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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM              TO             

COMMISSION FILE NUMBER 333-41733

SALEM COMMUNICATIONS CORPORATION

(Exact name of registrant as specified in its charter)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-0400

    Securities registered pursuant to Section 12(b) of the Act:  None

    Securities registered pursuant to Section 12(g) of the Act:  Class A common stock, $0.01 par value

    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 [ ]

    Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. [ ]

    Aggregate market value of voting common stock held by non-affiliates of the registrant based upon the average bid and asked price of its Class A common stock, on March 22, 2001, on the Nasdaq National Market System was approximately $148,029,525.

    As of March 26, 2001 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.

DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the registrant's Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders to be held June 6, 2001 are incorporated by reference in Part III hereof.

TABLE OF CONTENTS

PART I

PART I

ITEM 1. BUSINESS.

FORWARD-LOOKING STATEMENTS

    From time to time, in both written reports (such as this report) and oral statements, Salem Communications Corporation ("Salem" or the "company", including references to Salem by "we," "us" and "our") makes "forward-looking statements" within the meaning of Federal and state securities laws. Disclosures that use words such as the company "believes," "anticipates," "expects," "may" or "plans" and similar expressions are intended to identify forward-looking statements, as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the company's current expectations and are based upon data available to the company at the time of the statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. These risks as well as other risks and uncertainties are detailed below at "Certain Factors Affecting Salem" and from time to time in Salem's periodic reports on Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission. Forward-looking statements made in this report speak as of the date hereof. The company undertakes no obligation to update or revise any forward-looking statements made in this report. Any such forward-looking statements, whether made in this report or elsewhere, should be considered in context with the various disclosures made by Salem about its business. These projections or forward-looking statements fall under the safe harbors of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act").

    All metropolitan statistical area ("MSA") rank information used in this report is from the Fall 2000 Radio Market Survey Schedule & Population Rankings published by The Arbitron Company, excluding the Commonwealth of Puerto Rico. According to the Radio Market Survey, the population estimates used were based upon 1990 U.S. Bureau Census estimates updated and projected to January 2001 by Market Statistics, based on the data from Sales & Marketing Management's 1999 "Survey of Buying Power."

GENERAL

    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 26 years, is the ownership and operation of radio stations in large metropolitan markets. After completing our pending transactions, we will own or operate 76 radio stations, including 53 stations which broadcast to 22 of the top 25 markets. We also operate Salem Radio Network®, a national radio network offering syndicated talk, news and music programming to over 1,400 affiliated radio stations, after completing our pending transactions.

    Our primary strategy has been, and will continue to be, to acquire and operate radio stations in large metropolitan markets. Traditionally, we have programmed acquired stations with our primary format, talk programming with religious and family themes. This format generally features nationally syndicated and local programs produced by organizations that purchase block program time on our radio stations. We have expanded our acquisition strategy in recent years by acquiring additional radio stations in markets in which we already have a presence. We program these radio stations to feature news/talk and music formats. During 2000, we launched a contemporary Christian music format called "The Fish"™. Salem Radio Network® supports our strategy by enabling us to offer a variety of program content on newly acquired radio stations in both new and existing markets.

    Our founders, our current CEO and chairman, are career radio broadcasters who have owned and operated radio stations for over 30 years. As Salem has grown, we have recruited managers with strong radio backgrounds and a commitment to our formats. Our senior managers have an average of 25 years

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of industry experience. Our management has a track record of successfully identifying, acquiring and operating new radio stations.

    We continue to seek new ways to expand and integrate our distribution and content capabilities. We have acquired magazine, Internet and software businesses that direct their content to persons with interests that are similar to those of our primary radio audience. We will continue to pursue acquisitions of new media and other businesses that serve our audience. We plan to use these businesses, together with our radio stations and network, to attract, grow and retain a larger audience and customer base.

