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 SECURITIESAND EXCHANGE ACT OF 1934
| |  | --- | ------------------------------------------------------------------------------------------------

FOR QUARTERLY PERIOD ENDED MARCH 31, 2002

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 000-26497

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



|                                                                                               |  |                                                   
|---------------------------------------------------------------------------------------------- |  | --------------------------------------------------
|DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)                        |  | 77-0121400
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
|4880 SANTA ROSA ROAD, SUITE 300
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 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 May 14, 2002
there were 17,907,317 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 (Unaudited)                                                      |  |          | 4  | 
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  |          | 14 | 
|                               | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  |          | 21 | 
|PART II  OTHER INFORMATION    |                                                                                               |  | 21       |   
|                               | Item 1. Legal Proceedings                                                                     |  |          | 21 | 
|                               | Item 2. Changes in Securities and Use of Proceeds                                             |  |          | 21 | 
|                               | Item 3. Defaults upon Senior Securities                                                       |  |          | 21 | 
|                               | Item 4. Submission of Matters to a Vote of Security Holders                                   |  |          | 21 | 
|                               | Item 5. Other Information                                                                     |  |          | 21 | 
|                               | Item 6. Exhibits and Reports on Form 8-K                                                      |  |          | 22 | 
|SIGNATURES                     |                                                                                               |  | 23       |   
|EXHIBIT INDEX                  |                                                                                               |  | 24       |   

2



---



SPECIAL CAUTIONARY NOTICE REGARDING 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 including, but
not limited to, Salems ability to close and integrate announced transactions, competition in the radio
broadcast, publishing and Internet industries and from new technologies, market acceptance of recently
launched music formats and adverse economic conditions. These risks as well as other risks and
uncertainties are detailed 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).

