================================================================================ 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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 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 333-76649 SALEM COMMUNICATIONS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 77-0121400 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 4880 SANTA ROSA ROAD, SUITE 300 CAMARILLO, CALIFORNIA 93012 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] As of November 1, 1999, there were 17,902,392 shares of Class A common stock and 5,553,696 shares of Class B common stock of Salem Communications Corporation outstanding. ================================================================================ SALEM COMMUNICATIONS CORPORATION INDEX
PAGE NO. -------- COVER PAGE .......................................................................................................1 INDEX.............................................................................................................2 PART I - FINANCIAL INFORMATION....................................................................................4 Item 1. Financial Statements (Unaudited)................................................................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........10 Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................16 PART II - OTHER INFORMATION......................................................................................17 Item 1. Legal Proceedings..............................................................................17 Item 2. Changes in Securities and Use of Proceeds......................................................17 Item 3. Defaults upon Senior Securities................................................................17 Item 4. Submission of Matters to a Vote of Security Holders............................................17 Item 5. Other Information..............................................................................17 Item 6. Exhibits and Reports on Form 8-K...............................................................17 SIGNATURES.......................................................................................................22 EXHIBIT INDEX....................................................................................................23
2 SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS This report includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 which involve risks and uncertainties. All statements, other than statements of historical facts, included in this report that address activities, events or developments that Salem Communications Corporation, a Delaware corporation (the "Company"), expects or anticipates will or may occur in the future, including such things as business strategy and measures to implement strategy, competitive strengths, goals, expansion and growth of the Company's business and operations, plans, references to future success and other such matters are forward-looking statements. When used in this report, the words "anticipates," "believes," "expects," or words of similar import are intended to identify forward-looking statements. The forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform to the Company's expectations and predictions is subject to a number of risks: general economic, market or business conditions; the opportunities (or lack thereof) that may be presented to and pursued by the Company; competitive actions by other companies; changes in laws or regulations; and other factors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are urged to carefully review and consider the various disclosures made by the Company to advise interested parties of certain risks and other factors that may affect the Company's business and operating results, including the disclosures made under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report. 3 PART I - FINANCIAL INFORMATION SALEM COMMUNICATIONS CORPORATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) SALEM COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31 SEPTEMBER 30 1998 1999 ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents .......................................... $ 1,917 $ 37,314 Accounts receivable (less allowance for doubtful accounts of $862 in 1998 and $1,757 in 1999) ........................................... 14,289 15,045 Other receivables .................................................. 67 250 Prepaid expenses ................................................... 658 2,181 Deferred income taxes .............................................. 2,443 6,052 -------- --------- Total current assets ................................................... 19,374 60,842 Property, plant and equipment, net ..................................... 40,749 45,970 Intangible assets, net ................................................. 141,776 153,212 Bond issue costs ....................................................... 4,657 2,839 Other assets ........................................................... 1,194 2,894 -------- --------- Total assets ........................................................... $207,750 $ 265,757 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses .............................. $ 2,165 $ 2,337 Accrued compensation and related ................................... 1,613 1,829 Accrued interest ................................................... 3,968 137 Deferred subscription revenue ...................................... -- 1,305 Income taxes ....................................................... 89 166 Current portion of long-term debt and capital lease obligations .... -- 3,062 -------- --------- Total current liabilities .............................................. 7,835 8,836 Long-term debt, less current portion ................................... 178,610 100,000 Capital lease obligations, less current portion ........................ -- 160 Deferred income taxes .................................................. 11,581 12,785 Other liabilities ...................................................... 623 1,622 Stockholders' equity: Class A common stock, $.01 par value; authorized 80,000,000 shares; issued and outstanding 17,902,392 shares at September 30, 1999 .. 111 179 Class B common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding 5,553,696 shares ......................... 56 56 Additional paid-in capital ......................................... 5,665 147,382 Retained earnings (deficit) ........................................ 3,269 (5,263) -------- --------- Total stockholders' equity ............................................. 9,101 142,354 -------- --------- Total liabilities and stockholders' equity ............................. $207,750 $ 265,757 ======== =========
See accompanying notes 4 SALEM COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------------ ------------------------------ 1998 1999 1998 1999 ------------ ------------ ------------ ------------ Gross broadcasting revenue ............................. $ 21,076 $ 23,584 $ 61,037 $ 69,315 Less agency commissions ................................ 1,844 2,020 5,401 5,928 ------------ ------------ ------------ ------------ Net broadcasting revenue ............................... 19,232 21,564 55,636 63,387 Other media revenue .................................... -- 1,536 -- 3,951 ------------ ------------ ------------ ------------ Total revenue .......................................... 19,232 23,100 55,636 67,338 Operating expenses: Broadcasting operating expenses .................... 10,171 11,198 30,150 33,547 Other media operating expenses ..................... -- 2,939 -- 6,211 Corporate expenses ................................. 1,497 1,967 4,925 6,331 Stock and related cash grant ....................... -- -- -- 2,550 Depreciation and amortization (including $576 for the quarter ended September 30, 1999 and $1,556 for the nine months ended September 30, 1999 for other media businesses) ................ 