    Salem Communications Corporation was formed in 1986, as a California corporation, in connection with a combination of most of the radio station holdings of Edward G. Atsinger III and Stuart W. Epperson. Initially, Messrs. Atsinger and Epperson each owned fifty-percent of Salem Communications Corporation-California. New Inspiration Broadcasting Company, Inc., the licensee of KKLA-FM, Los Angeles, and Golden Gate Broadcasting Company, Inc., the licensee of KFAX-AM, San Francisco, were owned by the principal shareholders and Mr. Epperson's wife, Nancy A. Epperson. New Inspiration and Golden Gate were both "S corporations," as that term is defined in the Internal Revenue Code of 1986, as amended. In August 1997, Salem Communications Corporation-California, New Inspiration and Golden Gate effected a reorganization pursuant to which New Inspiration and Golden Gate became wholly-owned subsidiaries of Salem Communications Corporation-California. The S corporation status of each of New Inspiration and Golden Gate was terminated in the reorganization. In 1999 the company was reincorporated in Delaware. In May 2000, the company formed two new wholly-owned subsidiaries, Salem Communications Holding Corporation ("HoldCo") and Salem Communications Acquisition Corporation ("AcquisitionCo"), each a Delaware corporation. In July 2000, SCA License Corporation ("SCA"), a Delaware corporation was formed. SCA is a wholly-owned subsidiary of AcquisitionCo. As of August 2000, substantially all the assets and liabilities of the company were assigned to HoldCo, which assumed the company's obligations under our credit facility and bond indenture. AcquisitionCo and SCA are not restricted by the obligations of the bond indenture.

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DEVELOPMENT OF THE BUSINESS

    In 2000, we completed the purchase of the following radio stations:

    Additionally, on March 31, 2000, we purchased all of the 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, TN, and to independent radio station affiliates. RSN also owns and operates SolidGospel.com, a web site on the Internet.

    On August 22, 2000, we sold the assets of radio station KLTX-AM, Long Beach, CA for $29.5 million to a corporation owned by one of our Board members. This transaction is described in "Related Party Transactions" in the company's Proxy statement for its 2001 Annual Meeting of Shareholders as noted in Part III, Item 13 of this report.

    On September 1, 2000, we exchanged the assets of radio station KKHT-FM, Houston, TX for the assets of radio stations WFSH-FM, Atlanta, GA, KLUP-AM, San Antonio, TX, and WSUN-AM, Tampa, FL. WFSH-FM was formerly known as WALR-FM.

    On November 20, 2000, we exchanged the assets of radio station KDGE-FM, Dallas, TX for the assets of radio station KWRD-FM, Dallas, TX and KPXI-FM, Tyler-Longview, TX. KWRD-FM was formerly known as KLTY-FM.

(1)

"MSA" means metropolitan statistical area.

(2)

Combined purchase price for WNIV-AM and WLTA-AM.

(3)

KSFB-FM was formerly known as KSQI-FM.

(4)

Combined purchase price for KAIM-FM and KAIM-AM.

(5)

Combined purchase price for KHNR-AM and KGU-AM.

(6)

Purchase price includes the exchange of KPRZ-FM, Colorado Springs, CO.

(7)

Stations acquired in one transaction for $185.6 million.

(8)

KXMX-AM was formerly known as KEZY-AM.

(9)

KFSH-FM was formerly known as KXMX-FM.

(10)

WGTK-AM was acquired from a relative of one of our Board members.

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RADIO STATIONS

    After completing our pending transactions, we will own and operate 76 radio stations in 35 markets. The following table sets forth information about each of Salem's stations in order of market size:

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(1)

Actual city of license may differ from metropolitan market served.

(2)

"MSA" means metropolitan statistical area. We have obtained all Metro Survey rank information used in this report from the Fall 2000 Radio Market Survey Schedule & Population Rankings published by The Arbitron Company, excluding the Commonwealth of Puerto Rico. According to the Radio Market Survey, the population estimates used were based upon 1990 U.S. Bureau Census estimates updated and projected to January 1, 2001 by Market Statistics, based on the data from Sales & Marketing Management's 1999 Survey of Buyer Power.

(3)

This market includes the Nassau-Suffolk, NY Metro market which independently has a MSA rank of 17.

(4)

A contract to acquire WROL-AM for $11.0 million has been signed and regulatory approval of the acquisition has been received. The company anticipates closing this transaction in the second quarter of 2001.