3



---



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, |  | March 31,
|                                                                   |                                                                                                                                                             |                                      |         | 2001         |  | 2002     
|                                                                   |                                                                                                                                                             |                                      |         |              |  |          
|                                                                   |                                                                                                                                                             |                                      |         |              |  |           |         | (Unaudited)
|                                                                   |                                                                                                                                                             | ASSETS                               |         |              |  |           |         |             |  | 
|Current assets:                                                   
|                                                                   | Cash and cash equivalents                                                                                                                                   |                                      | $       | 23,921       |  |           | $       | 4,097       | 
|                                                                   | Accounts receivable (less allowance
for doubtful accounts of $5,749 in
2001 and $6,158 in 2002)                                                             |                                      |         | 27,695       |  |           |         | 26,986      | 
|                                                                   | Other receivables                                                                                                                                           |                                      |         | 1,284        |  |           |         | 919         | 
|                                                                   | Prepaid expenses                                                                                                                                            |                                      |         | 1,282        |  |           |         | 1,416       | 
|                                                                   | Due from stockholders                                                                                                                                       |                                      |         | 302          |  |           |         | 259         | 
|                                                                   | Deferred income taxes                                                                                                                                       |                                      |         | 1,531        |  |           |         | 1,683       | 
|                                                                   |                                                                                                                                                             |                                      |         |              |  |           |         |            
|Total current assets                                               |                                                                                                                                                             |                                      | 56,015  |              |  |           | 35,360  |            
|Property, plant and equipment, net                                 |                                                                                                                                                             |                                      | 93,087  |              |  |           | 95,600  |            
|Broadcast licenses                                                 |                                                                                                                                                             |                                      | 323,848 |              |  |           | 337,850 |            
|Goodwill                                                           |                                                                                                                                                             |                                      | 14,154  |              |  |           | 9,340   |            
|Amortizable intangible assets, net                                 |                                                                                                                                                             |                                      | 6,057   |              |  |           | 5,523   |            
|Bond issue costs                                                   |                                                                                                                                                             |                                      | 7,685   |              |  |           | 7,517   |            
|Due from stockholders                                              |                                                                                                                                                             |                                      | 448     |              |  |           | 457     |            
|Other assets                                                       |                                                                                                                                                             |                                      | 5,960   |              |  |           | 8,251   |            
|                                                                   |                                                                                                                                                             |                                      |         |              |  |           |         |            
|Total assets                                                       |                                                                                                                                                             | $                                    | 507,254 |              |  | $         | 499,898 |            
|                                                                   |                                                                                                                                                             |                                      |         |              |  |           |         |            
|                                                                   |                                                                                                                                                             | LIABILITIES AND STOCKHOLDERS EQUITY |         |              |  |           |         |             |  | 
|Current liabilities:                                              
|                                                                   | Accounts payable                                                                                                                                            |                                      | $       | 828          |  |           | $       | 491         | 
|                                                                   | Accrued expenses                                                                                                                                            |                                      |         | 3,726        |  |           |         | 4,538       | 
|                                                                   | Accrued compensation and related                                                                                                                            |                                      |         | 4,136        |  |           |         | 4,592       | 
|                                                                   | Accrued interest                                                                                                                                            |                                      |         | 9,748        |  |           |         | 8,451       | 
|                                                                   | Deferred subscription revenue                                                                                                                               |                                      |         | 1,457        |  |           |         | 1,315       | 
|                                                                   | Income taxes                                                                                                                                                |                                      |         | 44           |  |           |         | 103         | 
|                                                                   | Current portion of long-term debt and capital lease obligations                                                                                             |                                      |         | 665          |  |           |         | 658         | 
|                                                                   |                                                                                                                                                             |                                      |         |              |  |           |         |            
|Total current liabilities                                          |                                                                                                                                                             |                                      | 20,604  |              |  |           | 20,148  |            
|Long-term debt and capital lease obligations, less current portion |                                                                                                                                                             |                                      | 311,621 |              |  |           | 307,674 |            
|Deferred income taxes                                              |                                                                                                                                                             |                                      | 15,914  |              |  |           | 14,869  |            
|Other liabilities                                                  |                                                                                                                                                             |                                      | 1,745   |              |  |           | 1,596   |            
|Stockholders equity:                                             
|                                                                   | Class A common stock, $0.01 par value;
authorized 80,000,000 shares; issued
and outstanding 17,904,942 shares and 17,907,567 in 2001 and 2002, respectively |                                      |         | 179          |  |           |         | 179         | 
|                                                                   | 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                                                                                                                                  |                                      |         | 147,415      |  |           |         | 147,455     | 
|                                                                   | Retained earnings                                                                                                                                           |                                      |         | 9,720        |  |           |         | 7,921       |  | 
|                                                                   |                                                                                                                                                             |                                      |         |              |  |           |         |            
|Total stockholders equity                                         |                                                                                                                                                             |                                      | 157,370 |              |  |           | 155,611 |            
|                                                                   |                                                                                                                                                             |                                      |         |              |  |           |         |            
|Total liabilities and stockholders equity                         |                                                                                                                                                             | $                                    | 507,254 |              |  | $         | 499,898 |            
|                                                                   |                                                                                                                                                             |                                      |         |              |  |           |         |            

