1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 2000
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)
<TABLE>
<CAPTION>
<S> <C>
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)
</TABLE>
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 August 1, 2000 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.
2
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SALEM COMMUNICATIONS CORPORATION
INDEX
<TABLE>
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PAGE NO.
--------
<S> <C>
COVER PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . 12
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Defaults upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . 13
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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
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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 JUNE 30
1999 2000
------------- ---------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 34,124 $ 4,432
Accounts receivable (less allowance for doubtful accounts of $1,753 in
1999 and $2,458 in 2000). . . . . . . . . . . . . . . . . . . . . . . . 17,481 17,529
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 645 1,695
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,628 2,305
Due from stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 905 --
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 732 1,467
------------- ---------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,515 27,428
Property, plant and equipment, net. . . . . . . . . . . . . . . . . . . . . 50,665 55,695
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 150,520 187,342
Bond issue costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,750 2,573
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,914 3,575
------------- ---------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 264,364 $276,613
============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . $ 3,856 $ 3,992
Accrued compensation and related. . . . . . . . . . . . . . . . . . . . 2,047 2,265
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,546 2,537
Deferred subscription revenue . . . . . . . . . . . . . . . . . . . . . 1,670 1,679
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 194
Current portion of long-term debt and capital lease obligations . . . . 3,248 301
------------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 13,515 10,968
Long-term debt and capital lease obligations, less current portion. . . . . 100,087 113,092
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,232 8,802
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691 968
Stockholders' equity:
Class A common stock, $.01 par value; authorized 80,000,000 shares;
issued and outstanding 17,902,392 shares . . . . . . . . . . . . . . 179 179
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. . . . . . . . . . . . . . . . . . . . . . . 147,380 147,380
Retained deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,776) (4,832)
------------- ---------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . 142,839 142,783
------------- ---------
Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . $ 264,364 $276,613
============= =========
</TABLE>
See accompanying notes
4
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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 SIX MONTHS ENDED
------------------ ----------------
JUNE 30 JUNE 30
------------------ ----------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross broadcasting revenue. . . . . . . . . . . . . . . . . . . . . . $ 23,405 $ 27,100 $ 45,731 $ 51,762
Less agency commissions . . . . . . . . . . . . . . . . . . . . . . . 2,007 2,282 3,908 4,335
------------ ------------ ------------ ------------
Net broadcasting revenue.. . . . . . . . . . . . . . . . . . . . . . . 21,398 24,818 41,823 47,427
Other media revenue . . . . . . . . . . . . . . . . . . . . . . . . . 1,320 2,006 2,415 3,797
------------ ------------ ------------ ------------
Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,718 26,824 44,238 51,224
Operating expenses:
Broadcasting operating expenses. . . . . . . . . . . . . . . . . . 10,970 13,506 22,349 26,211
Other media operating expenses.. . . . . . . . . . . . . . . . . . 1,974 3,971 3,272 8,115
Stock and related cash grant. .. . . . . . . . . . . . . . . . . . 2,550 -- 2,550
Corporate expenses. . . . . . .. . . . . . . . . . . . . . . . . . 2,568 2,818 4,364 5,272
Depreciation and amortization (including
$795 and $745 for the quarter ended June
30, 1999 and 2000 and $980 and $1,239 4,745 5,399 8,856 10,338
for the six months ended June 30, 1999 ------------ ------------ ------------ ------------
and 2000, for other media businesses)
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . 22,807 25,694 41,391 49,936
------------ ------------ ------------ ------------
Net operating income (loss) . . . . . . . . . . . . . . . . . . . . . (89) 1,130 2,847 1,288
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . 24 63 49 351
Gain (loss) on disposal of assets . . . . . . . . . . . . . . . . (197) 4,408 (197) 4,408
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . (4,552) (2,699) (8,927) (5,219)
Other expense, net. . . . . . . . . . . . . . . . . . . . . . . . (76) (133) (196) (420)
------------ ------------ ------------ ------------
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . (4,890) 2,769 (6,424) 408
Provision (benefit) for income taxes. . . . . . . . . . . . . . . . . (1,374) 1,168 (1,600) 464