(5)

WITH-AM is simulcast with WAVA-FM, Washington, D.C.

(6)

A contract to exchange Salem's stations WHKK-AM and WHK-FM and $10.5 million for WCLV-FM has been signed and regulatory approval of the has been received. The company anticipates closing this transaction in the second quarter of 2001.

(7)

KPXI-FM is simulcast with KWRD-FM, Dallas, TX.

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    PROGRAM REVENUE.  For the year ended December 31, 2000, we derived 29.0% and 15.9% of our gross revenue, or $34.9 million and $19.0 million, respectively, from the sale of nationally syndicated and local block program time. We derive nationally syndicated program revenue from a programming customer base consisting primarily of geographically diverse, well-established non-profit religious and educational organizations that purchase time on stations in a large number of markets in the United States. Nationally syndicated program producers typically purchase 13, 26 or 52 minute blocks on a Monday through Friday basis and may offer supplemental programming for weekend release. We obtain local program revenue from community organizations and churches that typically purchase time primarily for weekend release and from local speakers who purchase daily releases. We have been successful in assisting quality local programs to expand into national syndication.

    ADVERTISING REVENUE.  For the year ended December 31, 2000, we derived 34.1% of our gross revenue, or $40.9 million from the sale of local spot advertising and 6.4% of our gross revenue, or $7.7 million from the sale of national spot advertising.

    OPERATIONS.  Each of the radio markets in which we have a presence has a general manager who is responsible for day-to-day operations, local spot advertising sales and, where applicable, local program sales for all of our stations in the market. We pay our general managers a base salary plus a percentage of the respective station's net operating income. For each station we also have a staff of full and part-time engineering, programming and sales personnel. We pay our sales staff on a commission basis.

    We have decentralized our operations in response to the rapid growth we have experienced in recent years. Our operations vice presidents, some of whom are also station general managers, oversee several markets on a regional basis. Our operations vice presidents are experienced radio broadcasters with expertise in sales, programming and production. We will continue to rely on this strategy of decentralization and encourage operations vice presidents to apply innovative techniques to the operations they oversee which, if successful, can be implemented in our other stations.

    Our corporate headquarters personnel oversee the placement and rate negotiation for all nationally syndicated programs. Centralized oversight of this component of company revenue is necessary because our key program customers purchase time in many of our markets. Corporate headquarters personnel also are responsible for centralized reporting and financial functions, human resources, engineering oversight and other support functions designed to provide resources to local management.

    We believe that the listening audiences for our radio stations formatted with our primary format, which provide the financial support for program producers purchasing time on these stations, are responsive to affinity advertisers that promote products targeted to audiences interested in religious and family issues and are receptive to direct response appeals such as those offered through infomercials. All of such stations have affinity advertising customers in their respective markets. Local church groups and many community organizations such as rescue missions and family crisis support services can often effectively reach their natural constituencies by advertising on religious format stations. Advertising is also purchased by local and nationally affiliated religious bookstores, publishers specializing in inspirational and religious literature and other businesses that desire to specifically target audiences interested in religious and family issues. Our stations generate spot advertising revenue from general market advertisers.

SALEM RADIO NETWORK®

    In 1993, we established Salem Radio Network® in connection with our acquisition of certain assets of the former CBN Radio Network. Establishment of Salem Radio Network® was a part of our overall business strategy to develop a national network of affiliated radio stations anchored by our owned and operated radio stations in major markets. Salem Radio Network® which is headquartered in Dallas,

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develops, produces and syndicates a broad range of programming specifically targeted to religious and family issues talk and music stations as well as general market news/talk stations. Currently, we have rights to eight full-time satellite channels and all Salem Radio Network® product is delivered to affiliates via satellite.

    Salem Radio Network® has more than 1,400 affiliate stations, including our owned and operated stations, that broadcast one or more of the offered programming options. These programming options feature talk shows, news and music. Network operations also include commission revenue of Salem Radio Representatives from unaffiliated customers and an allocation of operating expenses estimated to relate to such commissions. Salem Radio Network's gross revenue, including commission revenue for Salem Radio Representatives, for the year ended December 31, 2000 was $9.1 million.