See accompanying notes

4



---



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

|                                                      |                                                                                                                                                 |   |                    |        |      |   |            |        |  
|----------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | ------ | ---- | - | ---------- | ------ | -
|                                                      |                                                                                                                                                 |   | Three Months Ended
|                                                      |                                                                                                                                                 |   | March 31,         
|                                                      |                                                                                                                                                 |   |                   
|                                                      |                                                                                                                                                 |   | 2001               |        | 2002
|                                                      |                                                                                                                                                 |   |                    |        |     
|Gross broadcasting revenue                            |                                                                                                                                                 | $ | 32,904             |        |      | $ | 38,876     |       
|Less agency commissions                               |                                                                                                                                                 |   | 2,818              |        |      |   | 3,351      |       
|                                                      |                                                                                                                                                 |   |                    |        |      |   |            |       
|Net broadcasting revenue                              |                                                                                                                                                 |   | 30,086             |        |      |   | 35,525     |       
|Other media revenue                                   |                                                                                                                                                 |   | 1,965              |        |      |   | 1,695      |       
|                                                      |                                                                                                                                                 |   |                    |        |      |   |            |       
|Total revenue                                         |                                                                                                                                                 |   | 32,051             |        |      |   | 37,220     |       
|Operating expenses:                                  
|                                                      | Broadcasting operating expenses
(including $272 and $250 for the quarter ended March 31, 2001 and 2002, respectively, paid to related parties)  |   |                    | 19,850 |      |   |            | 24,494 |  
|                                                      | Other media operating expenses                                                                                                                  |   |                    | 2,536  |      |   |            | 2,033  |  
|                                                      | Corporate expenses
(including $31 and $64 for the quarter ended March 31, 2001 and 2002, respectively, paid to related parties)                 |   |                    | 3,868  |      |   |            | 3,687  |  
|                                                      | Depreciation and amortization
(including $572 and $175 for the quarter ended March 31, 2001 and 2002, respectively, for other media businesses) |   |                    | 7,273  |      |   |            | 2,878  |  
|                                                      |                                                                                                                                                 |   |                    |        |      |   |            |       
|Total operating expenses                              |                                                                                                                                                 |   | 33,527             |        |      |   | 33,092     |       
|                                                      |                                                                                                                                                 |   |                    |        |      |   |            |       
|Net operating income (loss)                           |                                                                                                                                                 |   | (1,476             | )      |      |   | 4,128      |       
|Other income (expense):                              
|                                                      | Interest income                                                                                                                                 |   |                    | 795    |      |   |            | 40     |  
|                                                      | Interest expense                                                                                                                                |   |                    | (6,467 | )    |   |            | (6,706 | )
|                                                      | Loss on sale of assets                                                                                                                          |   |                    | (8     | )    |   |            | (226   | )
|                                                      | Other expense, net                                                                                                                              |   |                    | (55    | )    |   |            | (164   | )
|                                                      |                                                                                                                                                 |   |                    |        |      |   |            |       
|Loss before income taxes                              |                                                                                                                                                 |   | (7,211             | )      |      |   | (2,928     | )     
|Benefit for income taxes                              |                                                                                                                                                 |   | (2,549             | )      |      |   | (1,129     | )     
|                                                      |                                                                                                                                                 |   |                    |        |      |   |            |       
|Net loss                                              |                                                                                                                                                 | $ | (4,662             | )      |      | $ | (1,799     | )     
|                                                      |                                                                                                                                                 |   |                    |        |      |   |            |       
|Basic and diluted loss per share                      |                                                                                                                                                 | $ | (0.20              | )      |      | $ | (0.08      | )     
|                                                      |                                                                                                                                                 |   |                    |        |      |   |            |       
|Basic and diluted weighted average shares
outstanding |                                                                                                                                                 |   | 23,456,088         |        |      |   | 23,458,164 |       
|                                                      |                                                                                                                                                 |   |                    |        |      |   |            |       

