                 
 
Broadcasting operating expenses, exclusive of depreciation and amortization shown below (including $337 and $307 for the quarter ended June 30, 2006 and 2007, respectively, and $614 and $617 for the six months ended June 30, 2006 and 2007, respectively, paid to related parties)
33,498
  
33,629
  
65,192
  
66,112
                 
 
Non-broadcast operating expenses, exclusive of depreciation and amortization shown below
3,827
  
5,652
  
7,259
  
10,923
                 
 
Corporate expenses, exclusive of depreciation and amortization shown below (including $52 and $76 for the quarter ended June 30, 2006 and 2007, respectively, and $150 and $145 for the six months ended June 30, 2006 and 2007, respectively, paid to related parties)
6,256
  
5,496
  
12,696
  
11,310
                 
 
Depreciation (including $138 and $150 for the quarter ended June 30 2006 and 2007, respectively, and $225 and $289 for the six months ended June 30, 2006 and 2007, respectively for non-broadcast businesses)
3,113
  
2,923
  
5,858
  
6,014
                 
 
Amortization (including $525 and $748 for the quarter ended June 30 2006 and 2007, respectively, and $842 and $1,486 for the six months ended June 30, 2006 and 2007, respectively for non-broadcast businesses)
753
  
776
  
1,303
  
1,586
                 
 
(Gain) loss on disposal of assets
(15,510)
  
634
  
(19,039)
  
(2,635)
Total operating expenses
31,937
  
49,110
  
73,269
  
93,310
Operating income from continuing operations
26,128
  
10,928
  
36,822
  
22,822
Other income (expense):
        
 
Interest income
—
  
48
  
46
  
108
 
Interest expense
(6,779)
  
(6,308)
  
(13,367)
  
(12,762)
 
Other income (expense), net
(174)
  
182
  
(346)
  
147
Income from continuing operations before income taxes
19,175
  
4,850
  
23,155
  
10,315
Provision for income taxes
7,584
  
1,926
  
9,178
  
4,426
Income from continuing operations
11,591
  
2,924
  
13,977
  
5,889
Income (loss) from discontinued operations, net of tax
(25)
  
—
  
304
  
—
Net income
$    11,566
  
$    2,924
  
$    14,281
  
$    5,889
Other comprehensive income, net of tax
894
  
1,112
  
1,930
  
824
Comprehensive income
$    12,460
  
    $    4,036
  
   $    16,211
  
   $    6,713
Basic earnings per share from continuing operations
$        0.48
  
$        0.12
  
$        0.57
  
$        0.25
Income per share from discontinued operations
—
  
—
  
0.01
  
—
Basic earnings per share
$        0.48
  
$        0.12
  
$        0.58
  
$        0.25
               
Diluted earnings per share from continuing operations
$        0.48
  
$        0.12
  
$        0.57
  
$        0.25
Income (loss) per share from discontinued operations
—
  
—
  
0.01
  
—
Diluted earnings per share
$        0.47
  
$        0.12
  
$        0.58
  
$        0.25
               
Basic weighted average shares outstanding
24,347,520
  
23,850,020
  
24,516,432
  
23,849,312
Diluted weighted average shares outstanding
24,356,275
  
23,855,967
  
24,525,718
  
23,854,518
               
See accompanying notes

 
 
 SALEM COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
       
Six Months Ended June 30,
  
       
2006
    
2007
  
OPERATING ACTIVITIES
 
 
  
 
 
 
 
 
Income from continuing operations
  
$
13,977
    
$
5,889
  
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
 
 
 
 
 
 
  
 
 
Non-cash stock-based compensation
    
2,620
      
1,634
  
 
Depreciation and amortization
 
 
7,161
 
 
 
7,600
 
 
Amortization of bond issue costs and bank loan fees
    
535
      
583
  
 
Amortization and accretion of financing items
    
(252)
      
58
  
 
Provision for bad debts
 
 
1,699
 
 
 
1,173
 
 
Deferred income taxes
    
9,160
      
4,277
  
 
(Gain) loss on disposal of assets
 
 
(19,039)
 
 
 
(2,635)
 
 
Changes in operating assets and liabilities:
 
 
Accounts receivable
 
 
(1,106)
 
 
 
(593)
  
   
Prepaid expenses and other current assets
    
(146)
      
(86)
  
 
 
Accounts payable and accrued expenses
 
 
2,565
  
 
 
(2,673)
  
   
Deferred revenue
    
1,078
      
755
  
 
 
Other liabilities
 
 
(189)
  
 
 
28
  
   
Income taxes payable
  
 
157
    
 
(22)
  
Net cash provided by continuing operating activities
 
 
18,220
 
 
 
15,988
 
INVESTING ACTIVITIES
    Capital expenditures
 
 
(11,258)
  
 
 
(8,788)
  
    Purchases of broadcast assets
 
 
(19,229)
  
 
 
—
  
    Purchase of non-broadcast businesses
    
(10,509)
      
(311)
  
    Proceeds from sale of property, plant and equipment
    
2,106
      
7,963
  
    Other
 
 
(206)
  
 
 
(649)
 
    Net cash used in investing activities of continuing operations
    
(39,096)
      
(1,785)
  
FINANCING ACTIVITIES
    Proceeds from borrowings under credit facilities
    
35,000
      
2,793
  
    Repurchase of Class A common stock
    
(15,149)
      
—
  
    Payments of long-term debt and notes payable
 
 
(2,002)
  
 
 
(15,991)
  