    SALEM RADIO REPRESENTATIVES.  We established Salem Radio Representatives in 1992 as a sales representation company specializing in placing national advertising on religious format radio stations. Salem Radio Network® has an exclusive relationship with Salem Radio Representatives for the sale of available Salem Radio Network® spot advertising. Salem Radio Representatives receives a commission on all Salem Radio Network® sales. Salem Radio Representatives also contracts with individual radio stations to sell air time to national advertisers desiring to include selected company stations in national buys covering multiple markets.

OTHER MEDIA

    INTERNET.  In 1999 we established an Internet business, OnePlace, in connection with our purchase of the assets of OnePlace, LLC, AudioCentral, GospelMedia Network (which was sold in 2000) and Involved Christian Radio Network. OnePlace's activities enhance and support our core radio strategy by providing on-demand audio streaming for Salem's program producers. The OnePlace business model mirrors our radio station business model: revenue from ministries and advertising (banners and sponsorships). We also recently introduced SonicPlace.com, which provides on-demand audio streaming for Salem's Christian music channels.

    PUBLISHING.  In 1999, we purchased CCM Communications, Inc. ("CCM"). CCM, based in Nashville, Tennessee, has published magazines since 1978 which follow the contemporary Christian music industry. CCM's flagship publication, CCM Magazine®, is a monthly music magazine offering interviews with artists, issue-oriented features, album reviews and concert schedules. Through CCM's trade publications, we are uniquely positioned to track contemporary Christian music audience trends.

    SATELLITE RADIO.  In August 1998 we expanded our reach by entering into an exclusive agreement with XM Satellite Radio, Inc. to develop, produce, supply and market religious and family issues audio programming which will be distributed by a subscriber-based satellite digital audio radio service. XM Satellite Radio, Inc. is one of two FCC licensees for this service (which is expected to commence in 2001) and it will have the capability of providing up to 100 channels of audio programming. We have agreed to provide religious and family issues talk programming on one channel and youth and adult religious music programming on two additional channels.

COMPETITION

    RADIO.  The radio broadcasting industry, including the religious and family issues format segment of this industry, is a highly competitive business. The financial success of each of our radio stations that features the religious and family issues format is dependent, to a significant degree, upon its ability to generate revenue from the sale of block program time to national and local religious and educational organizations. We compete for this program revenue with a number of different commercial and noncommercial radio station licensees. While no group owner in the United States specializing in the religious format approaches Salem in size of potential listening audience and presence in major

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markets, religious format stations exist and enjoy varying degrees of prominence and success in all markets.

    We also compete for revenue in the spot advertising market with other commercial religious format and general format radio station licensees. We compete in the spot advertising market with other media as well, including broadcast television, cable television, newspapers, magazines, direct mail and billboard advertising.

    Competition may also come from new media technologies and services that are being developed or introduced. These include delivery of audio programming by cable television and satellite systems, digital audio radio services, the Internet, personal communications services and the authorization by the FCC of a new service of low powered, limited coverage FM radio stations. Digital audio broadcasting may deliver multiformat digital radio services by satellite to national and regional audiences. The quality of programming delivered by digital audio broadcasting would be equivalent to compact disc.

    The delivery of live and stored audio programming through the Internet has also created new competition. In addition, the anticipated commencement of satellite delivered digital audio radio services, which are intended to deliver multiple audio programming formats to local and national audiences, may create additional competition. We have attempted to address these existing and potential competitive threats through OnePlace and through our exclusive arrangement to provide religious and family issues talk and music formats on one of the two FCC licensees of satellite digital audio radio services.

    NETWORK.  Salem Radio Network® competes with other commercial radio networks that offer news and talk programming to religious and general format stations and two noncommercial networks that offer religious music formats. Salem Radio Network® also competes with other radio networks for the services of talk show personalities.

    OTHER MEDIA.  Our magazines compete for readers and advertisers with other publications that follow the religious music industry and publications that address issues of interest to church leadership. Our Internet business competes with other companies that deliver on-line audio programming.

EMPLOYEES

    At March 1, 2001, Salem employed 831 full-time and 402 part-time employees. None of Salem's employees are covered by collective bargaining agreements, and we consider our relations with our employees to be good.

