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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 June 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
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(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 August 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
Page No.
--------
COVER PAGE 1
INDEX......................................................................................2
PART I - FINANCIAL INFORMATION.............................................................4
Item 1. Financial Statements (Unaudited).........................................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...............16
PART II - OTHER INFORMATION................................................................16
Item 1. Legal Proceedings........................................................16
Item 2. Changes in Securities and Use of Proceeds................................16
Item 3. Defaults upon Senior Securities..........................................16
Item 4. Submission of Matters to a Vote of Security Holders......................16
Item 5. Other Information........................................................17
Item 6. Exhibits and Reports on Form 8-K.........................................17
SIGNATURES.................................................................................22
EXHIBIT INDEX..............................................................................23
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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)
DECEMBER 31 JUNE 30
1998 1999
--------- ---------
(UNAUDITED)
ASSETS
------
Current assets:
Cash and cash equivalents .................................................... $ 1,917 $ 2,146
Accounts receivable (less allowance for doubtful accounts of $862 in 1998 and
$1,607 in 1999) ........................................................... 14,289 14,531
Other receivables ............................................................ 67 163
Prepaid expenses ............................................................. 658 1,624
Tower construction project held for sale ..................................... -- 914
Deferred income taxes ........................................................ 2,443 4,319
--------- ---------
Total current assets .............................................................. 19,374 23,697
Property, plant and equipment, net ................................................ 40,749 43,687
Intangible assets, net ............................................................ 141,776 147,378
Note receivable from stockholder .................................................. 94 94
Bond issue costs .................................................................. 4,657 4,391
Other assets ...................................................................... 1,100 2,653
--------- ---------
Total assets ...................................................................... $ 207,750 $ 221,900
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable ............................................................. $ 1,676 $ 1,775
Accrued expenses ............................................................. 489 308
Accrued compensation and related ............................................. 1,613 1,810
Accrued interest ............................................................. 3,968 3,790
Deferred subscription revenue ................................................ -- 1,175
Income taxes ................................................................. 89 101
Current portion of capital lease obligations ................................. -- 252
--------- ---------
Total current liabilities ......................................................... 7,835 9,211
Long-term debt .................................................................... 178,610 192,560
Capital lease obligations, less current portion ................................... -- 226
Deferred income taxes ............................................................. 11,581 13,029
Other liabilities ................................................................. 623 910
Stockholders' equity:
Class A common stock, $.01 par value; authorized 80,000,000 shares; issued and
outstanding 11,182,392 shares ............................................. 111 112
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 7,351
Retained earnings (deficit) .................................................. 3,269 (1,555)
--------- ---------
Total stockholders' equity ........................................................ 9,101 5,964
--------- ---------
Total liabilities and stockholders' equity ........................................ $ 207,750 $ 221,900
========= =========
See accompanying notes
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SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- ------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
Gross broadcasting revenue ...................................... $ 20,502 $ 23,405 $ 39,961 $ 45,731
Less agency commissions ......................................... 1,800 2,007 3,557 3,908
------------ ------------ ------------ ------------
Net broadcasting revenue ........................................ 18,702 21,398 36,404 41,823
Other media revenue ............................................. -- 1,320 -- 2,415
------------ ------------ ------------ ------------
Total revenue ................................................... 18,702 22,718 36,404 44,238
Operating expenses:
Broadcasting operating expenses ............................ 10,049 10,970 19,979 22,349
Other media operating expenses ............................. -- 1,974 -- 3,272
Corporate expenses ......................................... 1,925 2,568 3,428 4,364
Stock and related cash grant ............................... -- 2,550 -- 2,550
Depreciation and amortization (including $795 for the
quarter ended June 30, 1999 and $980 for the six months
ended June 30, 1999 for other media businesses) ....... 3,329 4,745 6,666 8,856
------------ ------------ ------------ ------------
Total operating expenses ................................... 15,303 22,807 30,073 41,391
------------ ------------ ------------ ------------
Net operating income (loss) ..................................... 3,399 (89) 6,331 2,847
Other income (expense):
Interest income ............................................ 87 24 190 49
Loss on disposal of assets ................................. (613) (197) (635) (197)
Interest expense ........................................... (3,819) (4,552) (7,591) (8,927)
Other expense .............................................. (100) (76) (205) (196)
------------ ------------ ------------ ------------
Loss before income taxes ........................................ (1,046) (4,890) (1,910) (6,424)
Benefit for income taxes ........................................ (261) (1,374) (551) (1,600)
------------ ------------ ------------ ------------
Net loss ........................................................ $ (785) $ (3,516) $ (1,359) $ (4,824)
============ ============ ============ ============
Basic and diluted net loss per share ............................ $ (.05) $ (.21) $ (.08) $ (.29)
============ ============ ============ ============
Basic and diluted weighted shares outstanding ................... 16,661,088 16,690,758 16,661,088 16,675,923
============ ============ ============ ============
See accompanying notes.