    Proceeds from exercise of stock options
    
24
      
30
  
    Tax benefit related to stock options exercised
    
1
      
1
  
    Payments on capital lease obligations
 
 
(14)
  
 
 
(21)
  
    Book overdraft
    
—
      
(973)
  
Net cash provided by (used in) financing activities
  
 
17,860
    
 
(14,161)
  
CASH FLOWS OF DISCONTINUED OPERATIONS
                
  Operating cash flows
    
(231)
      
—
  
  Investing cash flows
    
(2)
      
—
  
          Total cash outflow from discontinued operations
    
(233)
      
—
  
Net increase (decrease) in cash and cash equivalents
 
 
(3,249)
  
 
 
42
 
Cash and cash equivalents at beginning of year
  
 
3,979
    
 
710
  
Cash and cash equivalents at end of period
 
$
730
 
 
$
752
 
Supplemental disclosures of cash flow information:
                
Cash paid during the period for
 
 
 
 
 
   
Interest
  
$
12,459
    
$
10,739
  
 
 
Income taxes
 
$
76
 
 
$
215
 
Non-cash investing and financing activities:
                
   Assets acquired through capital lease obligations
  
$
—
    
$
800
  
See accompanying notes
 
SALEM COMMUNICATIONS CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1. BASIS OF PRESENTATION
 
    The accompanying condensed consolidated financial statements of Salem Communications Corporation (“Salem” or the “Company”) include the Company and its wholly-owned subsidiaries.  The Company, excluding its subsidiaries, is herein referred to as Parent.  All significant intercompany balances and transactions have been eliminated.
 
Information with respect to the three and six months ended June 30, 2007 and 2006 is unaudited. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations and cash flows of the Company. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2006.
 
      The balance sheet at December 31, 2006 included in this report has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP.     
 
NOTE 2. RECLASSIFICATIONS
 
Certain reclassifications were made to the prior period financial statements to conform to the current period presentation.
NOTE 3. ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS
 
On February 2, 2007, the Company purchased ChristianMusicPlanet.com, a leading Christian music web portal for $0.3 million.  The purchase price was allocated to the assets acquired as follows:
   
Amount
  
   
(Dollars in thousands)
  
Asset
  
 
  
Domain names
   $
268
  
Customer lists and contracts
    
32
  
Goodwill
    
11
  
    $
311
  
 
On February 7, 2007, the Company sold radio station WKNR-AM in Cleveland, Ohio, to Good Karma Broadcasting for $7.0 million resulting in a pre-tax gain of $3.4 million.  The operating results of WKNR-AM were excluded from our Condensed Consolidated Statement of Operations beginning on December 1, 2006, the date the Company stopped operating the station pursuant to a local marketing agreement (“LMA”) with Good Karma Broadcasting.
 
On May 29, 2007, the Company sold radio station WVRY-FM, Nashville, Tennessee to Grace Broadcasting Services, Inc. for $0.9 million resulting in a pre-tax loss of $0.5 million.  The operating results of WVRY-FM were excluded from our Condensed Consolidated Statement of Operations beginning on March 9, 2007, the date the Company stopped operating the station pursuant to an LMA with Grace Broadcasting Services.
 
Other Pending Transactions:
 
On February 1, 2007, the Company entered into an LMA to operate radio station KKSN-AM, in Portland, Oregon.  The accompanying Condensed Consolidated Statement of Operations includes the operating results of this radio station as of the LMA date.   The Company entered an agreement to purchase KKSN-AM, subject to certain conditions, for $4.5 million.  We do not expect this sale to close during 2007.
   Discontinued Operations:
 
The following table sets forth the components of income (loss) from discontinued operations, net of tax, for the three and six months ended June 30, 2006 (dollars in thousands).

   
Three Months Ended
  
Six Months Ended
   
June 30, 2006
  
June 30, 2006
Operating loss
$
(18)
    
 $
(160) 
Gain (loss) on sale or exchange of radio stations
  
(11)
      
656
Gain (loss) from discontinued operations before income taxes
  
(29)
      
496
Provision (benefit) for (from) income taxes
 
(4)
      
192
Income (loss) from discontinued operations, net of tax
$
(25)
    
$
304
 
Details of these transactions are as follows:
 
On February 10, 2006, the Company exchanged radio stations WTSJ-AM, Cincinnati, Ohio, and WBOB-AM, Cincinnati, Ohio and $6.7 million in cash for selected assets of radio station WLQV-AM, Detroit, Michigan.  The accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 reflect the results of WTSJ-AM and WBOB-AM as discontinued operations.  The exchange was accounted for under Statement of Financial Accounting Standards (“SFAS”) No. 153, “Exchanges of Nonmonetary Assets an Amendment of APB Opinion No. 29,” and resulted in a pre-tax gain on the exchange of $0.7 million.
 
On July 17, 2006, the Company completed the sale of radio station WBTK-AM, Richmond, Virginia, for $1.5 million resulting in a pre-tax gain of $0.6 million.  The accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 reflect the results of WBTK-AM as a discontinued operation.
 
On September 18, 2006, the Company completed the sale of radio station WBGB-FM, Jacksonville, Florida for $7.6 million resulting in a pre-tax gain of $0.8 million.  The accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 reflect the results of WBGB-FM as a discontinued operation.  
 