3,497 4,651 10,163 13,507 ------------ ------------ ------------ ------------ Total operating expenses ............................... 15,165 20,755 45,238 62,146 ------------ ------------ ------------ ------------ Net operating income ................................... 4,067 2,345 10,398 5,192 Other income (expense): Interest income .................................... 68 489 258 538 Gain (loss) on disposal of assets .................. 270 -- (365) (197) Interest expense ................................... (3,953) (2,756) (11,544) (11,683) Other expense ...................................... (101) (170) (306) (366) ------------ ------------ ------------ ------------ Income (loss) before income taxes and extraordinary item 351 (92) (1,559) (6,516) Provision (benefit) for income taxes ................... 167 46 (384) (1,554) ------------ ------------ ------------ ------------ Income (loss) before extraordinary item ................ 184 (138) (1,175) (4,962) Extraordinary loss net of income tax benefit ........... -- (3,570) -- (3,570) ------------ ------------ ------------ ------------ Net income (loss) ...................................... $ 184 $ (3,708) $ (1,175) $ (8,532) ============ ============ ============ ============ Basic and diluted net income (loss) per share before extraordinary item ................................. $ .01 $ (.01) $ (.07) $ (.26) Extraordinary loss ..................................... -- (.15) -- (.19) ------------ ------------ ------------ ------------ Basic and diluted net income (loss) per share .......... $ .01 $ (.16) $ (.07) $ (.45) ============ ============ ============ ============ Basic and diluted weighted shares outstanding .......... 16,661,088 23,456,088 16,661,088 18,935,978 ============ ============ ============ ============
See accompanying notes 5 SALEM COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 ----------------------- 1998 1999 -------- --------- OPERATING ACTIVITIES Net loss ........................................................................ $ (1,175) $ (8,532) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ............................................... 10,163 13,507 Amortization of bond issue costs and bank loan fees ......................... 430 408 Deferred income taxes ....................................................... (659) (3,873) Loss on sale of assets ...................................................... 365 197 Loss on early extinguishment of debt ........................................ -- 5,556 Noncash stock grant ......................................................... -- 1,688 Changes in operating assets and liabilities: Accounts receivable ...................................................... (877) 258 Prepaid expenses and other current assets ................................ (236) (1,170) Accounts payable and accrued expenses .................................... (3,868) (5,201) Deferred subscription revenue ............................................ -- 19 Other liabilities ........................................................ 422 (108) Income taxes ............................................................. (223) 77 -------- --------- Net cash provided by operating activities ....................................... 4,342 2,826 INVESTING ACTIVITIES Capital expenditures ............................................................ (5,739) (5,874) Deposits on radio station acquisitions .......................................... (135) (500) Purchases of radio stations ..................................................... (33,887) (11,863) Purchases of other media businesses ............................................. -- (8,672) Proceeds from disposal of property, plant and equipment and intangible assets.... 1,333 50 Expenditures for tower construction project held for sale ....................... -- (410) Proceeds from sale of tower construction project ................................ -- 914 Other assets .................................................................... 4,755 (305) -------- --------- Net cash used in investing activities ........................................... (33,673) (26,660) FINANCING ACTIVITIES Proceeds from issuance of long-term debt and notes payable to stockholders ...... 42,310 18,750 Net proceeds from issuance of common stock ...................................... -- 140,097 Payments of long-term debt and notes payable to stockholders .................... (13,000) (94,860) Payments on capital lease obligations ........................................... -- (172) Payments of bond issue costs .................................................... (281) -- Payment of premium on senior subordinated notes ................................. -- (3,875) Payment of costs related to bank credit facility ................................ -- (709) -------- --------- Net cash provided by financing activities ....................................... 29,029 59,231 -------- --------- Net increase (decrease) in cash and cash equivalents ............................ (302) 35,397 Cash and cash equivalents at beginning of period ................................ 1,645 1,917 -------- --------- Cash and cash equivalents at end of period ...................................... $ 1,343 $ 37,314 ======== ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest ................................................................. $ 14,817 $ 15,076 Income taxes ............................................................. 499 275
See accompanying notes 6 SALEM COMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION Information with respect to the three months and nine months ended September 30, 1999 and 1998 is unaudited. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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 Salem Communications Corporation and Subsidiaries, for the periods presented. 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 the our annual report on Form 10-K for the year ended December 31, 1998. NOTE 2. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS In January 1999, we purchased the assets of OnePlace, LLC ("OnePlace"), for $6.2 million, and all the outstanding shares of stock of CCM Communications, Inc. ("CCM"), for $1.9 million. OnePlace is engaged in the business of applying Internet, e-commerce, consumer profiling and other information technologies in the Christian products industry. CCM publishes magazines which follow the contemporary Christian music industry. The purchases were financed primarily by an additional borrowing and have been accounted for using the purchase method. OnePlace earns its revenue by selling products and services on the Internet and licensing its e-commerce, search engines and imaging applications. CCM earns its revenue by selling advertising in and subscriptions to its publications. In March 1999, we acquired the assets of Christian Research Report for $300,000. The publications of Christian Research Report follow the contemporary Christian music industry. The revenue and operating expenses of these businesses are reported as "other media" on our condensed consolidated statements of operations. In April 1999, we purchased KKOL-AM, Seattle-Tacoma, Washington, for $1.4 million from a corporation owned by our principal stockholders. We financed this acquisition primarily by a borrowing under our prior credit facility. Prior to the acquisition, pursuant to a local marketing agreement (LMA) entered into on June 13, 1997, we programmed KKOL-AM and sold all of the airtime. Under that LMA, we retained all of the revenue and incurred all of the expenses. In June 1999, we purchased the real estate at the transmitter site for KKOL-AM for $400,000. On June 30, 1999, in connection with our initial public offering, a registration statement on Form S-1 (No. 333-76649) was declared effective by the Securities and Exchange Commission; on June 30, 1999 we filed a second registration statement on Form S-1 (No. 333-82031) which was automatically effective, by which we registered additional securities. Pursuant to these two registration statements, we offered and sold 6,720,000 shares of our Class A common stock at $22.50 per share, generating gross offering proceeds of $151.2 million. All of the shares were sold to an underwriting syndicate. The managing underwriters were Deutsche Banc Alex. Brown, ING Barings and Salomon Smith Barney. After deducting a $9.6 million underwriting discount and $1.5 million in other related expenses, the net proceeds to Salem were $140.1 million. In addition, two selling stockholders sold 2,940,000 shares of our Class A common stock (including 1,260,000 shares sold by the stockholders as a result of the exercise by the managing underwriters of their over-allotment option subsequent to the initial offering) to the underwriting syndicate at $22.50 per share raising gross proceeds of $66.2 million. After deducting a $4.2 million underwriting discount, the net proceeds to the selling stockholders were $62.0 million. We did not receive any monies from the sale of shares of our Class A common stock by these selling stockholders. 