------------ ------------ ------------ ------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,516) $ 1,601 $ (4,824) $ (56)
============ ============ ============ ============
Basic and diluted income (loss) per share. . . . . . . . . . . . . . . $ (.21) $ .07 $ (.29) $ (.00)
============ ============ ============ ============
Basic and diluted weighted
Average shares outstanding . . . . .. . . . . . . . . . . . . . . 16,690,758 23,456,088 16,675,923 23,456,088
============ ============ ============ ============
</TABLE>
See accompanying notes
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SALEM COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------
1999 2000
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,824) $ (56)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 8,856 10,338
Amortization of bond issue costs and bank loan fees. . . . . . . . . . . . . 287 243
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,840) 96
(Gain) loss on sale of assets. . . . . . . . . . . . . . . . . . . . . . . . 197 (4,408)
Noncash stock grant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,687 -
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 859 185
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . (612) 126
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . (1,721) 327
Deferred subscription revenue . . . . . . . . . . . . . . . . . . . . . . (111) 9
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (220) 271
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 46
------------------ ---------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . 2,569 7,177
INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,639) (5,800)
Deposits on radio station acquisitions . . . . . . . . . . . . . . . . . . . . . (750) (45)
Purchases of radio stations. . . . . . . . . . . . . . . . . . . . . . . . . . . (1,786) (41,580)
Purchases of other media businesses. . . . . . . . . . . . . . . . . . . . . . . (8,372) -
Proceeds from disposal of property, plant and equipment and intangible assets. . 50 400
Expenditures for tower construction project held for sale. . . . . . . . . . . . (410) -
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (219) 98
------------------ ---------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . (15,126) (46,927)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt and notes payable to stockholders . . . 18,750 13,000
Payments of long-term debt and notes payable to stockholders . . . . . . . . . . (5,110) (2,810)
Payments on capital lease obligations. . . . . . . . . . . . . . . . . . . . . . (106) (132)
Payments of stock offering costs . . . . . . . . . . . . . . . . . . . . . . . . (748) -
------------------ ---------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . 12,786 10,058
------------------ ---------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . 229 (29,692)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 1,917 34,124
------------------ ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . $ 2,146 $ 4,432
================== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,758 $ 4,954
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 322
</TABLE>
See accompanying notes
6
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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 six months ended June 30,
2000 and 1999 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 our
annual report on Form 10-K for the year ended December 31, 1999.
NOTE 2. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
We purchased the assets (principally intangibles) of the following radio
stations:
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<S> <C> <C> <C>
ACQUISITION DATE STATION MARKET SERVED PURCHASE PRICE
---------------- ------------------- ----------------- --------------
(IN THOUSANDS)
January 4, 2000 WNIV-AM and WLTA-AM Atlanta, GA $ 8,000
January 10, 2000 WABS-AM Washington, D.C. 4,100
January 25, 2000 KJQI-FM San Francisco, CA 8,000
February 15, 2000 KAIM-AM/FM Honolulu, HI 1,800
February 16, 2000 KHNR-AM and KGU-AM Honolulu, HI 1,700
April 4, 2000 WGKA-AM Atlanta, GA 8,000
June 30, 2000 KSKY-AM Dallas, TX 13,000
--------------
$ 44,600
==============
</TABLE>
On January 18, 2000, we purchased real property in Dallas, TX, for
$885,000.
On February 25, 2000, we purchased the KIEV-AM transmitter site in Los
Angeles, California, for $2.8 million.
On March 31, 2000, we purchased all of the outstanding shares of stock of
Reach Satellite Network, Inc. (RSN), for $3.1 million. RSN owns and operates
Solid Gospel, a radio broadcasting network that produces and distributes music
programming to its own radio stations WBOZ-FM and WVRY-FM, Nashville, Tennessee,
and to independent radio station affiliates. RSN also owns and operates
SolidGospel.com, a web site on the Internet.
In March 2000, we agreed to purchase the following radio stations for
$185.6 million: KDGE-FM, Dallas, Texas, KALC-FM, Denver, Colorado, KXMX-FM and
KEZY-AM, Los Angeles, California, WYGY-FM and WBOB-AM, Cincinnati, Ohio, and
WRMR-AM and WKNR-AM, Cleveland, Ohio. We anticipate this purchase will close in
the third quarter of 2000. In connection with this agreement we deposited a $25
million irrevocable letter of credit with an escrow agent. Under the agreement
we are subject to a liquidated damages provision. If we fail to consummate the
purchase or otherwise terminates the agreement we are required to pay the seller
$21.4 million in addition to the $25 million letter of credit, which would be
disbursed to the seller.