On December 1, 2006, the Company completed the sale of radio stations WJGR-AM, Jacksonville, Florida, WZNZ-AM, Jacksonville, Florida and WZAZ-AM, Jacksonville, Florida for $2.8 million resulting in a pre-tax gain of $0.1 million.  The assets were sold to Chesapeake-Portsmouth Broadcasting Corporation (“Chesapeake-Portsmouth”).  Chesapeake-Portsmouth is a company controlled by Nancy Epperson, wife of Salem's Chairman of the Board Stuart W. Epperson and sister of Salem’s CEO Edward G. Atsinger III.  The accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 reflect the results of WJGR-AM, Jacksonville, Florida, WZNZ-AM, Jacksonville, Florida and WZAZ-AM, Jacksonville, Florida as discontinued operations.
 
On December 22, 2006, the Company completed the sale of radio station WITH-AM, Baltimore, Maryland for $3.0 million resulting in a pre-tax gain of $2.2 million.  The accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 reflect the results of WITH-AM as a discontinued operation.
    NOTE 4. STOCK-BASED COMPENSATION
 
The Company has one stock incentive plan.  The Amended and Restated 1999 Stock Incentive Plan (the “Plan”) allows the Company to grant stock options to employees, directors, officers and advisors of the Company. A maximum of 3,100,000 shares are authorized under the Plan. Options generally vest over a four year period and have a maximum term of five years from the vesting date. The Plan provides that vesting may be accelerated in certain corporate transactions of the Company. The Plan provides that the Board of Directors, or a committee appointed by the Board, has discretion, subject to certain limits, to modify the terms of outstanding options.   In accordance with SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”), the Company recognizes compensation expense related to the estimated fair value of stock options granted.
 
The Company adopted SFAS No. 123(R) on January 1, 2006, using the modified-prospective-transition method. Under this transition method, compensation expense recognized subsequent to adoption includes: (a) compensation expense for all share-based awards granted prior to, but not yet vested, as of December 31, 2005 based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and (b) compensation expense for all share-based awards granted subsequent to December 31, 2005, based on the grant-date fair values estimated in accordance with the provisions of SFAS No. 123(R). In accordance with the modified-prospective-transition method, the Company’s results of operations for prior periods have not been adjusted to reflect the impact of SFAS 123(R).
 
The following table reflects the components of stock-based compensation expense recognized in our Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2007 and 2006:
   
Three Months Ended
    
Six Months Ended
  
   
June 30,
    
June 30,
  
   
2006
    
2007
    
2006
    
2007
  
   
(Dollars in thousands)
  
Stock option compensation expense included in corporate expenses
   $
1,101
     $
591
     $
2,174
     $
1,098
  
Restricted stock units compensation expense included in corporate expenses
    
22
      
16
      
44
      
32
  
Stock option compensation expense included in broadcast operating expenses
    
166
      
230
      
373
      
437
  
Stock option compensation expense included in non-broadcast  operating expenses
    
23
      
43
      
29
      
67
  
 Total stock-based compensation expense
   $
1,312
     $
880
     $
2,620
     $
1,634
  
Tax benefit from stock-based compensation expense
     (520 )     (378 )     (1,044 )     (723 )
Total stock-based compensation expense net of tax benefit
   $
792
     $
502
     $
1,576
     $
911
  
 
    Employee stock option and restricted stock grants
 
The Plan provides for grants of stock options to employees. The option exercise price is set at the closing price of our common stock on the date of grant, and the related number of shares granted is fixed at that point in time. Grants of equity instruments generally vest over a four year period. Stock option awards expire five years from the date of vesting.  The Plan also provides for grants of restricted stock and restricted stock units. Eligible employees may receive stock options units annually with the number of shares and type of instrument generally determined by the employee’s salary grade and performance level. In addition, certain management and professional level employees typically receive a stock option grant upon commencement of employment.  Non-employee directors of the company have received restricted stock units that vest one year from the date of issuance, in addition to stock options that vest one year from the date of issuance.
 
The Company uses the Black-Scholes option valuation model to estimate the grant date fair value of stock options. The expected volatility calculation reflect the historical volatility of the Company stock as determined by the closing price over a six to nine year term that is generally commensurate with the contractual term of the option.  Upon the adoption of SFAS No. 123(R) the expected term of the option is based on evaluations of historical and expected future employee exercise behavior.   The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period the options were granted. The weighted-average assumptions used to estimate the fair value of the stock options using the Black-Scholes option valuation model were as follows for the three and six months ended June 30, 2007 and 2006:
 
 
 Three Months Ended
    
Six Months Ended
  
   
June 30,
    
June 30,
  
   
2006
    
2007
    
2006
    
2007
  
Expected volatility
    
50.65
 %      43.88 %     52.1 %     43.65 %
Expected dividends
     0.0 %     0.0 %     0.0 %     0.0 %
Expected term (in years)
    
6 - 9
      
6 - 9
      
6 - 9
      
6 - 9
  
Risk-free interest rate
     5.09 %     4.83 %     4.97 %     4.70 %
 
Stock option information with respect to our stock-based compensation plans during the six months ended June 30, 2007 is as follows (dollars in thousands, except per share amounts):

Options
  
Shares
    
Weighted Average Exercise Price
  
Weighted Average Remaining Contractual Term
Weighted Average Grant Date Fair Value
    