7 The shares of our Class A common stock sold to the underwriting syndicate began trading on the Nasdaq National Market under the symbol "SALM" on July 1, 1999. We received the gross proceeds, less underwriting discount, on July 7, 1999. On that date, we used a portion of the net proceeds to repay all indebtedness ($39.8 million) outstanding under our prior credit facility. On July 13, 1999, we used a portion of the net proceeds of the offering to repurchase $50 million principal amount of our 9 1/2% senior subordinated notes, plus a premium of $3.9 million and accrued and unpaid interest. On July 23, 1999, we used a portion of the net proceeds to purchase the assets of radio station KCTK-AM, Phoenix, Arizona, for $5 million. KCTK-AM formerly had been known as KGME-AM and KFDJ-AM. We have combined KCTK-AM with KPXQ-AM, another radio station we own and operate in Phoenix, for our internal financial reporting purposes. On August 13, 1999, we entered into an LMA for radio station KCBQ-AM, San Diego, California. The LMA began in September 1999. We are programming KCBQ-AM and selling all of the airtime. Under the LMA, we retain all of the revenue and pay for all of the expenses of this radio station. In addition, we pay a monthly fee of $15,000. We also have an option to purchase KCBQ-AM for $5.0 million. If we exercise the option, we would use a portion of the net proceeds to purchase this radio station. On August 25, 1999, we used a portion of the net proceeds to purchase the assets of Internet sites AudioCentral.com and ChristianBooks.com for $400,000 cash and $600,000 in non-cash consideration. In August 1999, we entered into an agreement to purchase radio stations WNIV-AM and WLTA-AM, Atlanta, Georgia, for $8 million. We anticipate these purchases will close in the first quarter of 2000. In September 1999, we entered into agreements to purchase radio stations KAIM-AM, KAIM-FM, KGU-AM and KHNR-AM, Honolulu, Hawaii, in two separate transactions for a total of $3.4 million. We anticipate these purchases will close in December 1999 or January 2000. Pursuant to an LMA, we will program and sell all of the airtime of radio stations KGU-AM and KHNR-AM. The LMA commenced on October 1, 1999. Under the LMA, we retain all of the revenue and pay for all of the expenses of KGU-AM and KHNR-AM. On September 13, 1999, we used a portion of the net proceeds to purchase the assets of radio stations WLSY-FM and WRVI-FM, Louisville, Kentucky for $5 million. We have invested the remaining net proceeds of the offering in money market funds. The remaining net proceeds are available for general corporate purposes, including acquisitions. NOTE 3. SUBSEQUENT EVENTS On October 19, 1999, we used a portion of the net proceeds from the offering to purchase the assets of Gospel Media Network, Inc., relating to the audio and video streaming of content on the GospelMedia.com Internet site, for $475,000. In October 1999, we entered into an agreement to purchase radio station KJQI-FM, San Rafael, California, for $8 million. We anticipate this purchase will close in January 2000. Pursuant to an LMA, we will program and sell all the airtime of the radio station. We anticipate the LMA will commence in November 1999. Under the LMA, we retain all of the revenue and pay for all of the expenses of the radio station. In October 1999, we entered into an agreement to purchase radio station WABS-AM, Arlington, Virginia, for $4.1 million. We anticipate this purchase will close in January or February 2000. 8 NOTE 4. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common stock shares outstanding. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common stock shares and when dilutive, common stock share equivalents outstanding. There were no common stock share equivalents outstanding in any of the periods presented and, as such, basic and diluted net income (loss) per share are the same. 9 ITEM 2. 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 condensed consolidated financial statements and related notes included elsewhere in this report. Our condensed consolidated financial statements are not directly comparable from period to period because of our acquisition and disposition of radio stations and our acquisition of other media businesses. We are the largest U.S. radio broadcasting company providing programming targeted at audiences interested in religious and family issues. Our core business is the ownership and operation of radio stations in large metropolitan markets. We operate 49 radio stations, including 36 stations which broadcast to 19 of the top 25 U.S. markets. We also operate Salem Radio Network, a national radio network offering syndicated talk, news and music programming to approximately 1,200 affiliated radio stations. In 1999, we acquired publishing, Internet and information technology businesses that direct their content to persons with interests similar to those of our targeted radio audience. The principal sources of our revenue are: - the sale of block program time, both to national and local program producers, - the sale of advertising time on our radio stations, both to national and local advertisers, and - the sale of advertising time on our national radio network. Our revenue is affected primarily by the program rates our radio stations charge and by the advertising rates our radio stations and network charge. The rates for block program time are based upon our stations' ability to attract audiences that will support the program producers through contributions and purchases of their products. Advertising rates are based upon the demand for advertising time, which in turn is based on our stations' and network's ability to produce results for its advertisers. We do not subscribe to traditional audience measuring services. Instead, we market ourselves to advertisers based upon the responsiveness of our audience. Each of our radio stations and our network have a general pre-determined level of time that they make available for block programs and/or advertising, which may vary at different times of the day. In recent years, we have begun to place greater emphasis on the development of local advertising in all of our markets. We encourage general managers and sales managers to increase advertising revenue. We can create additional advertising revenue in a variety of ways, such as removing block programming that generates marginal audience response, adjusting the start time of programs to add advertising in more desirable time slots and increasing advertising rates. As is typical in the radio broadcasting industry, our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertising revenue. Quarterly revenue from the sale of block program time does not tend to vary, however, since program rates are generally set annually. Our cash flow is affected by a transition period experienced by radio stations we have acquired that previously operated with formats other than a religious and family issues