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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.
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SALEM COMMUNICATIONS CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
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
</TABLE>
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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.
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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)
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1998 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
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
======== =========
</TABLE>
See accompanying notes
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SALEM COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------ ------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
============ ============ ============ ============
</TABLE>
See accompanying notes
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SALEM COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------
1998 1999
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<S> <C> <C>
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
</TABLE>
See accompanying notes
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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.
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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.
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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.
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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
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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.
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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%
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<PAGE> 13
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
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<PAGE> 14
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
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<PAGE> 15
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
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<PAGE> 16
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.
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<PAGE> 17
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:
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<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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.
</TABLE>
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<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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.
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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).
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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.
</TABLE>
- ---------------
+ 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
<PAGE> 22
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
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
27.01 Financial Data Schedule
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 37,314
<SECURITIES> 0
<RECEIVABLES> 17,052
<ALLOWANCES> 1,757
<INVENTORY> 0
<CURRENT-ASSETS> 60,842
<PP&E> 75,116
<DEPRECIATION> 29,146
<TOTAL-ASSETS> 265,757
<CURRENT-LIABILITIES> 8,836
<BONDS> 100,000
0
0
<COMMON> 147,617
<OTHER-SE> (5,263)
<TOTAL-LIABILITY-AND-EQUITY> 265,757
<SALES> 0
<TOTAL-REVENUES> 25,120
<CGS> 0
<TOTAL-COSTS> 22,232
<OTHER-EXPENSES> 170
<LOSS-PROVISION> 543
<INTEREST-EXPENSE> 2,756
<INCOME-PRETAX> (92)
<INCOME-TAX> 46
<INCOME-CONTINUING> (138)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,570)
<CHANGES> 0
<NET-INCOME> (3,708)
<EPS-BASIC> 0
<EPS-DILUTED> (0.16)
</TABLE>