On April 14, 2000 we sold certain software products of OnePlace for $1.1
million. We took back a promissory note with interest at the rate of 9% per
annum, compounded monthly. Both principal and interest shall be due and payable
in one installment on April 14, 2001.
On June 2, 2000, we agreed to exchange radio station KKHT-FM, Houston,
Texas for radio stations WALR-FM, Atlanta, Georgia, KLUP-AM, San Antonio,
Texas, and WSUN-AM, Tampa, Florida. We anticipate this transaction to close
in the second half of 2000.
7
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NOTE 3. SUBSEQUENT EVENTS
On July 1, 2000 we sold certain assets of OnePlace for $650,000. We
received 20% of the purchase price or $130,000 on July 12, 2000. We took back a
promissory note in the amount of $520,000 with interest at the prime rate
adjusted quarterly. Both principal and interest shall be due and payable in one
installment on June 30, 2005. The note is collateralized by the assets conveyed.
On July 14, 2000, we agreed to sell radio station KLTX-AM, Los Angeles, CA
for approximately $30 million. We anticipate this transaction to close in the
third quarter of 2000.
NOTE 4. BASIC AND DILUTED NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss by the weighted
average number of common stock shares outstanding. Diluted net loss per share is
computed by dividing net loss by the weighted average number of common stock
shares and when dilutive, common stock share equivalents outstanding. Options
to purchase 305,500 shares of common stock with exercise prices greater than
average market prices of common stock were outstanding as of June 30, 2000.
These options were excluded from the respective computations of diluted net loss
per share because their effect would be anti-dilutive and, as such, basic and
diluted net loss per share are the same.
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. See Note 2 to our
condensed consolidated financial statements.
We are the largest U.S. radio broadcasting company, measured by number of
stations and audience coverage, providing programming targeted at audiences
interested in religious and family issues. Our core business, developed over
the last 25 years, is the ownership and operation of radio stations in large
metropolitan markets. After completing our pending transactions, we will own or
operate 72 radio stations, including 53 stations which broadcast to 22 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 over 1,300
affiliated radio stations.
Historically, 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.
In 1999, we expanded our sources of revenue and product offerings with
the acquisition of other media businesses.
Our broadcasting 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. Historically we have
not subscribed 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.
8
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Our cash flow is affected by a transition period experienced by radio
stations we have acquired when, due to the nature of the radio station, our
plans for the market and other circumstances, we find it beneficial or advisable
to change its format. This transition period 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 most of our
advertising time for cash. In 1999, 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 has earned its revenue from the (1) sales of and advertising in
print and online catalogs, (2) sales of software and software support contracts,
(3) sales of products, services and banner advertising on the Internet, and (4)
sales of web site development services. CCM Communications, Inc. 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.
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.
9
<PAGE>
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2000 COMPARED TO QUARTER ENDED JUNE 30, 1999
Net Broadcasting Revenue. Net broadcasting revenue increased $3.4 million
or 15.9% to $24.8 million for the quarter ended June 30, 2000 from $21.4 million
for the same quarter of the prior year. The inclusion of revenue from the
acquisitions of radio stations and revenue generated from local marketing
agreements entered into during 1999 provided $1.0 million of the increase. On a
same station basis, net revenue improved $2.4 million or 11.2% to $23.8 million
for the quarter ended June 30, 2000 from $21.4 million for the same quarter of
the prior year. Included in the same station comparison are the results three
stations that we began to own or operate in 1999 for a total purchase price of
$13.0 million and one station that we began to own or operate in 2000 for a
total purchase price of $4.1 million. The improvement was primarily due to an
increase in revenue at the radio stations we acquired in 1998 and 1999 that
previously operated with formats other than their current format, an increase in
program rates and 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 decreased to 36.6% for the quarter ended June 30,
2000 from 37.1% for the same quarter of the prior year. Revenue from block
program time as a percentage of our gross broadcasting revenue decreased to
49.1% for the quarter ended June 30, 2000 from 49.5% for the same quarter of the
prior year.