CERTAIN FACTORS AFFECTING SALEM

    The financial statements included in this report and related discussion describe and analyze our financial performance and condition for the periods indicated. For the most part, this information is historical. Salem's prior results, however, are not necessarily indicative of its future performance or financial condition. We have therefore included the following discussion of certain factors which could affect our future performance or financial condition. These factors could cause our future performance or financial condition to differ materially from our prior performance or financial condition, or from management's expectations or estimates of Salem's future performance or financial condition. These factors, among others, should be considered in assessing Salem's future prospects and prior to making an investment decision with respect to our stock.

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Our Results Depend Significantly Upon the Success of the Religious and Family Issues Format

    We are committed to a broadcasting format emphasizing religious and family issues. Our results of operations therefore depend significantly upon:

•

the success of religious and family issues formats,



•

the continued positive listener response to our block program and advertising customers,



•

the financial success of the organizations purchasing block program time and advertising on our radio stations, and



•

the financial success of affiliated radio stations that feature programming from Salem Radio Network®.

    We may not pursue potentially more profitable business opportunities outside of our religious and family issues format. For example, we may not switch to other formats in response to changing audience preferences.

Our Strategy to Grow Through Acquisitions Involves Numerous Risks

    We intend to continue our acquisition strategy by acquiring radio stations in new and existing markets, as well as by expanding into other media and acquiring businesses that share our commitment to serving our targeted audience. Our acquisition strategy involves numerous risks:

•

We may be unable to generate cash flow from reformatted radio stations as effectively as we have in the past or in amounts sufficient to offset associated acquisition costs.



•

Our management may be unable to manage a larger organization or may be unable to effectively assimilate newly acquired radio stations into our organization.



•

We may be unable to identify attractive radio station acquisition opportunities, or may be forced to pay higher prices, due to increased competition with other buyers in the rapidly consolidating radio broadcasting industry. General format broadcast companies may be able to outbid us because they may have greater financial resources or can justify paying higher prices for radio stations broadcasting in their desired format or otherwise meeting their acquisition strategies.



•

We may be unable to obtain additional financing on terms that are both acceptable to our management and in compliance with covenants in our credit facility or senior subordinated notes.



•

Our core group of national block program customers, which have historically accounted for a substantial portion of our revenue, may not be willing to support our further expansion into new markets due in part to:


-  their high initial costs required to create a listener base in a new market capable of generating revenue sufficient to cover programming costs, and

-   their pre-existing relationships with other radio stations in these markets.

•

We may not be able to acquire new media and other businesses that we identify as important to our strategy, and may be unable to successfully integrate acquisitions of these businesses into our organization.

    Our inability to successfully implement our acquisition strategy could have a material adverse effect on our business and results of operations.

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The Highly Competitive Nature of the Radio Broadcast Industry Could Negatively Impact Our Business

    The radio broadcasting industry, including the religious format segment of this industry, is highly competitive. The financial success of each of our radio stations that features talk programming is dependent, to a significant degree, upon our ability to generate revenue from the sale of block program time to national and local religious organizations, which currently accounts for more than 40% of our revenue. We compete for this program revenue with a number of commercial and non-commercial radio stations. Due to the significant competition for this block programming, we cannot be sure that we will be able to maintain or increase our current block programming revenue.

    In the advertising market, we compete for revenue with other commercial religious format and general format radio stations, as well as with other media, including broadcast and cable television, newspapers, magazines, direct mail and billboard advertising. Due to this significant competition, we cannot be sure that we will be able to maintain or increase our current advertising revenue.

    Additionally, FCC rules and policies allow a broadcaster to own a number of radio stations in a given market and permit, within limits, joint arrangements with other stations in a market relating to programming, advertising sales, and station operations. Management believes that radio stations that elect to take advantage of these opportunities may, in certain circumstances, have lower operating costs and may be able to offer advertisers more attractive rates and services. Although we are currently attempting to take advantage of these rules by implementing multiple radio stations in various markets, the future development of our business in new markets, as well as the maintenance of our business growth in those markets in which we do not currently have a multiple number of radio stations, may be hampered.