format. This transition period, which usually lasts less than a year, is when we develop the radio station's program customer and listener base. During this period, these stations typically generate negative or insignificant cash flow. In the broadcasting industry, radio stations often utilize trade or barter agreements to exchange advertising time for goods or services (such as other media advertising, travel or lodging), in lieu of cash. In order to preserve the sale of our advertising time for cash, we generally enter into trade agreements only if the goods or services bartered to us will be used in our business. We have minimized our use of trade agreements and have generally sold 10 most of our advertising time for cash. In 1998, we sold 92% of our advertising time for cash. In addition, it is our general policy not to preempt advertising paid for in cash with advertising paid for in trade. The primary operating expenses incurred in the ownership and operation of our radio stations include employee salaries and commissions, and facility expenses (for example, rent and utilities). In addition to these expenses, our network incurs programming costs and lease expenses for satellite communication facilities. We also incur and will continue to incur significant depreciation, amortization and interest expense as a result of completed and future acquisitions of radio stations and existing and future borrowings. OnePlace earns its revenue by selling products and services on the Internet and licensing its e-commerce, search engines and imaging applications. CCM earns its revenue by selling advertising in and subscriptions to its publications. The revenue and related operating expenses of these businesses are reported as "other media" on our condensed consolidated statements of operations. The performance of a radio broadcasting company, such as Salem, is customarily measured by the ability of its stations to generate broadcast cash flow, EBITDA and after-tax cash flow. We define broadcast cash flow as net operating income, excluding other media revenue and other media operating expenses, and before depreciation and amortization and corporate expenses. We define EBITDA as net operating income before depreciation and amortization. We define after-tax cash flow as income (loss) before extraordinary items minus gain (loss) on disposal of assets (net of income tax) plus depreciation and amortization. EBITDA and after-tax cash flow for the nine month period ended September 30, 1999 excludes a $2.6 million charge ($1.9 million, net of income tax) for a one-time stock grant concurrent with our initial public offering on June 30, 1999. Although broadcast cash flow, EBITDA and after-tax cash flow are not measures of performance calculated in accordance with generally accepted accounting principles, and should be viewed as a supplement to and not a substitute for our results of operations presented on the basis of generally accepted accounting principles, we believe that broadcast cash flow, EBITDA and after-tax cash flow are useful because they are generally recognized by the radio broadcasting industry as measures of performance and are used by analysts who report on the performance of broadcast companies. These measures are not necessarily comparable to similarly titled measures employed by other companies. In the following discussion of our results of operations, we compare our results between periods on an as reported basis (that is, the results of operations of all radio stations and network formats owned or operated at any time during either period) and on a "same station" basis. We include in our same station comparisons the results of operations of radio stations and network formats that: - we own or operate for all of both periods; - we acquire or begin to operate at any time after the beginning of the first relevant comparison period if the station or network format (i) is in a market in which we already own or operate a radio station or network format and (ii) is integrated with the existing station or network format for our internal financial reporting purposes; or - we sell or cease to operate at any time after the beginning of the first relevant comparison period if the station or network format (i) was integrated with another station or network format in a market for our internal financial reporting purposes prior to the sale or cessation of operations and (ii) we continue to own or operate the other station or network format following the sale or cessation of operations. We include in our same station comparisons the results of operations of our integrated stations and network formats from the date that we acquire or begin to operate them or through the date that we sell or cease to operate them, as the case may be. 11 RESULTS OF OPERATIONS Net Broadcasting Revenue. Net broadcasting revenue increased $2.4 million or 12.5% to $21.6 million for the quarter ended September 30, 1999 from $19.2 million for the same quarter of the prior year. Net broadcasting revenue increased $7.8 million or 14.0% to $63.4 million for the nine month period ended September 30, 1999 from $55.6 million for the same period of the prior year. The inclusion of revenue from radio stations acquired in 1998 and 1999, partially offset by the loss of revenue from radio stations sold in 1998, provided $600,000 of the increase for the quarter ended September 30, 1999 over the same quarter of the prior year, and $1.9 million of the increase for the nine month period ended September 30, 1999 over the same period of the prior year. For stations and network formats owned and/or operated over the comparable period in 1999 and 1998, net broadcasting revenue improved $1.8 million or 9.6% to $20.6 million for the quarter ended September 30, 1999 from $18.8 million for the same quarter of the prior year, and $5.9 million or 10.8% to $60.7 million for the nine month period ended September 30, 1999 from $54.8 million for the same period in the prior year. The improvement was primarily due to an increase in revenue at the radio stations we acquired in 1996 and 1997 that previously operated with formats other than a religious and family issues format, increases in program rates and, to a lesser extent, increases in advertising time and improved selling efforts at both the national and local level. Revenue from advertising as a percentage of our gross broadcasting revenue increased to 37.0% for the quarter ended September 30, 1999 from 35.2% for the same quarter of the prior year and increased to 36.6% for the nine month period ended September 30, 1999 from 34.8% for the same period in 1998. Revenue from block program time as a percentage of our gross broadcasting revenue decreased to 50.1% for the quarter ended September 30, 1999 from 51.4% for the same quarter in 1998 and decreased to 50.3% for the nine month period ended September 30, 1999 from 51.4% for the same period in 1998. This change in our revenue mix is primarily due to our efforts to develop more advertising revenue in all of our markets. Other Media Revenue. Other media revenue was $1.5 million for the quarter ended September 30, 1999 and $3.9 million for the nine months ended September 30, 1999, and was generated from the businesses acquired during the first quarter of 1999. Broadcasting Operating Expenses. Broadcasting operating expenses increased $1.0 million or 9.8% to $11.2 million for the quarter ended September 30, 1999 from $10.2 million for the same quarter of the prior year. Broadcasting operating expenses increased $3.3 million or 10.9% to $33.5 million for the nine month period ended September 30, 1999 from $30.2 million for the same period of the prior year. The inclusion of expenses from radio stations acquired in 1998 and 1999, partially offset by the exclusion of operating expenses from radio stations sold in 1998, accounted for $100,000 of the increase for the quarter ended September 30, 1999 over the same quarter of the prior year, and $700,000 of the increase for the nine month period ended September 