See accompanying notes

5



---



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

|                                                                                |                                                     |                                           |         |                    |       |      |         |        |       |  
|------------------------------------------------------------------------------- | --------------------------------------------------- | ----------------------------------------- | ------- | ------------------ | ----- | ---- | ------- | ------ | ----- | -
|                                                                                |                                                     |                                           |         | Three Months Ended
|                                                                                |                                                     |                                           |         | March 31,         
|                                                                                |                                                     |                                           |         |                   
|                                                                                |                                                     |                                           |         | 2001               |       | 2002
|                                                                                |                                                     |                                           |         |                    |       |     
|OPERATING ACTIVITIES                                                            |                                                     |                                           |         |                    |       |      |         |       
|Net loss                                                                        |                                                     | $                                         | (4,662  | )                  |       | $    | (1,799  | )     
|Adjustments to reconcile net loss to net cash provided by
operating activities: |                                                     |                                           |         |                    |       |      |         |       
|                                                                                | Depreciation and amortization                       |                                           |         | 7,273              |       |      |         | 2,878 
|                                                                                | Amortization of bond issue costs and bank loan fees |                                           |         | 183                |       |      |         | 377    |      
|                                                                                | Provision for bad debts                             |                                           |         | 1,116              |       |      |         | 1,061  |      
|                                                                                | Deferred income taxes                               |                                           |         | (2,563             | )     |      |         | (1,197 | )    
|                                                                                | Loss on sale of assets                              |                                           |         | 8                  |       |      |         | 226    |      
|                                                                                | Changes in operating assets and liabilities:       
|                                                                                |                                                     | Accounts receivable                       |         |                    | 2,229 |      |         |        | (87   | )
|                                                                                |                                                     | Prepaid expenses and other current assets |         |                    | (546  | )    |         |        | (100  | )
|                                                                                |                                                     | Accounts payable and accrued expenses     |         |                    | 4,843 |      |         |        | (386  | )
|                                                                                |                                                     | Deferred subscription revenue             |         |                    | 21    |      |         |        | (142  | )
|                                                                                |                                                     | Other liabilities                         |         |                    | (160  | )    |         |        | 128   |  
|                                                                                |                                                     | Income taxes                              |         |                    | (27   | )    |         |        | 59    |  
|                                                                                |                                                     |                                           |         |                    |       |      |        
|Net cash provided by operating activities                                       |                                                     |                                           | 7,715   |                    |       |      | 1,018   |       
|                                                                               
|INVESTING ACTIVITIES                                                           
|Capital expenditures                                                            |                                                     |                                           | (7,743  | )                  |       |      | (4,656  | )     
|Deposits on radio station acquisitions                                          |                                                     |                                           |        |                    |       |      | (2,700  | )     
|Purchases of radio stations                                                     |                                                     |                                           | (38,214 | )                  |       |      | (9,092  | )     
|Proceeds from sale of property, plant and equipment and
intangible assets       |                                                     |                                           | 98,358  |                    |       |      | 6      
|Other assets                                                                    |                                                     |                                           | 399     |                    |       |      | (354    | )     
|                                                                                |                                                     |                                           |         |                    |       |      |        
|Net cash provided by (used in) investing activities                             |                                                     |                                           | 52,800  |                    |       |      | (16,796 | )     
|                                                                               
|FINANCING ACTIVITIES                                                           
|Proceeds from issuance of long-term debt and notes payable to stockholders      |                                                     |                                           | 1,000   |                    |       |      |        |       
|Payments of long-term debt and notes payable to stockholders                    |                                                     |                                           |        |                    |       |      | (4,000  | )     
|Proceeds from exercise of stock options                                         |                                                     |                                           |        |                    |       |      | 40      |       
|Payments on capital lease obligations                                           |                                                     |                                           | (19     | )                  |       |      | (11     | )     
|Payments of costs related to bank credit facility and debt refinancing          |                                                     |                                           | (316    | )                  |       |      |        |       
|Payments of bond issue costs                                                    |                                                     |                                           |        |                    |       |      | (75     | )     
|                                                                                |                                                     |                                           |         |                    |       |      |        
|Net cash provided by (used in) financing activities                             |                                                     |                                           | 665     |                    |       |      | (4,046  | )     
|                                                                                |                                                     |                                           |         |                    |       |      |        
|Net increase (decrease) in cash and cash equivalents                            |                                                     |                                           | 61,180  |                    |       |      | (19,824 | )     
|Cash and cash equivalents at beginning of period                                |                                                     |                                           | 3,928   |                    |       |      | 23,921  |       
|                                                                                |                                                     |                                           |         |                    |       |      |        
|Cash and cash equivalents at end of period                                      |                                                     | $                                         | 65,108  |                    |       | $    | 4,097   |       
|                                                                                |                                                     |                                           |         |                    |       |      |        
|Supplemental disclosures of cash flow information:                              |                                                     |                                           |         |                    |       |      |         |       
|                                                                                | Cash paid during the period for:                    |                                           |         |                    |       |      |         |       
|                                                                                |                                                     | Interest                                  |         | $                  | 1,746 |      |         | $      | 7,627 |  
|                                                                                |                                                     | Income taxes                              |         |                    | 42    |      |         |        | 8     |  

