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Salem Communications Corp. Reports Operating Results (10-Q)

May 11, 2009 | About:
10qk

Salem Communications Corp. (SALM) filed Quarterly Report for the period ended 2009-03-31.

Salem Communications Corp. is one of the largest U.S. radio broadcasting companies providing programming targeted at audiences interested in religious and family issues. Traditionally the company has programmed radio stations with the 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 the stations. They also program some of the radio stations with news/talk and music formats that complement the primary format. Salem Communications Corp. has a market cap of $20.83 million; its shares were traded at around $0.88 with a P/E ratio of 1.73 and P/S ratio of 0.09. Salem Communications Corp. had an annual average earning growth of 13.3% over the past 5 years.

Highlight of Business Operations:

NET BROADCAST REVENUE. Net broadcast revenue decreased $5.9 million, or 12.3%, to $42.0 million for the three months ended March 31, 2009, from $47.9 million for the same period of the prior year. On a same station basis, net broadcast revenue declined $5.7 million, or 12.5%, to $40.3 million for the three months ended March 31, 2009, from $46.0 million for the same period of the prior year. Revenue from advertising as a percentage of our net broadcast revenue decreased to 41.9% for the three months ended March 31, 2009, from 45.6% for the same period of the prior year. Revenue from block program time as a percentage of our net broadcast revenue increased to 42.0% for the three months ended March 31, 2009, from 39.2% for the same period of the prior year. The decline in net broadcast revenue includes a $4.0 million decrease in local advertising revenues, a $0.2 million decrease in national advertising revenue, a $1.2 million decrease in national program revenue, and a $0.5 million decrease in infomercial revenue. Block programming revenues continue to increase as a percentage of our total broadcasting revenue, particularly on our Christian Teaching and Talk stations. The trend in the radio broadcasting industry is of declining advertising revenues resulting in the use of block programming or infomercials to offset the declines. The growth of block programming and infomercial revenue has slowed. We expect these trends to continue; however, we cannot quantify the financial impact on our future operating results.

BROADCAST OPERATING EXPENSES. Broadcast operating expenses decreased $5.5 million, or 17.1% to $26.3 million for the three months ended March 31, 2009, from $31.8 million for the same period of the prior year. On a same station basis, broadcast operating expense decreased $5.6 million, or 18.3%, to $24.8 million for the three months ended March 31, 2009, compared to $30.4 million for the same period of the prior year. The decline in broadcast operating expenses include a $4.8 million decrease in personnel related costs, and a $1.0 million decrease in advertising expenses, offset by a $0.3 million increase in bad debt expense. The reduction in personnel related costs reflects our overall cost reduction initiative, including a reduction in work force, salary reductions and redemption of accrued vacation benefits required by March 31, 2009. We expect our staffing levels to remain at reduced levels given

NON-BROADCAST OPERATING EXPENSES. Non-broadcast operating expenses decreased $0.4 million, or 7.1%, to $5.8 million for the three months ended March 31, 2009, compared to $6.2 million for the same period of the prior year. The decrease includes a $0.3 million decline in circulation expenses associated with print magazines on Salem Publishing and a $0.2 million reduction in advertising and promotion expenses on Salem Web Network, offset by a $0.1 million increase in streaming expenses on Salem Web Network.

CORPORATE EXPENSES. Corporate expenses decreased $2.0 million, or 36.6%, to $3.3 million for the three months ended March 31, 2009, compared to $5.3 million for the same period of the prior year. The decrease is attributable to an overall cost reduction initiative, including a reduction in work force, salary reductions and redemption of accrued vacation benefits required by March 31, 2009, resulting in a $1.3 million reduction in personnel related costs, and a $0.5 million decrease in non-cash stock based compensation expense due primarily to substantially no new grants being offered, as well as a $0.1 million decrease in professional services and fees.

OTHER INCOME (EXPENSE). Interest income of $74,000 for the three months ended March 31, 2009 and $21,000 for the same period of the prior year was interest earned on excess cash. Interest expense decreased $1.7 million, or 28.2%, to $4.4 million for the three months ended March 31, 2009, compared to $6.1 million for the same period of the prior year due to a lower outstanding debt balance and lower interest rates. Change in fair value of interest rate swaps of $0.1 million for the three months ended March 31, 2009, represents the change in the fair market value of our swaps. Other expense, net, decreased to $21,000 from $51,000 primarily due to bank commitment fees associated with our credit facility offset with royalty income from real estate properties.

NET INCOME. We recognized net income of $2.9 million for the three months ended March 31, 2009 compared to net income of $5.0 million for the same period of the prior year. This decrease of $2.1 million is primarily due to a decrease in operating income from continuing operations of $4.1 million and income from discontinued operations of $1.4 million, offset by a decrease of interest expense of $1.7 million and a decrease in our tax provision of $1.4 million.

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