CORRESP: A correspondence can be sent as a document with another submission type or can be sent as a separate submission.
Published on July 25, 2007
July
25,
2007
VIA
EDGAR
AND OVERNIGHT DELIVERY
Securities
and Exchange Commission
Division
of Corporate Finance
100
F
Street, NE
Washington,
D.C. 20549
Attention:
Larry Spirgel
RE:
Salem
Communications Corporation
Form
10-K for the Fiscal Year Ended December 31, 2006
Filed
on March 16, 2007
Form
10-Q for the quarterly period ended March 31, 2007, as amended
Filed
May 15,
2007
File
No. 000-26497
Dear
Mr.
Spirgel:
The
staff
of the Securities and Exchange Commission (the “Staff”) provided comments, by
letter dated July 9, 2007 (the “Comment Letter”), to Salem Communications
Corporation, a Delaware corporation (“Salem”), regarding the Form 10-K of Salem
for the fiscal year ended December 31, 2006 as well as the Form 10-Q for
the
quarterly period ended March 31, 2007. This letter reflects Salem’s responses to
the comments and changes requested by the Staff.
To
facilitate your review of this letter, the responses set forth below have
been
numbered to correspond to the sequential numbering of the comments contained
in
the Comment Letter. For your convenience in reviewing the responses, each
comment has been set forth immediately prior to the respective
response.
Form
10-K for the fiscal year ended December 31, 2006
Note
8. Related Party Transactions, page 70
|
1.
|
We
note that you have leases with your principal stockholders and
in some
instances leases with partnerships or trusts controlled by these
stockholders and their families. Please provide us with more details
of
and your FIN 46(R) analysis of each of these arrangements. Your
FIN 46(R)
analysis should also address FASB Staff Position No. FIN 46(R)-5
(As
Amended).
|
Securities
and Exchange Commission
7/25/2007
Page
2 of 4
Response:
As
noted
by the Staff, Salem is involved in certain lease arrangements whereby Salem
leases office and studio space in addition to towers and transmitting equipment
from entities controlled by its principal stockholders (collectively, the
“Lessors”). The operations and accounting for the Lessors is done by
persons who are not employed by Salem using a separate accounting system
managed
and maintained at a location that is not affiliated with Salem. All
leases are negotiated and reviewed by a committee of independent directors
and
are at terms that do not vary materially from those that would have been
available from unaffiliated parties. The terms of the lease arrangements
generally provide for the following:
|
·
|
leases
on a “triple net” basis, under which Salem is contractually obligated to
pay directly or reimburse the Lessors for virtually all costs of
occupancy, including operating costs, property taxes and maintenance
capital expenditures;
|
|
·
|
rent
escalations based on inflation; and
|
|
·
|
renewal
options.
|
The
lease
arrangements between Salem and the Lessors are not considered variable interests
under paragraph B24 of FIN 46(R) because they do not contain explicit guarantees
of the residual value of the real estate, purchase options or similar
provisions. Additionally, Salem does not have an equity interest in
the Lessors and does not guarantee the debt of the Lessors. The
leases are at terms that do not vary materially from those that would have
been
available from unaffiliated parties. The leases between the two parties meet
the
classification requirements for operating leases in accordance with the
Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting
Standard No. 13 "Accounting for Leases", and represent only a contractual
relationship.
Due
to
the Lessors’ reliance on these arrangements with Salem (Salem leases most of the
income producing properties owned by the Lessors), and the relationship between
Salem and the principal stockholders of both entities, Salem has considered
whether it holds an implicit variable interest in the Lessors, as outlined
by
FASB Staff Position No. FIN 46R-5.
Salem
has
made its determination as to whether or not it has an implicit variable interest
in the Lessors based upon the following facts:
Securities
and Exchange Commission
7/25/2007
Page
3 of 4
|
·
|
Salem
has not guaranteed the principal stockholders’ investment in the
Lessors;
|
|
·
|
Salem
has not guaranteed any of the Lessors’ debt or the residual value of its
assets;
|
|
·
|
Salem
does not absorb any expected losses nor receive any residual returns
of
the Lessors; and
|
|
·
|
If
there is any shortfall in cash flow for the Lessors, the Lessors
are
unable to seek relief from Salem;
|
|
o
|
Salem
does not have a contractual obligation to cover any shortfalls
of the
Lessor nor would Salem ever do so;
|
|
o
|
Any
payment or other value given to the Lessors by Salem must be approved
in
advance by a committee of independent members of Salem’s board of
directors (excluding the Lessors);
|
|
o
|
We
do not believe that the board of directors of Salem would allow
the
Lessors to recover any shortfalls in cash flow;
and
|
|
o
|
The
Lessors have not historically come to Salem for financial
support.
|
Based
on
the facts listed above, Salem has concluded that it does not have an implicit
variable interest in the Lessors.
Form
10-Q/A for the quarterly period ended March 31, 2007
|
2.
|
Please
refile your amendment in full. Your amendment must contain the
certifications required by Section 302 and Section 906 of the
Sarbanes-Oxley Act and the signature(s) as required by the Form
10-Q.
|
Response:
Salem
has
refiled the amended Form 10-Q on July 24, 2007. The refiled document
contains the certifications required by Section 302 and Section 906 of the
Sarbanes-Oxley Act and the signatures as required by the Form 10-Q.
Securities
and Exchange Commission
7/25/2007
Page
4 of 4
Salem
acknowledges that:
|
·
|
Salem
is responsible for the adequacy and accuracy of the disclosure
in the
filings;
|
|
·
|
Staff
comments or changes to disclosure in response to Staff comments
do not
foreclose the Commission from taking any action with respect to
the
filings; and
|
|
·
|
Salem
may not assert Staff comments as a defense in any proceeding initiated
by
the Commission or any person under the federal securities laws
of the
United States.
|
Please
contact me at (805) 384-4512 with any questions or if you require further
information.
Sincerely,
|
By:
/s/ EVAN D. MASYR
|
|
|
Evan
D. Masyr
|
|
|
Senior
Vice President and Chief Financial Officer
|
cc:
Securities
and Exchange Commission
Michael
Henderson
Kyle
Moffatt
Salem
Communications Corporation
Jonathan
L. Block
Scott
R.
Hunter
Eric
H.
Halvorson
Dennis
M.
Weinberg
Gibson,
Dunn & Crutcher LLP
Thomas
D.
Magill
Singer
Lewak Greenbaum & Goldstein LLP
Jim
Pitrat
Harmeet
Singh
Ernst
& Young LLP
Jeffrey
Rosen
Paul
Chen