    In addition to the competition faced by our radio stations, Salem Radio Network® faces competition from other providers of radio program content, including commercial radio networks that offer news and talk programming to religious format radio stations and non-commercial networks that offer religious music formats. Our network also competes with other radio networks and individual radio stations for the services of talk show personalities. Competition from existing and new radio networks may limit the growth and profitability of our network.

Industry Competition May Increase Due to New Technologies and Services

    Radio broadcasting is subject to competition from new media technologies and services that are being developed or introduced. These include delivery of audio programming by cable television, satellite, digital audio radio services, the Internet, personal communications services and the proposed authorization by the FCC of a new service of low powered, limited coverage FM radio stations. We cannot predict the effect that any of this new technology may have on our business or the radio broadcasting industry.

Our Launch of New Christian Music Format Involves Risk

    We have launched a contemporary Christian music format called "The Fish"™ in several markets in which we have multiple radio stations. Although we expect that this will allow us to take advantage of cross-selling and cross-promotional opportunities, as well as to reduce costs by having combined operations in these markets, we have traditionally relied on talk programming as a source of our revenue and there is no guarantee that the implementation of "The Fish"™ format in these markets will attract a sufficient listener and advertiser base.

Loss of Key Executives Could Negatively Impact Our Business

    Our business is dependent upon the performance and continued efforts of certain key individuals, particularly Edward G. Atsinger III, our President and Chief Executive Officer; and Stuart W.

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Epperson, our Chairman of the Board. The loss of the services of either Messrs. Atsinger or Epperson could have a material adverse effect upon Salem. We have entered into employment agreements with each of Messrs. Atsinger and Epperson. Messrs. Atsinger and Epperson's agreements expire in July 2001. Mr. Epperson has radio interests outside of Salem that will continue to impose demands on his time.

Government Regulation of the Broadcasting Industry May Negatively Impact Our Business

    Our operations are subject to extensive and changing governmental regulations and policies and actions of federal regulatory bodies, including the Department of Justice, the Federal Trade Commission and the Federal Communications Commission. We operate each of our radio stations pursuant to one or more FCC broadcasting licenses. As each license expires, we apply for renewal of the license. However, we cannot be sure that any of our licenses will be renewed, and renewal is subject to challenge by third-parties or to rejection by the FCC. The Communications Act of 1934 and FCC rules and policies require FCC approval for transfers of control of, and assignments of, FCC licenses. Were a complaint to be filed against Salem or other FCC licensees involved in a transaction with us, the FCC could delay the grant of, or refuse to grant, its consent to an assignment or transfer of control of licenses. The failure to renew our license could prevent us from operating the affected stations and generating revenue from them. If the FCC decides to include conditions or qualifications in any of our licenses, we may be limited in the manner in which we may operate the affected station.

    The FCC also requires radio stations to comply with certain technical requirements to limit interference between two or more radio stations. If the FCC relaxes these technical requirements, it could impair the signals transmitted by our radio stations and could have a material adverse effect on us.

    Further, the FTC and the DOJ evaluate transactions to determine whether those transactions should be challenged under federal antitrust laws. We are aware that the FTC and the DOJ have been increasingly active in their review of radio station acquisitions. This is particularly the case when a radio broadcast company proposes to acquire additional stations in its existing markets. We cannot be sure that the DOJ or the FTC will not seek to prohibit or require the restructuring of our future acquisitions.

ITEM 2. PROPERTIES.

    The types of properties required to support our radio stations include offices, studios and tower and antenna sites. A station's studios are generally housed with its office in a downtown or business district. We generally select our tower and antenna sites to provide maximum market coverage. Our network operations are supported by offices and studios from which its programming originates or is relayed from a remote point of origination. The operations of our other media businesses are supported by office facilities.

    Our radio stations' studios and offices, the operations of our other media businesses and our corporate headquarters are located in leased facilities. Our network leases satellite transponders used for delivery of its programming. We either own or lease our radio station tower and antenna sites. We do not anticipate difficulties in renewing those leases that expire within the next several years or in obtaining other lease arrangements, if necessary.