30, 1999 over the same period of the prior year. For stations and network formats owned and/or operated over the comparable periods in 1999 and 1998, broadcasting operating expenses increased $900,000 or 9.1% to $10.8 million for the quarter ended September 30, 1999 from $9.9 million for the same quarter of the prior year and $2.6 million or 8.8% to $32.1 million for the nine month period ended September 30, 1999 from $29.5 million for the same period in the prior year, primarily due to incremental selling and production expenses incurred to produce the increased revenue in the period. Other Media Operating Expenses. Other media operating expenses were $2.9 million for the quarter ended September 30, 1999 and $6.2 million for the nine months ended September 30, 1999, and were incurred in the businesses acquired during the first quarter of 1999. Broadcast Cash Flow. Broadcast cash flow increased $1.3 million or 14.3% to $10.4 million for the quarter ended September 30, 1999 from $9.1 million for the same quarter of the prior year. Broadcast cash flow increased $4.3 million or 16.9% to $29.8 million for the nine month period ended September 30, 1999 from $25.5 million for the same period of the prior year. The increase is primarily attributable to the improved performance of radio stations acquired in 1996 and 1997 that previously operated with formats other than a religious and family issues format. As a percentage of net broadcasting revenue, broadcast cash flow increased to 48.1% for the quarter ended September 30, 1999 from 47.1% for the same quarter of the prior year. As a percentage of net broadcasting revenue, broadcast cash flow increased to 47.0% for the nine month period ended September 30, 1999 from 45.8% 12 for the same period of the prior year. Acquired and reformatted radio stations typically produce low margins during the first few years following conversion from a non-religious format to a religious and family issues format. Broadcast cash flow margins improve as we implement scheduled program rate increases and increase advertising revenue on our stations. For stations and network formats owned and/or operated over the comparable period in 1999 and 1998, broadcast cash flow improved $1.0 million or 11.2% to $9.9 million in the quarter ended September 30, 1999 from $8.9 million in the same quarter of the prior year, and broadcast cash flow improved $3.3 million or 13.0% to $28.6 million for the nine month period ended September 30, 1999 from $25.3 million for the same period in the prior year. Corporate Expenses. Corporate expenses increased $500,000 or 33.3% to $2.0 million in the quarter ended September 30, 1999 from $1.5 million in the same quarter of the prior year. Corporate expenses increased $1.4 million or 28.6% to $6.3 million for the nine month period ended September 30, 1999 from $4.9 million in the same period of the prior year. The increases are primarily due to an increase in bonuses of $300,000 in 1999 as compared to 1998 and to additional overhead costs associated with radio station acquisitions in 1998 and other media acquisitions in 1999. EBITDA. EBITDA decreased $600,000 or 7.9% to $7.0 million for the quarter ended September 30, 1999 from $7.6 million for the same quarter of the prior year. EBITDA increased $700,000 or 3.4% to $21.2 million for the nine month period ended September 30, 1999 from $20.6 million for the same period of the prior year. As a percentage of total revenue, EBITDA decreased to 30.3% for the quarter ended September 30, 1999 from 39.6% for the same quarter of the prior year. As a percentage of total revenue, EBITDA decreased to 31.5% for the nine month period ended September 30, 1999 from 37.1% for the same period of the prior year. The decrease is attributable to a negative EBITDA margin on our other media businesses (that is, EBITDA for our other media businesses divided by other media revenue), offset by an improvement in the EBITDA margin on our broadcasting business (that is, EBITDA for our broadcasting business divided by net broadcasting revenue). Depreciation and Amortization. Depreciation and amortization expense increased $1.2 million or 34.3% to $4.7 million for the quarter ended September 30, 1999 from $3.5 million for the same quarter in the prior year. Depreciation and amortization expense increased $3.3 million or 32.4% to $13.5 million for the nine month period ended September 30, 1999 from $10.2 million for the same period in the prior year. The increase is primarily due to radio station acquisitions consummated during 1998, and acquisitions of other media businesses in 1999. Other Income (Expense). Interest income increased $400,000 for the quarter ended September 30, 1999 compared to the same quarter in the prior year, and increased $200,000 for the nine month period ended September 30, 1999 compared to the same period of the prior year. The increases are primarily due to interest earned on the investment of the net proceeds received from our initial public offering in July 1999. There was no gain (loss) on disposal of assets for the quarter ended September 30, 1999 as compared to a gain on disposal of assets of $270,000 in the same quarter of the prior year. Loss on disposal of assets increased approximately $(200,000) for the nine month period ended September 30, 1999 compared to the same period ended of the prior year. The increase was due to the write off of abandoned assets at one of our radio stations in the second quarter of 1998 offset in part by the gain on the sale of KTSL-FM in the third quarter of 1998. Interest expense decreased $1.3 million or 32.5% to $2.7 million for the quarter ended September 30, 1999 from $4.0 million in the same quarter of the prior year. Interest expense decreased $200,000 or 1.7% to $11.7 million for the nine month period ended September 30, 1999 from $11.5 million for the same period in the prior year. The decreases were primarily due to interest expense associated with $50 million in principal amount of the senior subordinated notes repurchased in July 1999 partially offset by interest expense associated with additional borrowings to fund acquisitions consummated during 1998 and the first and second quarters of 1999. Provision (Benefit) for Income Taxes. Provision (benefit) for income taxes as a percentage of income (loss) before income taxes and extraordinary item (that is, the effective tax rate) was 50.0% for the quarter ended September 30, 1999 and (47.6)% for the same quarter of the prior year. Benefit for income taxes as a percentage of loss before income taxes and extraordinary item (that is, the effective tax rate) was (23.8)% for the nine month period ended September 30, 1999 and (24.6)% for the same period of the prior year. For the quarter and nine month period ended September 30, 1999 and 1998 the effective tax rate differs from the federal statutory income tax rate 13 of 34.0% primarily due to the effect of state income taxes and certain expenses that are not deductible for tax purposes. Net Income (Loss). We recognized a net loss of $(3.7) million for the quarter ended September 30, 1999, compared to net income of $184,000 for the same quarter of the prior year. We recognized a net loss of $(8.5) million for the nine month period ended September 30, 1999, compared to a net loss of $(1.2) million for the same period of the prior year. Included in the net loss for 1999 is a $3.6 million extraordinary loss, net of income tax benefit, resulting from the premium paid on the repurchase of $50 million principal amount of our senior subordinated notes, the related write-off of a portion of the unamortized bond issue costs, and the write-off of deferred financing costs related to our credit facility. After-Tax Cash Flow. After-tax cash flow increased 1.0 million or 28.6% to $4.5 million for the quarter ended September 30, 1999 from $3.5 million for the same quarter of the prior year. After-tax cash flow increased $1.4 million or 15.2% to 10.6 million for the nine month period ended September 30, 1999 from $9.2 million for