SALEM COMMUNICATIONS CORP /DE/ - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X]

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

[ ]

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 000-26497

SALEM COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


DELAWARE		77-0121400
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)		(I.R.S. EMPLOYER IDENTIFICATION NUMBER)

4880 SANTA ROSA ROAD CAMARILLO, CALIFORNIA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		93012 (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 the 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ]

As of May 5, 2005, there were 20,410,617 shares of Class A common stock and 5,553,696 shares of Class B common stock of Salem Communications Corporation outstanding.

SALEM COMMUNICATIONS CORPORATION
INDEX

		PAGE NO.

COVER PAGE		1
INDEX		2
PART I - FINANCIAL INFORMATION		4
	Item 1. Financial Statements	5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	28
	Item 4. Controls and Procedures	29
PART II - OTHER INFORMATION		30
	Item 1. Legal Proceedings	30
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
	Item 3. Defaults Upon Senior Securities	30
	Item 4. Submission of Matters to a Vote of Security Holders	30
	Item 5. Other Information	30
	Item 6. Exhibits	31
SIGNATURES		34
EXHIBIT INDEX		35

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,” “intends,” “will,” “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 the statements are made. Such statements are subject to certain risks and uncer tainties that could cause actual results to differ materially from expectations. These risks as well as other risks and uncertainties are detailed 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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

PART I - FINANCIAL INFORMATION

SALEM COMMUNICATIONS CORPORATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

SALEM COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

		December 31,		March 31,
		2004		2005
		(Note 1)		(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents	$	10,994	$	5,862
	Accounts receivable (less allowance for doubtful accounts of $8,109 in 2004 and $7,992 in 2005)		29,535		28,413
	Other receivables		1,629		629
	Prepaid expenses		2,083		1,953
	Deferred income taxes		4,683		4,361
Total current assets			48,924		41,218
Property, plant and equipment, net			102,987		109,820
Broadcast licenses			406,290		438,809
Goodwill			11,419		13,466
Amortizable intangible assets (net of accumulated amortization of $6,269 in 2004 and $6,631 in 2005)			2,757		3,676
Bond issue costs			3,342		3,192
Bank loan fees			3,710		3,497
Fair value of interest rate swap			4,142		—
Other assets			2,213		1,932
Total assets		$	585,784	$	615,610

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	581	$	880
	Accrued expenses		6,471		6,991
	Accrued compensation and related expenses		5,310		5,682
	Income taxes payable		—		116
	Accrued interest		5,136		5,045
	Deferred revenue		1,402		1,953
	Current portion of long-term debt and capital lease obligations		1,145		770
Total current liabilities			20,045		21,437
Long-term debt and capital lease obligations, less current portion			281,024		304,194
Deferred income taxes			32,715		33,625
Deferred revenue			3,364		5,169
Other liabilities			999		1,126
Total liabilities			338,147		365,551
Commitments and contingencies
Stockholders’ equity:
	Class A common stock, $0.01 par value; authorized 80,000,000 shares; issued and outstanding 20,408,742 and 20,410,367 shares at December 31, 2004 and March 31, 2005, respectively		204		204
	Class B common stock, $0.01 par value; authorized 20,000,000 shares; issued and outstanding 5,553,696 shares		56		56
	Additional paid-in capital		216,996		217,026
	Retained earnings		30,381		32,773
Total stockholders’ equity			247,637		250,059
Total liabilities and stockholders’ equity		$	585,784	$	615,610

See accompanying notes

SALEM COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

		Three Months Ended
		March 31,
		2004	2005
Net broadcasting revenue		$ 43,157	$ 47,813
Other media revenue		1,946	2,428
Total revenue		45,103	50,241
Operating expenses:
	Broadcasting operating expenses, exclusive of depreciation and amortization shown below (including $273 for each period paid to related parties)	27,544	30,517
	Other media operating expenses, exclusive of depreciation and amortization shown below	2,162	2,377
	Corporate expenses, exclusive of depreciation and amortization shown below (including $81 and $62 for the quarters ended March 31, 2004 and 2005, respectively, paid to related parties)	4,304	5,047
	Depreciation and amortization (including $267 and $216 for the quarters ended March 31, 2004 and 2005, respectively, for other media businesses)	3,097	3,350
	(Gain) loss on disposal of assets	224	(18)
Total operating expenses		37,331	41,273
Operating income		7,772	8,968
Other income (expense):
	Interest income	29	23
	Interest expense	(5,670)	(5,112)
	Other expense, net	(111)	(68)
Income before income taxes		2,020	3,811
Provision for income taxes		777	1,419
Net income		$ 1,243	$ 2,392
Basic net earnings per share		$ 0.05	$ 0.09
Diluted net earnings per share		$ 0.05	$ 0.09
Basic weighted average shares outstanding		23,526,105	25,963,607
Diluted weighted average shares outstanding		23,678,124	26,022,654

See accompanying notes

SALEM COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

			Three Months Ended
			March 31,
			2004			2005
OPERATING ACTIVITIES
Net income			$	1,243		$	2,392
Adjustments to reconcile net income to net cash provided by operating activities:
	Tax benefit related to stock options exercised			80			5
	Depreciation and amortization			3,097			3,350
	Amortization of bond issue costs and bank loan fees			458			363
	Amortization and accretion of financing items			—			(306)
	Provision for bad debts			688			622
	Deferred income taxes			525			1,232
	(Gain) loss on disposal of assets			224			(18)
	Changes in operating assets and liabilities:
		Accounts receivable		1,034			500
		Prepaid expenses and other current assets		1,778			1,130
		Accounts payable and accrued expenses		(1,269)			1,100
		Deferred revenue		160			2,356
		Other liabilities		131			127
		Income taxes payable		90			116
Net cash provided by operating activities				8,239			12,969

INVESTING ACTIVITIES
Capital expenditures				(3,784)			(3,916)
Deposits on radio station acquisitions				(1,063)			(150)
Purchases of radio station assets				—			(38,433)
Purchase of an Internet business				—			(3,411)
Proceeds from sale of property, plant and equipment				—			111
Other				(336)			824
Net cash used in investing activities				(5,183)			(44,975)

FINANCING ACTIVITIES
Proceeds from issuance of long-term debt and notes payable				7,500			24,500
Payments of long-term debt and notes payable				(12,500)			(1,375)
Proceeds from exercise of stock options				512			25
Payments on capital lease obligations				(4)			(6)
Proceeds from issuance of long-term debt and notes payable				(25)			—
Proceeds from interest rate swap termination				—			3,730
Net cash provided by (used in) financing activities				(4,517)			26,874
Net decrease in cash and cash equivalents				(1,461)			(5,132)
Cash and cash equivalents at beginning of year				5,620			10,994
Cash and cash equivalents at end of period			$	4,159		$	5,862
Supplemental disclosures of cash flow information:					</