    We lease certain property from the principal stockholders or trusts and partnerships created for the benefit of the principal stockholders and their families. These leases are described in "Related Party Transactions" in the company's proxy statement for its 2001 Annual Meeting of Stockholders and incorporated by reference to Part III, Item 13 of this report. All such leases have cost of living adjustments. Based upon our management's assessment and analysis of local market conditions for

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comparable properties, we believe such leases do not have terms that vary materially from those that would have been available from unaffiliated parties.

    No one property is material to our overall operations. We believe that our properties are in good condition and suitable for our operations; however, we continually evaluate opportunities to upgrade our properties. We own substantially all of our equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment.

ITEM 3. LEGAL PROCEEDINGS.

    Salem and its subsidiaries, incident to our business activities, are parties to a number of legal proceedings, lawsuits, arbitration and other claims, including the Gospel Communications International, Inc. ("GCI") matter described in more detail below. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. Also, the company maintains insurance which may provide coverage for such matters. Consequently, our management is unable to ascertain the ultimate aggregate amount of monetary liability or the financial impact with respect to these matters as of December 31, 2000. However, our management believes, at this time, that the final resolution of these matters, individually and in the aggregate, will not have a material adverse effect upon Salem's annual consolidated financial position, results of operations or cash flows.

    On December 6, 2000, GCI made a demand for arbitration upon Salem. The demand, pending before an arbitration panel of the American Arbitration Association, alleges Salem and our subsidiary OnePlace, Ltd. failed to provide certain e-commerce software to GCI pursuant to a written contract between GCI and OnePlace, for which GCI seeks $5.0 million in damages. We have filed an answer to the demand, denying the factual basis for certain elements of GCI's claims and have asserted counterclaims against GCI for breach of contract. By consent of the parties, the matter has been submitted to nonbinding mediation. Although there can be no assurance that the GCI matter will be resolved in our favor, Salem will vigorously defend the action and pursue its counterclaims against GCI.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    On May 24, 2000, the shareholders of the company gave their consent to re-elect as directors of the company Edward G. Atsinger III, Stuart W. Epperson, Eric H. Halvorson, Richard A. Riddle, Roland S. Hinz, Joseph S. Schuchert and Donald P. Hodel, as well as to approve Ernst & Young LLP as independent auditors.

    No other matters have been submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the period covered by this report.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

    The company's Class A common stock is traded on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ-NMS") under the symbol SALM. At March 29, 2001, the company had approximately 46 shareholders of record (not including the number of persons or entities holding stock in nominee or street name through various brokerage firms) and 17,902,392 outstanding shares of Class A common stock and 5,553,696 outstanding shares of Class B common stock. The following table sets forth for the fiscal quarters indicated the range of high and low bid information per share of the Class A common stock of the

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company as reported on the NASDAQ-NMS since July 1, 1999, the date the company's Class A common stock first became publicly traded.

    There is no established public trading market for the company's Class B common stock.

DIVIDEND POLICY

    No cash dividends were declared for any class of common equity in the last two fiscal years. The company intends to retain future earnings for use in its business and does not anticipate declaring or paying any dividends on shares of the company's Class A or Class B common stock in the foreseeable future. Further, the company's board of directors will make any determinations to declare and pay dividends in light of the company's earnings, financial position, capital requirements, agreements for our outstanding debt and such other factors as the board of directors deems relevant.

    The company's sole source of cash from which to make dividend payments will be dividends paid to the company or payments made to the company by its subsidiaries. The ability of the subsidiaries to make such payments may be restricted by applicable state laws or terms of agreements to which they are or may become a party.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION.

    Salem's selected historical statement of operations and balance sheet data presented below as of and for the years ended December 31, 1996, 1997, 1998, 1999 and 2000 are derived from the audited consolidated financial statements of Salem. The consolidated financial statements as of December 31, 1999 and 2000 and for each of the years in the three-year period ended December 31, 2000, and the independent auditors' report thereon, are included elsewhere in this report. Salem's financial results are not comparable from period to period because of our acquisition and disposition of radio stations and our acquisition of other media businesses. The selected consolidated financial information below should be read in conjunction with, and is qualified by reference to, our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this report.