the same period of the prior year. This increase was offset by negative after-tax cash flow of our other media businesses for the quarter and the nine month period ended September 30, 1999. After-tax cash flow of our broadcasting business increased $2.4 million or 68.6% to $5.9 million for the quarter ended September 30, 1999 from $3.5 million for the same quarter of the prior year. After-tax cash flow of our broadcasting business increased $3.6 million or 39.1% to $12.8 million for the nine month period ended September 30, 1999 from $9.2 million for the same period of the prior year. LIQUIDITY AND CAPITAL RESOURCES The increase in accounts receivable from December 31, 1998 to September 30, 1999 is due to the inclusion of accounts receivable of other media businesses acquired in 1999. The increase is offset by increased collections in 1999. The increase in prepaid expenses from December 31, 1998 to September 30, 1999 is due to the inclusion of prepaid expenses of other media businesses acquired in 1999 and to the prepayment of annual operating expenses during the nine month period ended September, 1999. Deferred subscription revenue, which was assumed as part of the acquisition of CCM, represents revenue from magazine subscriptions to be earned over a one year period. We have historically financed acquisitions of radio stations through borrowings, including borrowings under bank credit facilities and, to a lesser extent, from operating cash flow and selected asset dispositions. We will fund future acquisitions from the net proceeds of the offering, borrowings under our credit facility and operating cash flow. We have historically funded, and will continue to fund, expenditures for operations, administrative expenses, capital expenditures and debt service required by our credit facility and senior subordinated notes from operating cash flow. We believe that the net proceeds of the offering, cash flow from operations and borrowings under our credit facility will be sufficient to permit us to meet our financial obligations and to fund acquisitions and operations for at least the next twelve months. At September 30, 1999, we had no amounts outstanding under our credit facility. In July 1999, we paid amounts outstanding of $39.8 million with a portion of the net proceeds of the offering. We amended our credit facility principally to increase our borrowing capacity from $75 million to $150 million, to lower the borrowing rates and to modify current financial ratio tests to provide us with additional borrowing flexibility. The amended credit facility matures on June 30, 2006. Aggregate commitments under the amended credit facility begin to decrease commencing March 31, 2001. Amounts outstanding under our credit facility bear interest at a base rate, at our option, of the bank's prime rate or LIBOR, plus a spread. For purposes of determining the interest rate under our credit facility, the prime rate spread ranges from 0% to 1%, and the LIBOR spread ranges from 0.875% to 2.25%. The maximum amount that we may borrow under our credit facility is limited by our debt to cash flow ratio, adjusted for recent radio station acquisitions (the "Adjusted Debt to Cash Flow Ratio"). The maximum 14 Adjusted Debt to Cash Flow Ratio allowed under our credit facility is 6.00 to 1 through December 31, 2000. Thereafter, the maximum ratio will decline periodically until January 1, 2004, at which point it will remain at 4.00 to 1 through June 2006. The Adjusted Debt to Cash Flow Ratio at September 30, 1999 was 2.38 to 1, resulting in a borrowing availability of approximately $130.0 million. Our credit facility contains additional restrictive covenants customary for credit facilities of the size, type and purpose contemplated which, with specified exceptions, limits our ability to enter into affiliate transactions, pay dividends, consolidate, merge or effect certain asset sales, make specified investments, acquisitions and loans and change the nature of our business. The credit facility also requires us to satisfy specified financial covenants, which covenants require the maintenance of specified financial ratios and compliance with certain financial tests, including ratios for maximum leverage as described, minimum interest coverage (not less than 1.75 to 1), minimum debt service coverage (a static ratio of not less than 1.1 to 1) and minimum fixed charge coverage (a static ratio of not less than 1.1 to 1). The credit facility is guaranteed by all of our subsidiaries and is secured by pledges of all of our and our subsidiaries' assets and all of the capital stock of our subsidiaries. In September 1997, we issued $150 million principal amount of 9 1/2% senior subordinated notes due 2007. In July 1999, we repurchased $50 million in principal amount of the senior subordinated notes with a portion of the net proceeds of the offering. After giving effect to this repurchase, we are required to pay $9.5 million per year in interest on the senior subordinated notes. The indenture for the senior subordinated notes contains restrictive covenants that, among others, limit the incurrence of debt by us and our subsidiaries, the payment of dividends, the use of proceeds of specified asset sales and transactions with affiliates. The senior subordinated notes are guaranteed by all of our subsidiaries. As a result of the repurchase of our senior subordinated notes in July 1999, we recorded a non-cash charge of $1.5 million for the write-off of unamortized bond issue costs. This was in addition to the $3.9 million premium paid in connection with this repurchase. Net cash provided by operating activities decreased to $2.8 million for the nine month period ended September 30, 1999, compared to $4.3 million for the same period in the prior year, primarily due to a decrease in accounts payable and an increase in prepaid expenses of other media businesses during the nine month period ended September 30, 1999. Net cash used in investing activities decreased to $26.7 million for the nine month period ended September 30, 1999, compared to $33.7 million in the same period of the prior year, primarily due to several radio station acquisitions in the third quarter of 1998. Net cash provided by financing activities increased to $59.2 million for the nine month period ended September 30, 1999 compared to net cash provided by financing activities of $29.0 million for the same period of the prior year. The increase was primarily due to the net proceeds of the offering offset by the application of the net proceeds to pay off $39.8 million owing under our prior credit facility and the repurchase of $50 million in principal amount of our senior subordinated notes in July 1999. YEAR 2000 COMPUTER SYSTEM COMPLIANCE The term "year 2000 issue" (the year 2000 referred to as "Y2K") is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. These problems generally arise from the fact that most of the world's computer hardware and software have historically used only two digits (instead of four) to identify the year in a date, often meaning that the computer will fail to distinguish dates in the "2000's" from 15 dates in the "1900's." These problems may also arise from other sources as well, such as the use of special codes and conventions in software that make use of the date field. In early 1998, we began implementing the assessment phase of our plan to address the Y2K issue in each broadcast area and have completed a Y2K assessment phase of our computer, broadcast and environmental systems, redundant power systems and other critical systems including: (i) digital audio systems, (ii) traffic scheduling and billing systems, (iii) accounting and financial reporting systems and (iv) local area networking infrastructure. As part of the assessment phase, we initiated formal communication with all of our key business partners to identify their exposure to the Y2K issue. This assessment targeted potential external risks related to the Y2K issue and is complete. Key business partners include local and national programmers