Other Media Revenue. Other media revenue increased $700,000 or 53.8% to
$2.0 million for the quarter ended June 30, 2000 from $1.3 million for the same
quarter in the prior year. The increase is due primarily to the inclusion of
revenues from the acquisitions of AudioCentral.com, Gospel Media Network, Inc.
and the Involved Christian Radio Network, which we acquired after June 30,
1999.
Broadcasting Operating Expenses. Broadcasting operating expenses increased
$2.5 million or 22.7% to $13.5 million for the quarter ended June 30, 2000 from
$11.0 million for the same quarter of the prior year. The inclusion of expenses
from the acquisitions of radio stations and revenue generated from local
marketing agreements entered into during 1999 and provided $1.1 million of the
increase. On a same station basis, broadcasting operating expenses increased
$1.4 million or 12.7% to $12.4 million for the quarter ended June 30, 2000 from
$11.0 million for the same quarter of the prior year, primarily due to
incremental selling and production expenses incurred to produce the increased
revenue in the same period.
Other Media Operating Expenses. Other media operating expenses increased
$2.0 million or 100.0% to $4.0 million for the quarter ended June 30, 2000 from
$2.0 million for the same quarter in the prior year. The increase is due
primarily to the inclusion of operating expenses from the acquisitions of
AudioCentral.com, Gospel Media Network, Inc. and the Involved Christian Radio
Network, which we acquired after June 30, 1999.
Broadcast Cash Flow. Broadcast cash flow increased $900,000 or 8.7% to
$11.3 million for the quarter ended June 30, 2000 from $10.4 million for the
same quarter of the prior year. As a percentage of net broadcasting revenue,
broadcast cash flow decreased to 45.6% for the quarter ended June 30, 2000 from
48.6% for the same quarter of the prior year. The decrease is primarily
attributable to the effect of stations acquired during 1999 that previously
operated with formats other than their current format. Acquired and reformatted
radio stations typically produce low margins during the first few years
following conversion. Broadcast cash flow margins improve as we implement
scheduled program rate increases and increase advertising revenue on our
stations. On a same station basis, broadcast cash flow improved $1.0 million or
9.6% to $11.4 million for the quarter ended June 30, 2000 from $10.4 million for
the same quarter of the prior year.
Corporate Expenses. Corporate expenses increased $200,000 or 7.7% to $2.8
million in the quarter ended June 30, 2000 from $2.6 million in the same quarter
of the prior year, primarily due to additional overhead costs associated with
radio station and other media acquisitions in 1999 and 2000 and public reporting
and related costs.
EBITDA. EBITDA decreased $700,000 or 9.7% to $6.5 million for the quarter
ended June 30, 2000 from $7.2 million for the same quarter of the prior year.
As a percentage of total revenue, EBITDA decreased to 24.3% for the quarter
ended June 30, 2000 from 31.8% for the same quarter of the prior year. EBITDA
was negatively impacted by the results of operations of our other media
businesses acquired in 1999, which generated a net loss before depreciation and
amortization of $2.0 million for the quarter ended June 30, 2000 as compared to
$700,000 for the same quarter of the prior year. EBITDA excluding the other
media businesses increased $600,000 or 7.6% to $8.5 million for the quarter
ended June 30, 2000 from $7.9 million for the same quarter in the prior year.
As a percentage of net broadcasting revenue, EBITDA excluding the other media
business decreased to 34.3% for the quarter ended June 30, 2000 from 36.9% for
the same quarter of the prior year. The decrease is primarily attributable to
the effect of stations acquired during 1999 that previously operated with
formats other than their current format.
Depreciation and Amortization. Depreciation and amortization expense
increased $700,000 or 14.9% to $5.4 million for the quarter ended June 30, 2000
from $4.7 million for the same quarter of the prior year. The increase is
primarily due to radio station and other media acquisitions consummated during
1999.
10
<PAGE>
Other Income (Expense). Interest income increased $39,000 to $63,000 for
the quarter ended June 30, 2000 from $24,000 for the same quarter of the prior
year, primarily due to the interest earned on the investment of any excess
cash. Gain on disposal of assets of $4.4 million for the quarter ended June 30,
2000 is primarily due to a gain recognized on the sale of radio station KPRZ-FM
partially offset by the loss on sale of certain assets of our other media
businesses. Interest expense decreased $1.8 million or 40.0% to $2.7 million
for the quarter ended June 30, 2000 from $4.5 million for the same quarter of
the prior year. The decrease is primarily due to interest expense associated
with $50 million in principal amount of the senior subordinated notes
repurchased in July 1999. Other expense, net increased $57,000 to $133,000 for
the quarter ended June 30, 2000 from $76,000 for the same quarter in the prior
year primarily due to increased bank commitment fees.