See accompanying notes

6



---



SALEM COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

Information with respect to the three months
ended March 31, 2002 and 2001 is unaudited. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In the opinion of management,
the unaudited interim financial statements contain all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the financial position, results of operations and cash flows
of Salem Communications Corporation and Subsidiaries (Salem, or company), for
the periods presented. The results of operations for the interim periods are not necessarily indicative
of the results of operations for the full year. For further information, refer to the consolidated
financial statements and footnotes thereto included in our annual report on Form 10-K for the year
ended December 31, 2001.

NOTE 2. ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS

We purchased the assets (principally intangibles)
of the following radio stations during the three months ended March 31, 2002:

|                  |  |                       |  |                |  |                |       |         |  |    
|----------------- |  | --------------------- |  | -------------- |  | -------------- | ----- | ------- |  | ---
|                  |  |                       |  |                |  | Allocated     
|                  |  |                       |  |                |  | Purchase       |       | Format 
|Acquisition Date  |  | Station               |  | Market Served  |  | Price          |       | Changed
|                  |  |                       |  |                |  |                |       |        
|                  |  |                       |  |                |  | (in thousands)
|January 12, 2002  |  | KLNA-FM (now KKFS-FM) |  | Sacramento, CA |  | $              | 8,675 |         |  | Yes
|February 15, 2002 |  | KIKN-AM               |  | Seattle, WA    |  |                | 525   |         |  | Yes
|                  |  |                       |  |                |  |                |       |        
|                  |  |                       |  |                |  | $              | 9,200 |         |  |    
|                  |  |                       |  |                |  |                |       |        

NOTE 3. ACCOUNTING CHANGE - GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations,
and No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after December 15, 2001.  Under the new rules, goodwill
and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements.  Other intangible assets will continue to
be amortized over their useful lives.

The company began applying the new rules on accounting
for goodwill and other intangible assets to assets acquired subsequent to June 30, 2001
and effective January 1, 2002 for all other amounts. Application of the
nonamortization provisions of SFAS No. 142 is expected to result in an increase in net income of
approximately $13 million ($0.56 per share) per year. During the first quarter of 2002, the company performed
the first of the required impairment tests of goodwill and indefinite lived intangible assets as of
January 1, 2002 and has determined that there will be no effect on the earnings and financial position of the
company as a result of these tests.

7



---



The following table provides a reconciliation of reported net loss for
the three months ended March 31, 2001 to net loss that would have been reported had SFAS No. 142 been applied as of January
1, 2001:

|                                  |                                                                                 |   |                                              |       | 
|--------------------------------- | ------------------------------------------------------------------------------- | - | -------------------------------------------- | ----- | 
|                                  |                                                                                 |   | Three Months Ended March 31, 2001           
|                                  |                                                                                 |   | (Dollars in thousands,except per share data)
|                                  |                                                                                 |   |                                             
|Reported net loss                 |                                                                                 | $ | (4,662                                       | )    
|                                  | Add back goodwill and broadcast licenses amortization,
         net of tax      |   |                                              | 3,400 | 
|                                  |                                                                                 |   |                                              |      
|Adjusted net loss                 |                                                                                 | $ | (1,262                                       | )    
|                                  |                                                                                 |   |                                              |      
|Basic and diluted loss per share: |                                                                                 |   |                                              |      
|                                  | As reported                                                                     | $ | (0.20                                        | )    
|                                  | Goodwill and broadcast license amortization,
                        net of tax |   | 0.15                                         |      
|                                  |                                                                                 |   |                                              |      
|As adjusted                       |                                                                                 | $ | (0.05                                        | )    
|                                  |                                                                                 |   |                                              |      