Aggregate Intrinsic Value
  
Outstanding at January 1, 2007
    
2,146,564
     $
22.30
           $
—
  
Granted
    
388,900
      
11.82
     $
6.35
      
—
  
Exercised
     (2,500 )    
11.81
              
4,219
  
Forfeited or expired
     (83,965 )    
20.98
              
—
  
Outstanding at June 30, 2007
    
2,448,999
     $
20.70
  
4.7 years
          
—
  
Exercisable at June 30, 2007
    
1,416,062
     $
24.35
  
3.0 years
          
18,796
  
 
The fair values of shares of restricted stock are determined based on the closing price of the Company common stock on the grant dates. Information regarding our restricted stock unit grants for the six months ended June 30, 2007 is as follows:
Restricted Stock Units
  
Shares
    
Weighted Average
Exercise Price
  
Non-Vested at January 1, 2007
    
6,000
     $
11.15
  
Granted
    
—
      
—
  
Vested
    
—
      
—
  
Forfeited
    
—
      
—
  
Non-Vested at June 30, 2007
    
6,000
     $
11.15
  
 
As of June 30, 2007, there was $5.9 million of total unrecognized compensation expense related to non-vested awards of stock options and restricted shares.
 
NOTE 5. OTHER COMPREHENSIVE INCOME
 
Other comprehensive income reflects changes in the fair value of each of the Company’s three cash flow hedges as follows:
 
   
Three Months Ended
    
Six Months Ended
  
   
June 30,
    
June 30,
  
   
2006
    
2007
    
2006
    
2007
  
   
(Dollars in thousands)
  
Mark-to-market adjustment
   $
1,489
     $
1,853
     $
3,216
     $
1,373
  
Tax Provision (benefit)
    
595
      
741
      
1,286
      
549
  
Other comprehensive income
   $
894
     $
1,112
     $
1,930
     $
824
  
                                 
 
NOTE 6. RECENT ACCOUNTING PRONOUNCEMENTS
 
Statement of Financial Accounting Standards No. 159
 
On February 15, 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statements No. 115.” SFAS No. 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value option”). A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting period.  SFAS No. 159 is effective beginning January 1, 2008.  The Company believes that the adoption of SFAS No. 159 will not have a material impact on the Company’s results of operations, cash flows or financial position.
 
Statement of Financial Accounting Standards No. 157
 
On September 15, 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”  This statement defines fair value, specifies the acceptable methods for determining fair value, and expands disclosure requirements regarding fair value measurements.  SFAS No. 157 is effective beginning January 1, 2008.  The Company believes that the adoption of SFAS No. 157 will not have a material impact on the Company’s results of operations, cash flows or financial position.
NOTE 7. EQUITY TRANSACTIONS
 
The Company’s Board of Directors authorized a $25.0 million share repurchase program in May 2005.   In February 2006, the Board of Directors increased Salem’s existing share repurchase program to permit the repurchase of up to an additional $25.0 million of shares of Salem’s Class A common stock.   This repurchase program will continue until the earlier of (a) December 31, 2007, (b) all desired shares are repurchased, or (c) the Repurchase Plan is terminated earlier by the Repurchase Plan Committee on behalf of Salem.  The amount the Company may repurchase may be limited by certain restrictions under our credit facilities.   As of June 30, 2007, the Company repurchased 2,130,418 shares of stock for $32.2 million at an average price of $15.12 per share.  No shares were repurchased during the three and six months ended June 30, 2007.
 
The Company accounts for stock-based compensation expense in accordance with SFAS No. 123(R).  As a result, $0.9 million and $1.6 million of stock-based compensation expense has been recorded to additional paid-in capital for the three and six months ended June 30, 2007, respectively in comparison to $1.3 million and $2.6 million for the three and six months ended June 30, 2006.

NOTE 8. NOTES PAYABLE AND LONG-TERM DEBT
 
Long-term debt consisted of the following:
   
December 31,
2006 
June 30,
2007
  
     
(Dollars in thousands) 
  
     
 
  
 
Term loans under credit facility
   $
238,125
     $
236,475
  
 
Revolving line of credit under credit facility
    
19,100
      
8,500
  
 
Swingline credit facility
    
1,241
      
293
  
 
7¾% Senior Subordinated Notes due 2010
    
100,000
      
100,000
  
 
Seller financed note to acquire Townhall.com
    
2,444
      
2,502
  
 
Capital leases and other loans
    
116
      
864
  
       
361,026
      
348,634
  
 
Less current portion
    
2,048
      
3,683
  
      $
358,978
     $
344,951
  
 
 
Maturities of Long-Term Debt
 
      Principal repayment requirements under all long-term debt agreements outstanding at June 30, 2007 for each of the next five years and thereafter are as follows:
 
Twelve Months Ended June 30,
Amount
 
(Dollars in thousands)
2008
 $
3,683
2009
  
12,482
2010
  
231,715
2011
  
100,023
2012
  
28
Thereafter
  
703
 
 $
348,634
 
 NOTE 9. AMORTIZABLE INTANGIBLE ASSETS
 
      The following tables provide details, by major category, of the significant classes of amortizable intangible assets:
 
   
As of June 30, 2007
  
   
 
    
Accumulated
    
 
  
   
Cost
    
Amortization
    
Net
  
   
(Dollars in thousands)
  
       
Customer lists and contracts
   $
10,437
     $ (6,890 )   $
3,547
  
Domain and brand names
    
4,771
       (2,018 )    
2,753
  
Favorable and assigned leases
    
1,581
       (1,188 )    
393
  
Other amortizable intangible assets
    
2,742
       (2,337 )    
405
  
    $
19,531
     $ (12,433 )   $
7,098
  
 
   
As of December 31, 2006
  
   
 