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SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
-----------------------
1998 1999
-------- --------
OPERATING ACTIVITIES
Net loss ........................................................................ $ (1,359) $ (4,824)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization ............................................... 6,666 8,856
Amortization of bond issue costs and bank loan fees ......................... 286 287
Deferred income taxes ....................................................... (744) (1,840)
Loss on sale of assets ...................................................... 635 197
Noncash stock grant ......................................................... -- 1,687
Changes in operating assets and liabilities:
Accounts receivable ..................................................... 355 859
Prepaid expenses and other current assets ............................... (243) (612)
Accounts payable and accrued expenses ................................... (177) (1,721)
Deferred subscription revenue ........................................... -- (111)
Other liabilities ....................................................... 378 (220)
Income taxes ............................................................ (278) 11
-------- --------
Net cash provided by operating activities ....................................... 5,519 2,569
INVESTING ACTIVITIES
Capital expenditures ............................................................ (3,696) (3,639)
Deposits on radio station acquisitions .......................................... (1,635) (750)
Purchases of radio stations ..................................................... -- (1,786)
Purchases of new media businesses ............................................... -- (8,372)
Proceeds from disposal of property, plant and equipment and intangible assets.... 46 50
Expenditures for tower construction project held for sale ....................... -- (410)
Other assets .................................................................... 4,528 (219)
-------- --------
Net cash used in investing activities ........................................... (757) (15,126)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt and notes payable to shareholders ...... 8,500 18,750
Payments of long-term debt and notes payable to shareholders .................... (9,500) (5,110)
Payments on capital lease obligations ........................................... -- (106)
Payments of bond issue costs .................................................... (281) --
Payments of stock offering costs ................................................ -- (748)
Repayments (additions) of shareholder notes and
repayment of accrued interest receivable--net ................................. (2,000) --
Distributions to shareholders ................................................... -- --
-------- --------
Net cash provided by (used in) financing activities ............................. (3,281) 12,786
-------- --------
Net increase in cash and cash equivalents ....................................... 1,481 229
Cash and cash equivalents at beginning of period ................................ 1,645 1,917
-------- --------
Cash and cash equivalents at end of period ...................................... $ 3,126 $ 2,146
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ................................................................ $ 7,476 $ 8,758
Income taxes ............................................................ 487 229
Noncash transactions:
Acquisitions of other media businesses
Fair market value of assets acquired .................................... $ 14,365
Fair market value of liabilities assumed ................................ (5,993)
--------
Cash paid (reflected in purchases of other media businesses) .................... $ 8,372
========
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 six months ended June 30,
1999 and 1998 is unaudited. The accompanying unaudited 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
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 credit facility. Prior to
the acquisition, pursuant to a local marketing agreement entered into on June
13, 1997, we programmed KKOL-AM and sold all the airtime. Under that local
marketing agreement 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.