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 42.1% for the quarter ended June 30, 2000
and (28.1)% for the same quarter of the prior year. For the quarter ended June
30, 2000 and 1999 the effective tax rate differs from the federal statutory
income rate 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 net income of $1.6 million for the quarter
ended June 30, 2000 as compared to a net loss of $3.5 million for the same
quarter of the prior year.
After-Tax Cash Flow. After-tax cash flow increased $1.1 million or 33.3% to
$4.4 million for the quarter ended June 30, 2000 from $3.3 million for the same
quarter of the prior year. This increase was offset by negative after-tax cash
flow of our other media businesses. After-tax cash flow excluding our other
media losses (net of income tax) increased $1.8 million or 48.6% to $5.5 million
for the quarter ended June 30, 2000 from $3.7 million for the same quarter of
the prior year. The increase is primarily due to the gain on sale of assets, a
decrease in interest expense and an increase in broadcast cash flow.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Net Broadcasting Revenue. Net broadcasting revenue increased $5.6 million
or 13.4% to $47.4 million for the six months ended June 30, 2000 from $41.8
million for the same period of the prior year. The inclusion of revenue from the
acquisitions of radio stations and revenue generated from local marketing
agreements entered into during 1999 provided $1.6 million of the increase. On a
same station basis, net revenue improved $4.0 million or 9.6% to $45.8 million
for the six months ended June 30, 2000 from $41.8 million for the same period of
the prior year. Included in the same station comparison are the results three
stations that we began to own or operate in 1999 for a total purchase price of
$13.0 million and one station that we began to own or operate in 2000 for a
total purchase price of $4.1 million. The improvement was primarily due to an
increase in revenue at the radio stations we acquired in 1998 and 1999 that
previously operated with formats other than their current format, an increase in
program rates and an 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 decreased to 36.0% for the six months ended
June 30, 2000 from 36.4% for the same period of the prior year. Revenue from
block program time as a percentage of our gross broadcasting revenue was 50.4%
for the six months ended June 30, 2000 and 1999.
Other Media Revenue. Other media revenue increased $1.4 million to $3.8
million for the six months ended June 30, 2000 from $2.4 million for the same
period of the prior year. The increase is due primarily to the inclusion of
revenues from the acquisitions of AudioCentral.com, Gospel Media Network, Inc.
and the Involved Christian Radio Network, which we acquired after June 30, 1999.
Broadcasting Operating Expenses. Broadcasting operating expenses increased
$3.9 million or 17.5% to $26.2 million for the six months ended June 30, 2000
from $22.3 million for the same period of the prior year. The inclusion of
expenses from the acquisitions of radio stations and revenue generated from
local marketing agreements entered into during 1999 provided $1.8 million of the
increase. On a same station basis, broadcasting operating expenses increased
$2.1 million or 9.4% to $24.4 million for the six months ended June 30, 2000
from $22.3 million for the same period of the prior year, primarily due to
incremental selling and production expenses incurred to produce the increased
revenue in the same period.
Other Media Operating Expenses. Other media operating expenses increased
$4.8 million to $8.1 million for the six months ended June 30, 2000 from $3.3
million for the same period of the prior year. The increase is due primarily to
the inclusion of operating expenses from the acquisitions of AudioCentral.com,
Gospel Media Network, Inc. and the Involved Christian Radio Network, which we
acquired after June 30, 1999.
Broadcast Cash Flow. Broadcast cash flow increased $1.7 million or 8.7% to
$21.2 million for the six months ended June 30, 2000 from $19.5 million for the
same period of the prior year. As a percentage of net broadcasting revenue,
broadcast cash flow decreased to 44.7% for the six months ended June 30, 2000
from 46.6% for the same period of the prior year. The decrease is primarily
attributable to the effect of stations acquired during 1999 that previously
operated with formats other than their current format. Acquired and reformatted
radio stations typically produce low margins during the first few years
following conversion. Broadcast cash flow margins improve as we implement
scheduled program rate increases and increase advertising revenue on our
stations. On a same station basis, broadcast cash flow improved $1.9 million or
9.7% to $21.4 million for the six months ended June 30, 2000 from $19.5 million
for the same period of the prior year.