The following tables provide details, by major
category, of the significant classes of amortizable intangible assets:

|                              |  |                         |                        |        |              |   |             |         |   |   |       |      
|----------------------------- |  | ----------------------- | ---------------------- | ------ | ------------ | - | ----------- | ------- | - | - | ----- | -----
|                              |  | As of December 31, 2001
|                              |  |                        
|                              |  |                         |                        |        |              |   | Accumulated
|                              |  |                         | Cost                   |        | Amortization |   | Net        
|                              |  |                         |                        |        |              |   |            
|                              |  |                         | (Dollars in thousands)
|Noncompetition agreements     |  | $                       | 12,618                 |        |              | $ | (12,156     | )       |   | $ | 462  
|Customer lists and contracts  |  |                         | 7,094                  |        |              |   | (2,918      | )       |   |   | 4,176
|Favorable and assigned leases |  |                         | 1,800                  |        |              |   | (1,138      | )       |   |   | 662  
|Other intangible assets       |  |                         | 2,409                  |        |              |   | (1,652      | )       |   |   | 757  
|                              |  |                         |                        |        |              |   |             |         |   |   |       |      
|                              |  |                         | $                      | 23,921 |              |   | $           | (17,864 | ) |   | $     | 6,057
|                              |  |                         |                        |        |              |   |             |         |   |   |       |      

|                              |  |                      |                        |        |              |   |             |         |   |   |       |      
|----------------------------- |  | -------------------- | ---------------------- | ------ | ------------ | - | ----------- | ------- | - | - | ----- | -----
|                              |  | As of March 31, 2002
|                              |  |                     
|                              |  |                      |                        |        |              |   | Accumulated
|                              |  |                      | Cost                   |        | Amortization |   | Net        
|                              |  |                      |                        |        |              |   |            
|                              |  |                      | (Dollars in thousands)
|Noncompetition agreements     |  | $                    | 12,618                 |        |              | $ | (12,174     | )       |   | $ | 444  
|Customer lists and contracts  |  |                      | 7,094                  |        |              |   | (3,356      | )       |   |   | 3,738
|Favorable and assigned leases |  |                      | 1,800                  |        |              |   | (1,154      | )       |   |   | 646  
|Other intangible assets       |  |                      | 2,397                  |        |              |   | (1,702      | )       |   |   | 695  
|                              |  |                      |                        |        |              |   |             |         |   |   |       |      
|                              |  |                      | $                      | 23,909 |              |   | $           | (18,386 | ) |   | $     | 5,523
|                              |  |                      |                        |        |              |   |             |         |   |   |       |      

Based on the amortizable intangible assets as of March 31, 2002, we estimate
amortization expense for the next five years to be as follows:

|                         |  |                        |      
|------------------------ |  | ---------------------- | -----
|Year Ending December 31, |  | (Dollars in thousands)
|                         |  |                       
|2002                     |  | $                      | 1,842
|2003                     |  |                        | 1,215
|2004                     |  |                        | 1,188
|2005                     |  |                        | 937  
|2006                     |  |                        | 390  

NOTE 4. BASIC AND DILUTED LOSS PER SHARE

Basic loss per share is computed by
dividing net loss by the weighted average number of common stock shares outstanding. Diluted
loss per share is computed by dividing net loss by the weighted average number of common
stock shares and when dilutive, common stock share equivalents outstanding. Options to purchase 527,105 and
473,200 shares of Class A common stock were outstanding as of March 31, 2001 and 2002, respectively.  These options were excluded from the
respective computations of diluted net loss per share because their effect would be anti-dilutive and, as such, basic and diluted
net loss per share are the same.