NOTE 3. SUBSEQUENT EVENTS
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 approximately
$1.2 million in other related expenses, the net proceeds to Salem were $140.4
million.
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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 the same
price 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.
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 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 radio
station KCTK-AM, Phoenix, Arizona, for $5 million. KCTK-AM has formerly been
known as KGME-AM and KFDJ-AM. We intend to integrate KCTK-AM with KPXQ-AM, the
radio station we already own and operate in Phoenix, for our internal financial
reporting purposes.
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.
In April 1999, we entered into letters of intent 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. Subject to the execution of mutually
acceptable purchase agreements, we anticipate these purchases will close in
November or December 1999. In June 1999, we entered into an agreement to
purchase radio stations WLSY-FM and WRVI-FM, Louisville, Kentucky, for $5.0
million. We anticipate this purchase will close in September 1999. In August
1999, we entered into a local programming and marketing agreement (LMA) for
radio station KCBQ-AM, San Diego, California. The LMA begins in September 1999.
We will program KCBQ-AM and sell all the airtime. Under the LMA we retain all of
the revenue and pay for all of the expenses plus a monthly LMA fee. We also have
an option to purchase KCBQ-AM for $5.0 million. We intend to use a portion of
the net proceeds to finance the purchases of all of these radio stations.
Concurrent with the consummation 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%.
In July 1999, we recorded 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.
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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 own 45 radio stations, including 33 stations which broadcast to 19
of the top 25 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:
o the sale of block program time, both to national and local
program producers,
o the sale of advertising time on our radio stations, both to
national and local advertisers, and
o 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
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sold 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 item minus gain
(loss) on disposal of assets (net of income tax) plus depreciation and
amortization. EBITDA and after-tax cash flow for the quarter and six month
period ended June 30, 1999 exclude 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:
o we own or operate for all of both periods;
o 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
o 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.
RESULTS OF OPERATIONS
Net Broadcasting Revenue. Net broadcasting revenue increased $2.7 million
or 14.4% to $21.4 million for the quarter ended June 30, 1999 from $18.7 million
for the same quarter of the prior year. Net broadcasting revenue
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increased $5.4 million or 14.8% to $41.8 million for the six month period ended
June 30, 1999 from $36.4 million for the same period of the prior year. The
inclusion of revenue from radio stations acquired in 1998, partially offset by
the loss of revenue from radio stations sold in 1998, provided $600,000 of the
increase for the quarter ended June 30, 1999 over the same quarter of the prior
year, and $1.3 million of the increase for the six month period ended June 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 $2.1 million or 11.4% to $20.6 million for the
quarter ended June 30, 1999 from $18.5 million for the same quarter of the prior
year, and $4.1 million or 11.4% to $40.1 million for the six month period ended
June 30, 1999 from $36.0 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 37.1% for the quarter ended June 30, 1999 from
35.2% for the same quarter of the prior year and increased to 36.4% for the six
month period ended June 30, 1999 from 34.6% for the same period in 1998. Revenue
from block program time as a percentage of our gross broadcasting revenue
decreased to 49.5% for the quarter ended June 30, 1999 from 51.2% for the same
quarter in 1998 and decreased to 50.4% for the six month period ended June 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 sales in all of our
markets.
Other Media Revenue. Other media revenue was $1.3 million for the quarter
ended June 30, 1999 and $2.4 million for the six months ended June 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 10.0% to $11.0 million for the quarter ended June 30, 1999 from
$10.0 million for the same quarter of the prior year. Broadcasting operating
expenses increased $2.3 million or 11.5% to $22.3 million for the six month
period ended June 30, 1999 from $20.0 million for the same period of the prior
year. The inclusion of expenses from radio stations acquired in 1998, partially
offset by the exclusion of operating expenses from radio stations sold in 1998,
accounted for $500,000 of the increase for the quarter ended June 30, 1999 over
the same quarter of the prior year, and $600,000 of the increase for the six
month period ended June 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 $500,000 or 5.1% to
$10.4 million for the quarter ended June 30, 1999 from $9.9 million for the same
quarter of the prior year and $1.7 million or 8.7% to $21.3 million for the six
month period ended June 30, 1999 from $19.6 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 $2.0
million for the quarter ended June 30, 1999 and $3.3 million for the six months
ended June 30, 1999, and were incurred in the businesses acquired during the
first quarter of 1999.