and advertisers, suppliers of communication services, financial institutions and suppliers of utilities. We are not aware of any key business partners with a Y2K issue that would materially impact our results of operations, liquidity, or capital resources. However, we have no means of ensuring that key business partners will be Y2K ready. The inability of key business partners to complete their Y2K resolution process in a timely fashion could materially impact us. The effect of non-compliance by key business partners is not determinable. Amounts related to the assessment phase are primarily internal costs, are expensed as incurred, and are not material. The remediation phase was the next step in our plan to address the Y2K issue. Activities during this phase included the actual repair, replacement or upgrade of our systems based on the findings of the assessment phase. Systems which are Y2K ready include local area networks, digital audio systems and traffic scheduling and billing systems. We have implemented a new accounting and financial reporting system which is Y2K ready. Costs related to this new system of approximately $200,000 are included in capital expenditures. The final plan phase, the testing phase, includes the actual testing of the enhanced and upgraded systems. This process includes internal and external user review confirmation, as well as unit testing and integration testing with other system interfaces. The testing schedule began during the second quarter of 1999 and is expected to be completed by the end of November 1999. Based on test results and assessment of outside risks, contingency plans will be developed as determined necessary. We expect to complete such plans in the fourth quarter of 1999. We anticipate minimal business disruption from both external and internal factors. However, possible risks include, but are not limited to, loss of power and communication links which are not subject to our control. We believe that our Y2K compliance issues from all phases of our plan will be resolved on a timely basis and that any related costs will not have a material impact on our operations, cash flows or financial condition of future periods. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Derivative Instruments. We do not invest, and during the quarter ended September 30, 1999 did not invest, in market risk sensitive instruments. Market Risk. Our market risk exposure with respect to financial instruments is to changes in LIBOR and in the "prime rate" in the United States. As of September 30, 1999, we may borrow $130.0 million under our credit facility. Amounts outstanding under the credit facility bear interest at a base rate, at our option, of the bank's prime rate or LIBOR, plus a spread. For purposes of determining the interest rate under our credit facility, the prime rate spread ranges from 0% to 1%, and the LIBOR spread ranges from 0.875% to 2.25%. There were no amounts outstanding under our credit facility as of September 30, 1999. 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in various routine legal proceedings, incident to the ordinary course of its business. The Company's management believes that the outcome of all pending legal proceedings in the aggregate will not have a material adverse effect on the Company's consolidated financial condition or its results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The use of proceeds from the offering is described in Note 2 in the Notes to Financial Statements in Part I above and is hereby incorporated by this reference. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters have been submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the period covered by this report. ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Set forth below is a list of exhibits included as part of this Quarterly Report: 17
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 3.01* Amended and Restated Certificate of Incorporation of Salem Communications Corporation, a Delaware corporation. 3.02** Bylaws of Salem Communications Corporation, a Delaware corporation. 4.01+ Indenture between Salem, certain named guarantors and The Bank of New York, as Trustee, dated as of September 25, 1997, relating to the 9 1/2% Series A and Series B Senior Subordinated Notes due 2007. 4.02+ Form of 9 1/2% Senior Subordinated Note. 4.03+ Form of Note Guarantee. 4.04+ Credit Agreement, dated as of September 25, 1997, among Salem, the several Lenders from time to time parties thereto, and The Bank of New York, as Administrative Agent for the Lenders (incorporated by reference to Exhibit 4.07 of the previously filed Registration Statement on Form S-4 (No. 333-41733)). 4.05+ Borrower Security Agreement, dated as of September 25, 1997, by and between Salem and The Bank of New York, as Administrative Agent (incorporated by reference to Exhibit 4.08 of the previously filed Registration Statement on Form S-4 (No. 333-41733)). 4.06+ Subsidiary Guaranty and Security Agreement dated as of September 25, 1997, by and between Salem and The Bank of New York, as Administrative Agent and the Guarantors named therein (incorporated by reference to Exhibit 4.09 of the previously filed Registration Statement on Form S-4 (No. 333-41733)). 4.07++ Amendment No. 1 and Consent No. 1, dated as of August 5, 1998, to the Credit Agreement, dated as of September 25, 1997, by and among Salem, The Bank of New York, as Administrative Agent, Bank of America NT&SA, as Documentation Agent, and the Lenders named therein (incorporated by reference to Exhibit 10.02 of previously filed Current Report on Form 8-K). 4.08++ Amendment No. 2 and Consent No. 2, dated as of January 22, 1999, to the Credit Agreement, dated as of September 25, 1997, by and among Salem, The Bank of New York, as Administrative Agent, Bank of America NT&SA, as Documentation Agent, and the Lenders named therein. 4.09* Specimen of Class A common stock certificate.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 4.10* Supplemental Indenture No. 1, dated as of March 31, 1999, to the Indenture, dated as of September 25, 1997, by and among Salem Communications Corporation, a California corporation, Salem Communications Corporation, a Delaware corporation, The Bank of New York, as Trustee, and the Guarantors named therein. 4.11* Consent No. 3, dated as of March 31, 1999, to the Credit Agreement, dated as of September 25, 1997, by and among Salem, The Bank of New York, as Administrative Agent for the Lenders, Bank of America NT&SA, as Documentation Agent, and the Lenders named therein. 4.12* Assumption Agreement, dated as of March 31, 1999, by and between Salem Communications Corporation, a Delaware corporation, and The Bank of New York, as Administrative Agent. 4.13* Amendment No. 1 to the Grant of Security Interest (Servicemarks) by Salem to The Bank of New York, as Administrative Agent, under the Borrower Security Agreement, dated as of September 25, 1997, with the Administrative Agent. 4.14* Amendment No. 3 and Consent No. 4, dated as of April 23, 1999, under the Credit Agreement, dated as of September 25, 1997, by and among Salem, The Bank of New York, as Administrative Agent for the Lenders, Bank of America NT&SA, as Documentation Agent, and the Lenders party thereto. 4.15* Form of First Amended and Restated Credit Agreement by and among Salem, The Bank of New York, as Administrative Agent for the Lenders, Bank of America NT&SA, as Documentation Agent, and the Lenders named therein. 10.01* Amended and Restated Employment Agreement, dated as of May 19, 1999, between Salem and Edward G. Atsinger III. 10.02* Amended and Restated Employment Agreement, dated as of May 19, 1999, between Salem and Stuart W. Epperson. 10.03.01+ Employment Contract, dated November 7, 1991, between Salem and Eric H. Halvorson. 10.03.02+ First Amendment to Employment Contract, dated April 22, 1996, between Salem and Eric H. Halvorson. 10.03.03+ Second Amendment to Employment Contract, dated July 8, 1997, between Salem and Eric H. Halvorson. 