    
Accumulated
    
 
  
   
Cost
    
Amortization
    
Net
  
   
(Dollars in thousands)
  
       
Customer lists and contracts
   $
10,404
     $ (6,030 )   $
4,374
  
Domain and brand names
    
4,487
       (1,533 )    
2,954
  
Favorable and assigned leases
    
1,581
       (1,144 )    
437
  
Other amortizable intangible assets
    
2,742
       (2,139 )    
603
  
    $
19,214
     $ (10,846 )   $
8,368
  
        Based on the amortizable intangible assets as of June 30, 2007, we estimate amortization expense for the next five years to be as follows:
 
Year Ending
Amortization Expense
 
(Dollars in thousands)
2007 (July 1 – December 31)
 $
1,398
2008
  
2,533
2009
  
1,282
2010
  
832
2011
  
369
Thereafter
  
684
Total
 $
7,098

NOTE 10. BASIC AND DILUTED EARNINGS PER SHARE
 
      Basic earnings per share has been computed using the weighted average number of Class A and Class B shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares of Class A and Class B common stock outstanding during the period plus the dilutive effects of stock options.
 
      Options to purchase 2,179,919 and 2,448,999 shares of Class A common stock were outstanding at June 30, 2006 and 2007, respectively. Diluted weighted average shares outstanding exclude outstanding stock options whose exercise price is in excess of the average price of the Company’s stock price. Those options are excluded due to their antidilutive effect.
 
NOTE 11. DERIVATIVE INSTRUMENTS
 
Salem is exposed to fluctuations in interest rates.  The Company actively monitors these fluctuations and uses derivative instruments from time to time to manage the related risk. In accordance with our risk management strategy, Salem uses 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. The Company’s use of derivative instruments may result in short-term gains or losses that may increase the volatility of Salem’s earnings.
 
Under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, as amended, the accounting for changes in the fair value of a derivative instrument at each new measurement date is dependent upon its intended use. The change in the fair value of a derivative instrument designated as a hedge of the exposure to changes in the fair value of a recognized asset or liability or a firm commitment, referred to as a fair value hedge, is recognized as gain or loss in earnings in the period of the change together with an offsetting gain or loss for the change in fair value of the hedged item attributable to the risk being hedged. The change in the fair value of a derivative instrument designated as a hedge of the exposure of the variability in expected cash flows of recognized assets, liabilities or of unrecognized forecasted transactions, referred to as a cash flow hedge, is recognized as other comprehensive income.  The differential paid or received on the interest rate swaps is recognized in earnings as an adjustment to interest expense.
   During 2004 and through February 18, 2005, the Company had an interest rate swap agreement with a notional principal amount of $66.0 million.  This agreement related to its $94.4 million 9% senior subordinated notes due 2011 (the “9% Notes.”)  This agreement was scheduled to expire in 2011 when the 9% Notes were to mature, and effectively swapped the 9.0% fixed interest rate on $66.0 million of the 9% Notes for a floating rate equal to the LIBOR rate plus 3.09%. On February 18, 2005, the Company sold its entire interest in this swap and received a payment of approximately $3.7 million, which was amortized as a reduction of interest expense over the remaining life of the 9% Notes.  Interest expense for the three and six months ended June 30, 2006, was reduced by $0.2 million and $0.3 million, respectively, related to the amortization of the buyout premium received.   On July 6, 2006, the Company completed the redemption of the remainder of its outstanding 9% Notes.  As a result of the redemption, the Company wrote off the remaining balance of the buyout premium of approximately $2.7 million as a reduction of the loss on the early redemption of long term debt.
 
During 2004, the Company also had a second interest rate swap agreement with a notional principal amount of $24.0 million. This agreement also related to its 9% Notes. This agreement was to expire in 2011 when the 9% Notes were to mature, and effectively swapped the 9.0% fixed interest rate on $24.0 million of the 9% Notes for a floating rate equal to the LIBOR rate plus 4.86%. On August 20, 2004, the Company sold its interest in $14.0 million of this swap. As a result of this transaction, the Company paid and capitalized $0.3 million in buyout premium, which was to be amortized into interest expense over the remaining life of the 9% Notes. On October 22, 2004, the Company sold its remaining $10.0 million interest in this swap. As a result of this second transaction, the Company paid and capitalized approximately $110,000 in buyout premium, which was to be amortized into interest expense over the remaining life of the 9% Notes.  On July 6, 2006, the Company completed the redemption of the remainder of its outstanding 9% Notes.  Interest expense for the three and six months ended June 30, 2006, included approximately $16,000 and $33,000, respectively, related to the amortization of the capitalized buyout premium.   
 
On April 8, 2005, the Company entered into an interest rate swap arrangement for the notional principal amount of $30.0 million whereby it will pay a fixed interest rate of 4.99% as compared to LIBOR on a bank credit facility borrowing.  Interest expense for the six months ended June 30, 2007, was reduced by approximately $55,000 as a result of the difference between the interest rates.  As of June 30, 2007, the Company recorded an asset for the fair value of the interest swap of approximately $0.5 million. This amount, net of income tax benefits of approximately $0.2 million, is reflected in other comprehensive income, as the Company has designated the interest rate swap as a cash flow hedge.  The effective date of this interest rate swap was July 1, 2006 and the expiration date is July 1, 2012.
 