Broadcast Cash Flow. Broadcast cash flow increased $1.7 million or 19.5% to
$10.4 million for the quarter ended June 30, 1999 from $8.7 million for the same
quarter of the prior year. Broadcast cash flow increased $3.1 million or 18.9%
to $19.5 million for the six month period ended June 30, 1999 from $16.4 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 48.6% for the quarter ended June 30, 1999 from 46.3% for the same
quarter of the prior year. As a percentage of net broadcasting revenue,
broadcast cash flow increased to 46.6% for the six month period ended June 30,
1999 from 45.1% 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 $1.6 million or 18.6% to $10.2
million in the quarter ended June 30, 1999 from $8.6 million in the same quarter
of the prior year and broadcast cash flow improved $2.4 million or 14.7% to
$18.8 million for the six month period ended June 30, 1999 from $16.4 million
for the same period in the prior year.
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Corporate Expenses. Corporate expenses increased $700,000 or 36.8% to $2.6
million in the quarter ended June 30, 1999 from $1.9 million in the same quarter
of the prior year. Corporate expenses increased $1.0 million or 29.4% to $4.4
million for the six month period ended June 30, 1999 from $3.4 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 increased $500,000 or 7.5% to $7.2 million for the quarter
ended June 30, 1999 from $6.7 million for the same quarter of the prior year.
EBITDA increased $1.3 million or 10.0% to $14.3 million for the six month period
ended June 30, 1999 from $13.0 million for the same period of the prior year. As
a percentage of total revenue, EBITDA decreased to 31.8% for the quarter ended
June 30, 1999 from 35.8% for the same quarter of the prior year. As a percentage
of total revenue, EBITDA decreased to 32.4% for the six month period ended June
30, 1999 from 35.7% for the same period of the prior year. The decrease is
primarily attributable to a negative EBITDA margin on our other media businesses
(that is, EBITDA for our other media businesses divided by other media revenue),
partially 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 $1.4 million or 42.4% to $4.7 million for the quarter ended June 30,
1999 from $3.3 million for the same quarter in the prior year. Depreciation and
amortization expense increased $2.2 million or 32.8% to $8.9 million for the six
month period ended June 30, 1999 from $6.7 million for the same period in the
prior year. The increase primarily due to radio station acquisitions consummated
during 1998, and acquisitions of other media businesses in 1999.
Other Income (Expense). Interest income was essentially unchanged for the
quarters and six month periods ended June 30, 1999 and 1998. Loss on disposal of
assets decreased $400,000 for the quarter ended and the six month period ended
June 30, 1999 as compared to the same quarter and same period ended of the prior
year. The decrease was due to the write off of abandoned assets at one of our
radio stations in the quarter ended June 30, 1998. Interest expense increased
$700,000 or 18.4% to $4.5 million for the quarter ended June 30, 1999 from $3.8
million in the same quarter of the prior year. Interest expense increased $1.2
million or 15.8% to $8.8 million for the six month period ended June 30, 1999
from $7.6 million for the same period of the prior year. The increases in
interest expenses are primarily due to interest expense associated with
additional borrowings to fund acquisitions consummated during 1999 and 1998.
Benefit for Income Taxes. Benefit for income taxes as a percentage of loss
before income taxes (that is, the effective tax rate) was (28.1)% for the
quarter ended June 30, 1999 and (24.9)% for the same quarter of the prior year.