8



---



The following table sets forth the computation of basic
and diluted loss per share for the periods indicated:

|                                              |                                                          |   |                              |            |      |   |       |            |   | 
|--------------------------------------------- | -------------------------------------------------------- | - | ---------------------------- | ---------- | ---- | - | ----- | ---------- | - | 
|                                              |                                                          |   | Three Months Ended March 31,
|                                              |                                                          |   |                             
|                                              |                                                          |   | 2001                         |            | 2002 |  
|                                              |                                                          |   |                              |            |      |  
|Numerator:                                   
|                                              | Net loss                                                 |   | $                            | (4,662,000 | )    |   | $     | (1,799,000 | ) | 
|Denominator for basic loss per share:        
|                                              | Weighted average shares                                  |   |                              | 23,456,088 |      |   |       | 23,458,164 |   | 
|                                             
|Effect of dilutive securities  stock options |                                                          |   |                             |            |      |   |      |           
|                                              |                                                          |   |                              |            |      |   |       |           
|Denominator for diluted loss per share        |                                                          |   |                              |            |      |   |       |            |   | 
|                                              | Weighted average shares adjusted for dilutive securities |   |                              | 23,456,088 |      |   |       | 23,458,164 |  
|                                              |                                                          |   |                              |            |      |   |       |           
|Basic loss per share                          |                                                          | $ | (0.20                        | )          |      | $ | (0.08 | )         
|                                              |                                                          |   |                              |            |      |   |       |           
|Diluted loss per share                        |                                                          | $ | (0.20                        | )          |      | $ | (0.08 | )         
|                                              |                                                          |   |                              |            |      |   |       |           

NOTE 5. CONTINGENCIES

Incident to our business activities, we are party
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, we maintain
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, 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 our financial position,
results of operations or cash flows.

On December 6, 2000, GCI made a demand for arbitration
upon us.  The demand,  pending before an arbitration panel of the American Arbitration  Association,
alleges, among other things, we and our subsidiary OnePlace failed to provide certain  e-commerce  software to GCI
pursuant to a written contract  between GCI and OnePlace.  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.  Based on
communications with the arbitrators, GCI has clarified that it seeks $10.0 million in damages for its claims.
We will vigorously defend the action and pursue the counterclaims against GCI although  there can be no
assurance  that the GCI matter  will be resolved in our favor.

NOTE 6. SUBSEQUENT EVENTS

On May 2, 2002, we acquired the assets of radio station
KJUN-FM (now KFIS-FM), Portland, Oregon, for $35.8 million. We began to operate this station under a local
marketing agreement on September 1, 2001.

Effective as of April 18, 2002, we entered into an
interest rate swap agreement for the notional principal amount of $66.0 million. This agreement expires
when the 9% senior subordinated notes mature, effectively swapping the fixed interest rate on $66.0 million
of our debt for a floating rate equal to the LIBOR rate plus 3.09%.

9



---



NOTE 7. SEGMENT DATA

SFAS No. 131 Disclosures About Segments of An
Enterprise and Related Information requires companies to provide certain information about their
operating segments. The Company has one reportable operating segment - radio broadcasting. The remaining
non-reportable segments consist of OnePlace and CCM, which do not meet the reportable segment quantitative
threshholds and accordingly are aggregated below as other media. Revenue and expenses earned and charged
between segments are recorded at fair value. The radio broadcasting segment also operates various radio
networks.