11
<PAGE>
Corporate Expenses. Corporate expenses increased $900,000 or 20.5% to $5.3
million in the six months ended June 30, 2000 from $4.4 million in the same
period of the prior year, primarily due to additional overhead costs associated
with radio station and other media acquisitions in 1999 and 2000 and public
reporting and related costs.
EBITDA. EBITDA decreased $2.7 million or 18.9% to $11.6 million for the six
months ended June 30, 2000 from $14.3 million for the same period of the prior
year. As a percentage of total revenue, EBITDA decreased to 22.7% for the six
months ended June 30, 2000 from 32.4% for the same period of the prior year.
EBITDA was negatively impacted by the results of operations of our other media
businesses acquired in 1999, which generated a net loss before depreciation and
amortization of $4.3 million for the six months ended June 30, 2000 as compared
to $900,000 for the same period of the prior year. EBITDA excluding the other
media businesses increased $700,000 or 4.6% to $15.9 million for the six months
ended June 30, 2000 from $15.2 million for the same period of the prior year.
As a percentage of net broadcasting revenue, EBITDA excluding the other media
business decreased to 33.5% for the six months ended June 30, 2000 from 36.4%
for the same period of the prior year. The decrease is primarily attributable to
the effect of stations acquired during 1999 that previously operated with
formats other than their current format.
Depreciation and Amortization. Depreciation and amortization expense
increased $1.4 million or 15.7% to $10.3 million for the six months ended June
30, 2000 from $8.9 million for the same period of the prior year. The increase
is primarily due to radio station and other media acquisitions consummated
during 1999 and 2000.
Other Income (Expense). Interest income increased $302,000 to $351,000
for the six months ended June 30, 2000 from $49,000 for the same period of the
prior year, primarily due to the interest earned on the investment of the net
proceeds of our initial public offering. Gain on disposal of assets of $4.4
million for the six months ended June 30, 2000 is primarily due to a gain
recognized on the sale of radio station KPRZ-FM partially offset by the loss
on sale of certain assets of our other media businesses. Interest expense
decreased $3.6 million or 40.9% to $5.2 million for the six months ended June
30, 2000 from $8.8 million in the same period of the prior year. The decrease is
primarily due to interest expense associated with $50 million in principal
amount of the senior subordinated notes repurchased in July 1999. Other expense,
net increased $224,000 to $420,000 for the six months ended June 30, 2000 from
$196,000 for the same period of the prior year primarily due to increased bank
commitment fees.
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 113.7% for the six months ended June 30,
2000 and (24.9)% for the same period of the prior year. For the six months
ended June 30, 2000 and 1999 the effective tax rate differs from the federal
statutory income rate 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 $56,000 for the six months
ended June 30, 2000 as compared to a net loss of $4.8 million for the same
period of the prior year.
After-Tax Cash Flow. After-tax cash flow increased $1.5 million or 24.6% to
$7.6 million for the six months ended June 30, 2000 from $6.1 million for the
same period of the prior year. This increase was offset by negative after-tax
cash flow of our other media businesses. After-tax cash flow excluding our other
media losses (net of income tax) increased $3.3 million or 47.8% to $10.2
million for the six months ended June 30, 2000 from $6.9 million for the same
period of the prior year. The increase is primarily due to the gain on sale
of assets, a decrease in interest expense and an increase in broadcast cash
flow.
LIQUIDITY AND CAPITAL RESOURCES
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 received
net proceeds of $140.1 million from our initial public offering in July 1999,
which was used to pay a portion of our senior subordinated notes and amounts
outstanding under our credit facility. 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. At June 30, 2000 we had $4.4
million of cash and cash equivalents and positive working capital of $16.5
million.