Benefit for income taxes as a percentage of loss before income taxes (that is,
the effective tax rate) was (24.9)% for the six month period ended June 30, 1999
and (28.8)% for the same period of the prior year. For the quarter and six month
period ended June 30, 1999 and 1998 the effective tax rate differs from the
federal statutory income tax rate of 34.0% primarily due to the effect of state
income taxes and certain expenses that are not deductible for tax purposes. The
decrease in the effective tax rate for the quarter ended June 30, 1999 as
compared to the same quarter of the prior year is due to a decrease in state
income taxes offset by an increase in expenses not deductible for tax purposes.
The increase in the effective tax rate for the six month period ended June 30,
1999 as compared to the same period of the prior year is primarily due to an
increase in expenses not deductible for tax purposes.
Net Loss. We recognized a net loss of $3.5 million for the quarter ended
June 30, 1999, compared to a net loss of $785,000 for the same quarter of the
prior year. We recognized a net loss of $4.8 million for the six month period
ended June 30, 1999, compared to a net loss of $1.4 million for the same period
of the prior year.
After-Tax Cash Flow. After-tax cash flow increased $400,000 or 13.8% to
$3.3 million for the quarter ended June 30, 1999 from $2.9 million for the same
quarter of the prior year. After-tax cash flow increased $400,000 or 7.0% to
$6.1 million for the six month period ended June 30, 1999 from $5.7 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 six
month period ended June 30, 1999. After-tax cash flow of our broadcasting
business increased $1.0 million for the quarter ended June 30, 1999 compared to
the same quarter of the prior year, and increased $1.2 million for the six month
period ended June 30, 1999 compared to the same period of the prior year.
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LIQUIDITY AND CAPITAL RESOURCES
The increase in accounts receivable from December 31, 1998 to June 30, 1999
is due to the inclusion of accounts receivable of other media businesses
acquired in 1999. The increase is offset by increased collections during the
second quarter of 1999. The increase in prepaid expenses from December 31, 1998
to June 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 six month period ended June 30, 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 June 30, 1999, we had $39.8 million outstanding under our credit
facility. We paid all amounts outstanding under our credit facility with a
portion of the net proceeds of the offering in July 1999. 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. At the closing of
the offering and after the application of the net proceeds to pay off $39.8
million owing under our prior credit facility and after we repurchased $50
million in principal amount of our senior subordinated notes in July 1999, the
Adjusted Debt to Cash Flow Ratio was 2.26 to 1, resulting in a borrowing
availability of approximately $134.6 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. We used the net proceeds from the sale of the notes
to repay substantially all indebtedness outstanding under our prior credit
facility. 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
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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 is in addition to the $3.9 million premium
paid in connection with this repurchase.
Net cash provided by operating activities decreased to $2.6 million for the
six month period ended June 30, 1999, compared to $5.5 million for the same
period in the prior year, primarily due to a decrease in accounts payable of
other media businesses during the six month period ended June 30, 1999.
Net cash used in investing activities increased to $15.1 million for the
six month period ended June 30, 1999, compared to $800,000 in the same period of
the prior year, primarily due to the acquisitions during the six month period
ended June 30, 1999. We did not acquire any radio stations or other businesses
during the same period of the prior year.
Net cash provided by financing activities increased to $12.8 million for
the six month period ended June 30, 1999 compared to net cash used by financing
activities of $3.3 million for the same period of the prior year, primarily due
to increased long-term debt borrowings for acquisitions.