10.03.04+ Deferred Compensation Agreement, dated November 7, 1991, between Salem and Eric H. Halvorson. 10.03.05* Third Amendment to Employment Agreement, entered into May 26, 1999, between Salem and Eric Halvorson. 10.05.01+ Antenna/tower lease between Caron Broadcasting, Inc. (WHLO-AM/Akron, Ohio) and Messrs. Atsinger and Epperson expiring 2007. 10.05.02+ Antenna/tower/studio lease between Caron Broadcasting, Inc. (WTSJ-AM/ Cincinnati, Ohio) and Messrs. Atsinger and Epperson expiring 2007. 10.05.03+ Antenna/tower lease between Caron Broadcasting, Inc. (WHK-FM/Canton, Ohio) and Messrs. Atsinger and Epperson expiring 2007. 10.05.04+ Antenna/tower/studio lease between Common Ground Broadcasting, Inc. (KKMS-AM/Eagan, Minnesota) and Messrs. Atsinger and Epperson expiring in 2006. 10.05.05+ Antenna/tower lease between Common Ground Broadcasting, Inc. (WHK-AM/ Cleveland, Ohio) and Messrs. Atsinger and Epperson expiring 2008. 10.05.06+ Antenna/tower lease (KFAX-FM/Hayward, California) and Salem Broadcasting Company, a partnership consisting of Messrs. Atsinger and Epperson, expiring in 2003. 10.05.07+ Antenna/tower/studio lease between Inland Radio, Inc. (KKLA-AM/San Bernardino, California) and Messrs. Atsinger and Epperson expiring 2002.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 10.05.08+ Antenna/tower lease between Inspiration Media, Inc. (KGNW-AM/Seattle, Washington) and Messrs. Atsinger and Epperson expiring in 2002. 10.05.09+ Antenna/tower lease between Inspiration Media, Inc. (KLFE-AM/Seattle, Washington) and The Atsinger Family Trust and Stuart W. Epperson Revocable Living Trust expiring in 2004. 10.05.11.01+ Antenna/tower/studio lease between Pennsylvania Media Associates, Inc. (WZZD-AM/WFIL-AM/Philadelphia, Pennsylvania) and Messrs. Atsinger and Epperson, as assigned from WEAZ-FM Radio, Inc., expiring 2004. 10.05.11.02+ Antenna/tower/studio lease between Pennsylvania Media Associates, Inc. (WZZD-AM/WFIL-AM/Philadelphia, Pennsylvania) and The Atsinger Family Trust and Stuart W. Epperson Revocable Living Trust expiring 2004. 10.05.12+ Antenna/tower lease between Radio 1210, Inc. (KPRZ-AM/Olivenhain, California) and The Atsinger Family Trust expiring in 2002. 10.05.13+ Antenna/tower lease between Salem Media Corporation (WYLL-FM/Arlington Heights, Illinois) and Messrs. Atsinger and Epperson expiring in 2002. 10.05.14+ Antenna/turner/studio leases between Salem Media Corporation (KLTX-AM/Long Beach and Paramount, California) and Messrs. Atsinger and Epperson expiring in 2002. 10.05.15+ Antenna/tower lease between Salem Media of Colorado, Inc. (KNUS-AM/Denver-Boulder, Colorado) and Messrs. Atsinger and Epperson expiring 2006. 10.05.16+ Antenna/tower lease between Salem Media of Ohio, Inc. (WRFD-AM/Columbus, Ohio) and Messrs. Atsinger and Epperson expiring 2002. 10.05.17.01+ Studio Lease between Salem Media of Oregon, Inc. (KPDQ-AM/FM/Portland, Oregon) and Edward G. Atsinger III, Mona J. Atsinger, Stuart W. Epperson, and Nancy K. Epperson expiring 2002. 10.05.17.02+ Antenna/tower lease between Salem Media of Oregon, Inc. (KPDQ-AM/FM/Raleigh Hills, Oregon and Messrs. Atsinger and Epperson expiring 2002. 10.05.18+ Antenna/tower lease between Salem Media of Pennsylvania, Inc. (WORD-FM/WPIT-AM/Pittsburgh, Pennsylvania) and The Atsinger Family Trust and Stuart W. Epperson Revocable Living Trust expiring 2003. 10.05.19+ Antenna/tower lease between Salem Media of Texas, Inc. (KSLR-AM/San Antonio, Texas) and Epperson-Atsinger 1983 Family Trust expiring 2007. 10.05.20+ Antenna/tower lease between South Texas Broadcasting, Inc. (KENR-AM/Houston-Galveston, Texas) and Atsinger Family Trust and Stuart W. Epperson Revocable Living Trust expiring 2005. 10.05.21+ Antenna/tower lease between Vista Broadcasting, Inc. (KFIA-AM/Sacramento, California) and The Atsinger Family Trust and Stuart W. Epperson Revocable Living Trust expiring 2006. 10.05.22++ Antenna/tower lease between South Texas Broadcasting, Inc. (KKHT-FM/Houston-Galveston, Texas) and Sonsinger Broadcasting Company of Houston, LP expiring 2008. 10.05.23++ Antenna/tower lease between Inspiration Media of Texas, Inc. (KTEK-AM/Alvin, Texas) and the Atsinger Family Trust and The Stuart W. Epperson Revocable Living Trust expiring 2009. 10.06.05+ Asset Purchase Agreement dated as of September 30, 1996 by and between Infinity Broadcasting Corporation of Dallas and Inspiration Media of Texas, Inc. (KEWS, Arlington, Texas; KDFX, Dallas, Texas).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 10.06.07+ Asset Purchase Agreement dated June 2, 1997 by and between New England Continental Media, Inc. and Hibernia Communications, Inc. (WPZE-AM, Boston, Massachusetts). 10.06.08+ Option to Purchase dated as of August 18, 1997 by and between Sonsinger, Inc. and Inspiration Media, Inc. (KKOL-AM, Seattle, Washington). 10.06.09++ Asset Purchase Agreement dated as of April 13, 1998 by and between New Inspiration Broadcasting Company and First Scientific Equity Devices Trust (KIEV-AM, Glendale, California) (incorporated by reference to Exhibit 2.01 of the previously filed Current Report on Form 8-K). 10.06.10* Asset Purchase Agreement dated as of April 1, 1999 by and between Inspiration Media, Inc. and Sonsinger, Inc. (KKOL-AM, Seattle, Washington). 10.07.01+ Tower Purchase Agreement dated August 22, 1997 by and between Salem and Sonsinger Broadcasting Company of Houston, L.P. 10.07.02+ Amendment to the Tower Purchase Agreement dated November 10, 1997 by and between Salem and Sonsinger Broadcasting Company of Houston, L.P. 10.07.03+ Promissory Note dated November 11, 1997 made by Sonsinger Broadcasting Company of Houston, L.P. payable to Salem. 10.07.04+ Promissory Note dated December 24, 1997 made by Salem payable to Edward G. Atsinger III. 10.07.05+ Promissory Note dated December 24, 1997 made by Salem payable to Stuart W. Epperson. 10.08.01+ Local Programming and Marketing Agreement dated June 13, 1997 between Sonsinger, Inc. and Inspiration Media, Inc. 10.09.01+ Evidence of Key man life insurance policy no. 2256440M insuring Edward G. Atsinger III in the face amount of $5,000,000. 10.09.02+ Evidence of Key man life insurance policy no. 2257474H insuring Edward G. Atsinger III in the face amount of $5,000,000. 10.09.03+ Evidence of Key man life insurance policy no. 2257476B insuring Stuart W. Epperson in the face amount of $5,000,000. 10.10* 1999 Stock Incentive Plan. 21.01* Subsidiaries of Salem. 27.01 Financial Data Schedule.
- --------------- + Incorporated by reference to the exhibit of the same number, unless otherwise noted, of Salem's Registration Statement on Form S-4 (No. 333-41733), as amended, as declared effective by the Securities and Exchange Commission on February 9, 1998. ++ Incorporated by reference to the exhibit of the same number, unless otherwise noted, of Salem's Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 4, 1998. ++ Incorporated by reference to the exhibit of the same number, unless otherwise noted, of Salem's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 31, 1999. ** Incorporated by reference to the exhibit of the same number, unless otherwise noted, of Salem's Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 14, 1999. * Incorporated by reference to the exhibit of the same number to the Company's Registration Statement on Form S-1 (No. 333-76649) as amended, as declared, effective by the Securities and Exchange Commission on June 30, 1999. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended September 30, 1999. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Salem Communications Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 15, 1999 SALEM COMMUNICATIONS CORPORATION By: /s/ EDWARD G. ATSINGER III ------------------------------------ Edward G. Atsinger III President and Chief Executive Officer Date: November 15, 1999 By: /s/ DIRK GASTALDO ----------------------------------- Dirk Gastaldo Vice President and Chief Financial Officer (Principal Financial Officer) 22 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------- ----------------------- 27.01 Financial Data Schedule
23