We will fund future acquisitions from cash on hand, borrowings under our
Credit facility, other borrowings, sales of existing radio stations and
operating cash flow; the aggregate purchase price for all pending acquisitions
exceeds the maximum amount that we may currently borrow under our current
credit facility. We are evaluating alternatives to fund these acquisitions
including amending our current credit facility to allow a greater debt to cash
flow ratio, selling some of our existing radio stations, and obtaining bridge
financing. Subject to the satisfaction of certain conditions, we have obtained
commitments from our lenders to allow for such amendment and to provide such
financing. We believe that cash on hand, cash flow from operations, borrowings
under our credit facility, proceeds from the sale of some of our existing radio
stations and anticipated bridge financing will be sufficient to permit us
to meet our financial obligations, fund our pending acquisitions and fund
operations for at least the next twelve months.
12
<PAGE>
At June 30, 2000, we had $13.0 million outstanding under our current
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 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 June 30, 2000 was 4.82 to 1, resulting in a borrowing
availability of approximately $64.2 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.
Net cash provided by operating activities increased to $7.2 million for the
Six months ended June 30, 2000 compared to $2.6 million in the same period of
the prior year. The increase is primarily due to a decrease in interest expense
($3.7 million), an increase in accounts payable ($1.7 million) and an increase
in depreciation and amortization expenses ($1.4 million) for the six months
ended June 30, 2000 as compared to the prior year.
Net cash used in investing activities increased to $46.9 million for the
six months ended June 30, 2000 compared to $15.1 million for the same period of
the prior year, primarily due to acquisitions (cash used of $41.5 million to
purchase 12 radio stations and a network during the quarter ended June 30, 2000
as compared to cash used of $10.2 million to purchase one radio station and
other media businesses for the same period of the prior year).
Net cash used provided by financing activities decreased to $10.0 million
for the six months ended June 30, 2000 compared to $12.8 million for the same
period of the prior year. This was due primarily to smaller borrowings during
the six months ended June 30, 2000 as compared to the same period of the prior
year.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the Year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Instruments. We do not invest, and during the quarter ended June
30, 2000 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 June
30, 2000, we may borrow $53.3 million under our credit facility. At June 30,
2000, we had borrowed $13.0 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%. At June
30, 2000, the blended interest rate on amounts outstanding under the credit
facility was 8.9%. At June 30, 2000, a hypothetical 100 basis point increase in
the prime rate would result in additional interest expense of $130,000 on an
annualized basis.
PART II - OTHER INFORMATION
13
<PAGE>
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
At the Annual Meeting of Stockholders of the Company held on May 24, 2000,
the following matters were submitted to a vote of stockholders:
A. Election of the following nominees as directors of the Company:
1. Stuart W. Epperson was elected by a vote of 71,809,554 for, with 1,575
withheld;
2. Edward G. Atsinger III was elected by a vote of 71,798,254 for, with
12,675 withheld;
3. Eric H. Halvorson was elected by a vote 71,808,956 for, with 1,975
withheld;
4. Roland S. Hinz was elected by a vote of 71,809,479 for, with 1,450
withheld;
5. Donald P. Hodel was elected by a vote of 16,272,444 for, with 1,975
withheld;
6. Richard A. Riddle was elected by a vote of 71,808,956 for, with 1,975
withheld; and
7. Joseph S. Schuchert was elected by a vote of 16,272,494 for, with 1,475
withheld.
The total number of shares of Class A common stock outstanding as of April 3,
2000, the record date for the Annual Meeting, was 17,902,392; the total number
of Class B common stock outstanding as of that date was 5,553,696.
ITEM 5. OTHER INFORMATION
Not applicable
14
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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:
<TABLE>
<CAPTION>
(a) EXHIBITS
Set forth below is a list of exhibits included as part of this Quarterly Report:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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 Communications Corporation, a California corporation, 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 (filed as part of Exhibit 4.01).
4.03+ Form of Note Guarantee (filed as part of Exhibit 4.01).
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).
4.05+ Borrower Security Agreement, dated as of September 25, 1997, by and between Salem and The Bank of
New York, as Administrative Agent of the Lenders (incorporated by reference to Exhibit 4.07 of the
previously filed Registration Statement on Form S-4).
4.06+ Subsidiary Guaranty and Security Agreement dated as of September 25, 1997, by and between Salem,
certain named guarantors, and The Bank of New York, as Administrative Agent (incorporated by reference
to Exhibit 4.09 of the previously filed Registration Statement on Form S-4).