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 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 substantially 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
essentially 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 is the next step in our plan to address the Y2K
issue. Activities during this phase are in progress and include, if necessary,
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, will include the actual testing of
the enhanced and upgraded systems. This process will include 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 the third
quarter. Based on test results and
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assessment of outside risks, contingency plans will be developed as determined
necessary. We would 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Instruments. We do not invest, and during the quarter ended
June 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 the "prime rate" in the United States. We may
borrow up to $150 million under our credit facility, which was amended in July
1999 to permit additional borrowings above the previous $75 million borrowing
limit. At June 30, 1999, we had borrowed $39.8 million under our credit
facility, all of which we repaid in July 1999 with a portion of the net proceeds
of the offering. Amounts outstanding under the credit facility bear interest at
a base rate, at Salem's option, of the bank's prime rate or LIBOR, plus a
spread. For purposes of determining the interest rate under our prior credit
facility the prime rate spread ranged from 0% to 2.25%, and the LIBOR spread
ranged from 1% to 3.5%. At June 30, 1999, the blended interest rate on amounts
outstanding under the credit facility was 9.02%. At June 30, 1999, a
hypothetical 100 basis point increase in the prime rate would result in
additional interest expense of $397,500 on an annualized basis.
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 3 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
On April 16, 1999, the stockholders unanimously approved adoption of a
restated certificate of incorporation and the public offering of Class A common
stock. On May 25, 1999, the stockholders unanimously elected the members of the
board of directors and approved a stock incentive plan. On June 4, 1999, at a
Special Meeting of Stockholders the stockholders unanimously affirmed the
resolutions previously adopted by the stockholders on April 16, 1999 and May 25,
1999.
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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:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
3.01* Amended and Restated Certificate of Incorporation of Salem
Communications Corporation, a Delaware corporation.
3.02** Bylaws of Salem Communications Corporation, a Delaware corporation.
4.01+ Indenture between Salem, certain named guarantors and The Bank of
New York, as Trustee, dated as of September 25, 1997, relating to
the 9 1/2% Series A and Series B Senior Subordinated Notes due 2007.
4.02+ Form of 9 1/2% Senior Subordinated Note.
4.03+ Form of Note Guarantee.
4.04+ Credit Agreement, dated as of September 25, 1997, among Salem, the
several Lenders from time to time parties thereto, and The Bank of
New York, as Administrative Agent for the Lenders (incorporated by
reference to Exhibit 4.07 of the previously filed Registration
Statement on Form S-4 (No. 333-41733)).
4.05+ Borrower Security Agreement, dated as of September 25, 1997, by and
between Salem and The Bank of New York, as Administrative Agent
(incorporated by reference to Exhibit 4.08 of the previously filed
Registration Statement on Form S-4 (No. 333-41733)).
4.06+ Subsidiary Guaranty and Security Agreement dated as of September 25,
1997, by and between Salem and The Bank of New York, as
Administrative Agent and the Guarantors named therein (incorporated
by reference to Exhibit 4.09 of the previously filed Registration
Statement on Form S-4 (No. 333-41733)).
4.07++ Amendment No. 1 and Consent No. 1, dated as of August 5, 1998, to
the Credit Agreement, dated as of September 25, 1997, by and among
Salem, The Bank of New York, as Administrative Agent, Bank of
America NT&SA, as Documentation Agent, and the Lenders named therein
(incorporated by reference to Exhibit 10.02 of previously filed
Current Report on Form 8-K).
4.08++ Amendment No. 2 and Consent No. 2, dated as of January 22, 1999, to
the Credit Agreement, dated as of September 25, 1997, by and among
Salem, The Bank of New York, as Administrative Agent, Bank of
America NT&SA, as Documentation Agent, and the Lenders named
therein.
4.09* Specimen of Class A common stock certificate.
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.
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
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 American NT&SA, as Documentation Agent, and the
Lenders named therein.
10.01* Amended and Restated Employment Agreement, dated as of May 19,
1999, between Salem and Edward G. Atsinger III.
10.02* Amended and Restated Employment Agreement, dated as of May 19,
1999, between Salem and Stuart W. Epperson.
10.03.01+ Employment Contract, dated November 7, 1991, between Salem and
Eric H. Halvorson.
10.03.02+ First Amendment to Employment Contract, dated April 22, 1996,
between Salem and Eric H. Halvorson.
10.03.03+ Second Amendment to Employment Contract, dated July 8, 1997,
between Salem and Eric H. Halvorson.