On April 26, 2005, the Company entered into a second interest rate swap arrangement for the notional principal amount of $30.0 million whereby it will pay a fixed interest rate of 4.70% as compared to LIBOR on a bank credit facility borrowing.  Interest expense for the six months ended June 30, 2007, was reduced by approximately $98,000 as a result of the difference between the interest rates.  As of June 30, 2007, the Company recorded an asset for the fair value of the interest swap of approximately $0.9 million.  This amount, net of income taxes of approximately $0.4 million, is reflected in other comprehensive income, as the Company has designated the interest rate swap as a cash flow hedge. The effective date of this interest rate swap was July 1, 2006 and the expiration date is July 1, 2012.
 
On May 5, 2005, the Company entered into a third interest rate swap arrangement for the notional principal amount of $30.0 million whereby it will pay a fixed interest rate of 4.53% as compared to LIBOR on a bank credit facility borrowing.  Interest expense for the six months ended June 30, 2007, was reduced by approximately $125,000 as a result of the difference between the interest rates. As of June 30, 2007, the Company recorded an asset for the fair value of the interest swap of approximately $1.2 million.  This amount, net of income taxes of approximately $0.5 million, is reflected in other comprehensive income, as the Company has designated the interest rate swap as a cash flow hedge. The effective date of this interest rate swap was July 1, 2006 and the expiration date is July 1, 2012.
Interest Rate Caps
 
On October 18, 2006, the Company purchased two interest rate caps for $0.1 million to mitigate exposure to rising interest rates.  The first interest rate cap covers $50.0 million of borrowings under the credit facilities for a three year period.  The second interest rate cap covers $50.0 million of borrowings under the credit facilities for a four year period.  Both interest rate caps are at 7.25%. The caps do not qualify for hedge accounting and accordingly, all changes in fair value have been included as a component of interest expense.  Interest expense of approximately $15,000 was recognized during the six months ended June 30, 2007 related to our interest rate caps.
 
NOTE 12. INCOME TAXES
 
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“FAS No. 109”). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted FIN No. 48 effective January 1, 2007. In accordance with FIN No. 48, paragraph 19, the Company has decided to classify interest and penalties as a component of tax expense.  As a result of the implementation of FIN No. 48, the Company recognized a $2.0 million increase in liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings.
 
The Company files numerous consolidated and separate income tax returns in the United States Federal jurisdiction and in many state jurisdictions. The Company is no longer subject to US Federal income tax examinations for years before 2003 and is no longer subject to state and local, or income tax examinations by tax authorities for years before 2002.
 
The Company has unrecognized tax benefits of approximately $4.0 million as of January 1, 2007 and, if recognized, would result in a reduction of the Company's effective tax rate. Interest and penalties are immaterial at the date of adoption and are included in the unrecognized tax benefits.  The Company recorded an increase of its unrecognized tax benefits of approximately $0.4 million as of June 30, 2007.
 
NOTE 13. COMMITMENTS AND CONTINGENCIES
 
The Company and its subsidiaries, incident to its business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims.  Such matters are subject to many uncertainties and outcomes that are not predictable with assurance. Also, the Company maintains insurance which may provide coverage for such matters. Consequently, the Company is unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters. 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 upon the Company’s annual consolidated financial position, results of operations or cash flows.
NOTE 14. SEGMENT DATA
 
            SFAS No. 131, “Disclosures About Segments of An Enterprise and Related Information” requires companies to provide certain information about their operating segments. The Company has one reportable operating segment - radio broadcasting. The remaining non-reportable segments consist of Salem Web Network™ and Salem Publishing, which do not meet the reportable segment quantitative thresholds and accordingly are aggregated below as non-broadcast. The radio broadcasting segment also operates various radio networks.
 
      Management uses operating income before depreciation, amortization and (gain) loss on disposal of assets as its measure of profitability for purposes of assessing performance and allocating resources.
 
 
Three Months Ended
    
Six Months Ended
  
 
June 30,
    
June 30,
  
 
2006
  
2007
    
2006
    
2007
  
 
(Dollars in thousands)
  
Net revenue
              
Radio broadcasting
   $
53,381
     $
53,650
     $
102,155
     $
104,090
  
Non-broadcast
    
4,684
      
6,388
      
7,936
      
12,042
  
Consolidated net revenue
   $
58,065
     $
60,038
     $
110,091
     $
116,132
  
                                 
Operating expenses before depreciation, amortization and (gain) loss on disposal of assets
                    
Radio broadcasting
   $
33,498
     $
33,629
     $
65,192
     $
66,112
  
Non-broadcast
    
3,827
      
5,652
      
7,259
      
10,923
  
Corporate
    
6,256
      
5,496
      
12,696
      
11,310
  
Consolidated operating expenses before depreciation, amortization and (gain) loss on disposal of assets
   $
43,581
     $
44,777
     $
85,147
     $
88,345
  
                                 
Operating income from continuing operations before depreciation, amortization and (gain) loss on disposal of assets
                                
Radio broadcasting
   $
19,883
     $
20,021
     $
36,963
     $
37,978
  
Non-broadcast
    
857
      
736
      
677
      
1,119
  
Corporate
     (6,256 )     (5,496 )     (12,696 )     (11,310 )
Consolidated operating income from continuing operations before depreciation, amortization and (gain) loss on disposal of assets
   $
14,484
     $
15,261
     $
24,944
     $
27,787
  
                                 
Depreciation
                                
Radio broadcasting
   $
2,676
     $
2,497
     $
5,050
     $
5,162
  
Non-broadcast
    
138
      
150
      
225
      
289
  
Corporate
    
299
      
276
      
583
      
563
  
Consolidated depreciation expense
   $
3,113
     $
2,923
     $
5,858
     $
6,014
  