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 for the
Lenders, Bank of America NT&SA, as documentation agent, and the several Lenders (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 for the
Lenders, Bank of America NT&SA, as documentation agent, and the Lenders.
4.09* Specimen of Class A common stock certificate.
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* 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.
4.16+++ Amendment No. 1 to First Amended and Restated Credit Agreement, by and among Salem, The Bank of
New York, as Administrative Agent for the Lenders, Bank of America, N.A., as Documentation Agent and
the Lenders party thereto.
4.17+++ Amendment No. 2 to First Amended and Restated Credit Agreement, by and among Salem, The Bank of
New York, as Administrative Agent for the Lenders, Bank of America, N.A., as Documentation Agent and
the Lenders party thereto.
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.
15
<PAGE>
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.
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 of Texas, Inc. and Atsinger Family Trust/Epperson Family
Limited Partnership (KSLR-AM/San Antonio, Texas).
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+++ Atenna/tower lease between Salem Media of Colorado, Inc. and Atsinger Family Trust/Epperson Family
Limited Partnership (KRKS-AM/KBJD-AM/Denver, Colorado).
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).
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).
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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 Marketing Agreement dated August 13, 1999 between Concord Media Group, Inc. and Radio 1210,
Inc.
10.08.02+++ Asset Purchase Agreement dated as of August 18, 1999, by and between Salem Media of Georgia, Inc. and
Genesis Communications, Inc. (WNIV-FM, Atlanta, Georgia and WLTA-FM, Alpharetta, Georgia).
10.08.03+++ Asset Purchase Agreement dated as of November 29, 1999, by and among JW Broadcasting, Inc., Salem
Media of Georgia, Inc. and Salem Communications Corporation (WGKA-AM, Atlanta, Georgia).
10.08.04++++ Asset Exchange Agreement dated as of January 19, 2000 by and among Bison Media, Inc.; AMFM Texas
Broadcasting, LP and AMFM Texas Licenses, LP (KSKY-AM, Balch Springs, TX; KPRZ-FM, Colorado
Springs, CO).
10.08.05++++ Asset Purchase Agreement dated as of March 6, 2000 by and among Salem, Citicasters Co., AMFM Texas
Broadcasting, LP; AMFM Texas Licenses LP; AMFM Ohio, Inc.; AMFM Radio Licenses LLC; Capstar
Radio Operating Company and Capstar TX Limited Partnership (WBOB-AM, KEZY-AM, KXMX-FM,
KDGE-FM, WKNR-AM, WRMR-AM, KALC-FM, WYGY-FM)
10.08.06 Asset Exchange Agreement dated as of May 31, 2000 by and among Salem; South Texas Broadcasting,
Inc.; Cox Radio, Inc.; and CXR Holdings, Inc. (WALR-FM, Athens, GA; WSUN-AM, Plant City, FL,
KLUP-AM, Terrell Hills, TX, KKHT-FM, Conroe, TX).
10.08.07 Asset Purchase Agreement dated as of July 2000, by and among Salem Media of California and Hi-Favor
Broadcasting, LLC (KLTX-AM Long Beach, CA).
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
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>
17
<PAGE>
+ 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 Salem'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.
+++ Incorporated by reference to the exhibit of the same number to Salem's
Annual Report on Form 10-K, filed with the Securities and Exchange Commission on
March 30, 2000.
++++ Incorporated by reference to the exhibit of the same number to Salem's
Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission
on May 15, 2000.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 2000.
18
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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.
<TABLE>
<CAPTION>
<S> <C>
Date: August 14, 20000 SALEM COMMUNICATIONS CORPORATION
By: /s/ EDWARD G. ATSINGER III
---------------------------------------------
Edward G. Atsinger III
President and Chief Executive Officer
Date: August 14, 2000
By: /s/ DIRK GASTALDO
---------------------------------------------
Dirk Gastaldo
Vice President and Chief Financial Officer
(Principal Financial Officer)
</TABLE>
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
-------- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
10.08.06 Asset Exchange Agreement dated as of May 31, 2000 by and among
Salem; South Texas Broadcasting, Inc.; Cox Radio, Inc.;
10.08.07 Asset Purchase Agreement dated as of July 14, 2000, by and among
Salem Media of California and Hi-Favor Broadcasting, LLC (KLTX-AM
27.01 Financial Data Schedule
</TABLE>