10.03.04+ Deferred Compensation Agreement, dated November 7, 1991, between
Salem and Eric H. Halvorson.
10.03.05* Third Amendment to Employment Agreement, entered into May 26,
1999 between Salem and Eric Halvorson.
10.05.01+ Antenna/tower lease between Caron Broadcasting, Inc. (WHLO-AM/
Akron, Ohio) and Messrs. Atsinger and Epperson expiring 2007.
10.05.02+ Antenna/tower/studio lease between Caron Broadcasting, Inc.
(WTSJ-AM/Cincinnati, Ohio) and Messrs. Atsinger and Epperson
expiring 2007.
10.05.03+ Antenna/tower lease between Caron Broadcasting, Inc. (WHK-FM/
Canton, Ohio) and Messrs. Atsinger and Epperson expiring 2007.
10.05.04+ Antenna/tower/studio lease between Common Ground Broadcasting,
Inc.(KKMS-AM/Eagan, Minnesota) and Messrs. Atsinger and Epperson
expiring in 2006.
10.05.05+ Antenna/tower lease between Common Ground Broadcasting, Inc.
(WHK-AM/Cleveland, Ohio) and Messrs. Atsinger and Epperson
expiring 2008.
10.05.06+ Antenna/tower lease (KFAX-FM/Hayward, California) and Salem
Broadcasting Company, a partnership consisting of Messrs.
Atsinger and Epperson, expiring in 2003.
10.05.07+ Antenna/tower/studio lease between Inland Radio, Inc.
(KKLA-AM/San Bernardino, California) and Messrs. Atsinger and
Epperson expiring 2002.
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
10.05.08+ Antenna/tower lease between Inspiration Media, Inc. (KGNW-AM/
Seattle, Washington) and Messrs. Atsinger and Epperson expiring
in 2002.
10.05.09+ Antenna/tower lease between Inspiration Media, Inc.
(KLFE-AM/Seattle, Washington) and The Atsinger Family Trust and
Stuart W. Epperson Revocable Living Trust expiring in 2004.
10.05.11.01+ Antenna/tower/studio lease between Pennsylvania Media
Associates, Inc. (WZZD-AM/ WFIL-AM/Philadelphia, Pennsylvania)
and Messrs. Atsinger and Epperson, as assigned from WEAZ-FM
Radio, Inc., expiring 2004.
10.05.11.02+ Antenna/tower/studio lease between Pennsylvania Media
Associates, Inc. (WZZD-AM/ WFIL-AM/Philadelphia, Pennsylvania)
and The Atsinger Family Trust and Stuart W. Epperson Revocable
Living Trust expiring 2004.
10.05.12+ Antenna/tower lease between Radio 1210, Inc.
(KPRZ-AM/Olivenhain, California) and The Atsinger Family Trust
expiring in 2002.
10.05.13+ Antenna/tower lease between Salem Media Corporation (WYLL-FM/
Arlington Heights, Illinois) and Messrs. Atsinger and Epperson
expiring in 2002.
10.05.14+ Antenna/turner/studio leases between Salem Media Corporation
(KLTX-AM/Long Beach and Paramount, California) and Messrs.
Atsinger and Epperson expiring in 2002.
10.05.15+ Antenna/tower lease between Salem Media of Colorado, Inc.
(KNUS-AM/Denver-Bolder, 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.
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
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).
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
20
21
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+ 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 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 June 30,
1999.
21
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: August 16, 1999 SALEM COMMUNICATIONS CORPORATION
By: /s/ EDWARD G. ATSINGER III
-------------------------------------
Edward G. Atsinger III
President and Chief Executive Officer
Date: August 16, 1999 /s/ DIRK GASTALDO
-------------------------------------
Dirk Gastaldo
Vice President and Chief Financial
Officer (Principal Financial Officer)
22
23
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27.01 Financial Data Schedule
23