                                 
Amortization
                    
Radio broadcasting
   $
224
     $
23
     $
452
     $
90
  
Non-broadcast
    
525
      
748
      
842
      
1,486
  
Corporate
    
4
      
5
      
9
      
10
  
Consolidated amortization expense
   $
753
     $
776
     $
1,303
     $
1,586
  
                                 
Operating income from continuing operations before (gain) loss on disposal of assets
                                
Radio broadcasting
   $
16,983
     $
17,501
     $
31,461
     $
32,726
  
Non-broadcast
    
194
       (162 )     (390 )     (656 )
Corporate
     (6,559 )     (5,777 )     (13,288 )     (11,883 )
Consolidated operating income from continuing operations before (gain) loss on disposal of assets
   $
10,618
     $
11,562
     $
17,783
     $
20,187
  
 
 

NOTE 14. SEGMENT DATA  (CONTINUED)
               
December 31,
  
June 30,
             
2006
  
2007
Total property, plant and equipment, net
              
(Dollars in thousands)
 
Radio broadcasting
            
$
115,604
  
$
116,354
 
Non-broadcast
              
2,830
    
4,316
 
Corporate
 
    
 
    
 
10,279
  
 
10,138
Consolidated property, plant and equipment, net
            
$
128,713
  
$
130,808
                       
             
December 31,
  
June 30,
             
2006
  
2007
Goodwill
              
(Dollars in thousands)
 
Radio Broadcasting
            
$
5,011
  
$
4,857
 
Non-broadcast
              
15,587
    
15,598
 
Corporate
              
8
    
8
Consolidated Goodwill
            
$
20,606
  
$
20,463
                         
Reconciliation of operating income before depreciation, amortization,  and (gain) loss on disposal of assets to income from continuing operations before income taxes:
     
Three Months Ended
  
Six Months Ended
     
June 30,
  
June 30,
     
2006
 
2007
  
2006
 
2007
     
(Dollars in thousands)
 
Operating income before depreciation, amortization, and gain (loss) on disposal of assets
  
$
14,484
  
$
15,261
  
$
24,944
  
$
27,787
 
Depreciation expense
    
(3,113)
    
(2,923)
    
(5,858)
    
(6,014)
 
Amortization expense
    
(753)
    
(776)
    
(1,303)
    
(1,586)
 
Interest income
    
—
    
48
    
46
    
108
 
Gain (loss) on disposal of assets
    
15,510
    
(634)
    
19,039
    
2,635
 
Interest expense
    
(6,779)
    
(6,308)
    
(13,367)
    
(12,762)
 
Other income (expense), net
  
 
(174)
  
 
182
  
 
(346)
  
 
147
 
Income from continuing operations before income taxes
  
$
19,175
  
$
4,850
  
$
23,155
  
$
10,315
NOTE 15. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
 
 
            The following is the consolidating information of Salem Communications Corporation for purposes of presenting the financial position and operating results of Salem Communications Holding Corporation (“Salem Holding”) as the issuer of the 7¾% senior subordinated notes due 2010 (the “7 ¾ Notes”) and its guarantor subsidiaries on a consolidated basis and the financial position and operating results of the other guarantors, which are consolidated within the Company. Separate financial information of Salem Holding on an unconsolidated basis is not presented because Salem Holding has substantially no assets, operations or cash other than its investments in its subsidiaries. Each guarantor has given its full and unconditional guarantee, on a joint and several basis, of indebtedness under the 7¾% Notes. Salem Holding and Salem Communications Acquisition Corporation (“AcquisitionCo”) are 100% owned by Salem and Salem Holding owns 100% of all of its subsidiaries. All subsidiaries of Salem Holding are guarantors. OnePlace, LLC and CCM Communications, Inc., are aggregated and collectively referred to as “Non-broadcast.”  The net assets of Salem Holding are subject to certain restrictions which, among other things, require Salem Holding to maintain certain financial covenant ratios, and restrict Salem Holding and its subsidiaries from transferring funds in the form of dividends, loans or advances without the consent of the holders of the 7¾% Notes. The restricted net assets of Salem Holding as of June 30, 2007, amounted to $206.9 million. Included in intercompany receivables of Salem Holding presented in the consolidating balance sheet below is $66.8 million of amounts due from Salem and AcquisitionCo as of June 30, 2007.
 
 
NOTE 15. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
 
SALEM COMMUNICATIONS CORPORATION
 
CONDENSED CONSOLIDATING BALANCE SHEET
 
(Unaudited)
 
(Dollars in thousands)
 
   
As of June 30, 2007
                     
Issuer and
                     
Guarantor
   
Guarantors
    
Subsidiaries
               
 
                
 
   
Parent
    
AcquisitionCo
    
Other Media
    
Salem Holding
    
Adjustments
    
Salem Consolidated
Current assets:
                                  
Cash and cash equivalents 
   $
—
     $
123
     $
314
     $
315
     $
—
     $
752
Trade accounts receivable, net 
    
—
      
2,901
      
718
      
27,789
       (73 )    
31,335
Other receivables
    
—
      
11
      
3
      
567
      
—
      
581
Prepaid expenses 
    
—
      
134
      
245
      
2,037
      
—
      
2,416
Income tax receivable
    
—
       (6 )     (5 )    
50
      
—
      
39
Deferred income taxes 
    
—
      
305
      
153
      
4,551
      
—
      
5,009
Total current assets 
    
—
      
3,468
      
1,428
      
35,309
       (73 )    
40,132
Investment in subsidiaries
    
215,654
      
—
      
—
      
—
       (215,654 )    
—
Property, plant and equipment, net 
    
—
      
7,726
      
415
      
122,667
      
—
      
130,808
Broadcast licenses 
    
—
      
94,473
      
—
      
377,990
      
—
      
472,463
Goodwill 
    
—
      
10,256
      
2,565
      
7,642
      
—
      
20,463
Other indefinite-lived intangible assets
    
—
      
—
      
2,892
      
—
      
—
      
2,892
Amortizable intangible assets, net 
    
—
      
4,625
      
1,002
      
1,471
      
—
      
7,098
Bond issue costs 
    
—
      
—
      
—
      
518
      
—
      
518
Bank loan fees 
    
—
      
—
      
—
      
2,488
      
—
      
2,488
FV of interest rate swap
    
—
      
—
      
—
      
2,663
      
—
      
2,663
Intercompany receivables 
    
106,818
      
10,477
      
—
      
184,360
       (301,655 )    
—
Other assets 
    
—
      
60
      
26
      
4,363
      
—
      
4,449
Total assets 
   $
322,472
     $
131,085
     $
8,328
     $
739,471
     $ (517,382 )   $
683,974
 
 
NOTE 15. CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
 
 
SALEM COMMUNICATIONS CORPORATION
 
CONDENSED CONSOLIDATING BALANCE SHEET
 
(Unaudited)
 
(Dollars in thousands)
   
As of June 30, 2007
  
                     
Issuer and
  
                     
Guarantor
  
   
Guarantors
    
Subsidiaries
  
               
 
                
 
  
   
Parent
    
AcquisitionCo
    
Other Media
    
Salem Holding
    
Adjustments
    
Salem Consolidated
  
Current liabilities: 
                                    
Accounts payable 
   $
—
     $ (42 )   $
65
     $
1,473
     $
—
     $
1,496
  
Accrued expenses 
    
—
      
593
      
482
      
5,315
       (126 )    
6,264
  
Accrued compensation and related expenses 
    
—
      
729
      
125
      
6,558
      
—
      
7,412
  
Accrued interest
    
—
      
—
      
—
      
2,252
      
—
      
2,252
  
Deferred revenue 
    
—
      
—
      
4,003
      
562
      
—
      
4,565
  
Current maturities of long-term debt
    
—
      
1,242
      
—
      
2,441
      
—
      
3,683
  
Total current liabilities 
    
—
      
2,522
      
4,675
      
18,601
       (126 )    
25,672
  
Intercompany payables 
    
77,178
      
104,404
      
14,730
      
105,290
       (301,602 )    
—
  
Long-term debt
    
—
      
1,305
      
—
      
343,646
      
—
      
344,951
  
Deferred income taxes 
    
1,260
      
13,777
       (9,819 )    
55,592
      
—
      
60,810
  
Deferred revenue 
    
—
      
598
       (1,576 )    
8,281
      
—
      
7,303
  
Other liabilities 
    
—
      
—
      
—
      
1,204
      
—
      
1,204
  
Stockholders’ equity 
    
244,034
      
8,479
      
318
      
206,857
       (215,654 )    
244,034
  
Total liabilities and stockholders’ equity 
   $
322,472
     $
131,085
     $
8,328
     $
739,471
     $ (517,382 )   $
683,974
  
 
 
NOTE 15. CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
 
SALEM COMMUNICATIONS CORPORATION
 
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 
(Unaudited)
 
(Dollars in thousands)
 
   
Six Months Ended June 30, 2007
  
                     
Issuer and
  
                     
Guarantor
  
   
Guarantors
    
Subsidiaries
  
               
 
                
 
  
   
Parent
    
AcquisitionCo
    
Other Media
    
Salem Holding
    
Adjustments
    
Salem Consolidated
  
Net broadcasting revenue 
   $
—
     $
5,729
     $
—
     $
99,665
     $ (1,304 )   $
104,090
  
Non-broadcast  revenue 
    
—
      
6,356
      
3,615
      
2,592
       (521 )    
12,042
  
Total revenue 
    
—
      
12,085
      
3,615
      
102,257
       (1,825 )    
116,132
  
Operating expenses: 
                                                
Broadcasting operating expenses 
    
—
      
3,920
      
—
      
62,107
      
85
      
66,112
  
Non-broadcast  operating expenses 
    
—
      
6,101
      
4,251
      
1,987
       (1,416 )    
10,923
  
Corporate expenses 
    
—
      
655
      
—
      
11,149
       (494 )    
11,310
  
Depreciation
    
—
      
480
      
78
      
5,456
      
—
      
6,014
  
Amortization
    
—
      
841
      
229
      
516
      
—
      
1,586
  
Gain (loss) on disposal of assets 
    
—
      
1
      
—
       (2,636 )    
—
       (2,635 )
Total operating expenses 
    
—
      
11,998
      
4,558
      
78,579
       (1,825 )    
93,310
  
Operating income (loss)
    
—
      
87
       (943 )    
23,678
    
­—
      
22,822
  
Other income (expense): 
                                                
Equity in earnings of consolidated subsidiaries, net
    
6,175
      
—
      
—
      
—
       (6,175 )    
—
  
Interest income 
    
3,881
      
5
      
—
      
6,614
       (10,392 )    
108