Management uses operating income before depreciation
and amortization as its measure of profitability for purposes of assessing performance and allocating
resources.

|                                                                   |                    |   |                               |                        |      |   |        |   | 
|------------------------------------------------------------------ | ------------------ | - | ----------------------------- | ---------------------- | ---- | - | ------ | - | 
|                                                                   |                    |   | Three Months Ending March 31,
|                                                                   |                    |   |                              
|                                                                   |                    |   | 2001                          |                        | 2002
|                                                                   |                    |   |                               |                        |     
|                                                                   |                    |   |                               | (Dollars in thousands)
|                                                                  
|Net revenue                                                        |                    |   |                               |                        |      |   |        |  
|                                                                   | Radio broadcasting | $ | 30,129                        |                        |      | $ | 35,513 |  
|                                                                   | Other media        |   | 2,028                         |                        |      |   | 1,778  |  
|                                                                   | Eliminations       |   | (106                          | )                      |      |   | (71    | )
|                                                                   |                    |   |                               |                        |     
|Consolidated net revenue                                           |                    | $ | 32,051                        |                        |      | $ | 37,220 |  
|                                                                   |                    |   |                               |                        |     
|                                                                  
|Operating expenses                                                 |                    |   |                               |                        |      |   |        |  
|                                                                   | Radio broadcasting | $ | 20,005                        |                        |      | $ | 24,874 |  
|                                                                   | Other media        |   | 2,548                         |                        |      |   | 1,989  |  
|                                                                   | Corporate          |   | 3,868                         |                        |      |   | 3,687  |  
|                                                                   | Eliminations       |   | (167                          | )                      |      |   | (336   | )
|                                                                   |                    |   |                               |                        |     
|Consolidated operating expenses                                    |                    | $ | 26,254                        |                        |      | $ | 30,214 |  
|                                                                   |                    |   |                               |                        |     
|                                                                  
|Operating income before depreciation and amortization              |                    |   |                               |                        |      |   |        |  
|                                                                   | Radio broadcasting | $ | 10,124                        |                        |      | $ | 10,639 |  
|                                                                   | Other media        |   | (520                          | )                      |      |   | (211   | )
|                                                                   | Corporate          |   | (3,868                        | )                      |      |   | (3,687 | )
|                                                                   | Eliminations       |   | 61                            |                        |      |   | 265    |  
|                                                                   |                    |   |                               |                        |     
|Consolidated operating income before depreciation and amortization |                    | $ | 5,797                         |                        |      | $ | 7,006  |  
|                                                                   |                    |   |                               |                        |     
|                                                                  
|Depreciation expense                                               |                    |   |                               |                        |      |   |        |  
|                                                                   | Radio broadcasting | $ | 1,411                         |                        |      | $ | 2,143  |  
|                                                                   | Other media        |   | 311                           |                        |      |   | 112    |  
|                                                                   | Corporate          |   | 99                            |                        |      |   | 85     |  
|                                                                   |                    |   |                               |                        |     
|Consolidated depreciation expense                                  |                    | $ | 1,821                         |                        |      | $ | 2,340  |  
|                                                                   |                    |   |                               |                        |     
|                                                                  
|Amortization expense                                               |                    |   |                               |                        |      |   |        |  
|                                                                   | Radio broadcasting | $ | 5,191                         |                        |      | $ | 475    |  
|                                                                   | Other media        |   | 261                           |                        |      |   | 63     |  
|                                                                   |                    |   |                               |                        |     
|Consolidated amortization expense                                  |                    | $ | 5,452                         |                        |      | $ | 538    |  
|                                                                   |                    |   |                               |                        |     
|                                                                  
|Operating income                                                   |                    |   |                               |                        |      |   |        |  
|                                                                   | Radio broadcasting | $ | 3,522                         |                        |      | $ | 8,021  |  
|                                                                   | Other media        |   | (1,093                        | )                      |      |   | (385   | )
|                                                                   | Corporate          |   | (3,967                        | )                      |      |   | (3,772 | )
|Eliminations                                                       |                    |   | 601                           |                        |      |   | 264    |  
|                                                                   |                    |   |                               |                        |     
|Consolidated operating income                                      |                    | $ | (1,476                        | )                      |      | $ | 4,128  |  
|                                                                   |                    |   |                               |                        |     
|                                                                  
|Total property, plant and equipment                                |                    |   |                               |                        |      |   |        |  
|                                                                   | Radio broadcasting | $ | 72,514                        |                        |      | $ | 91,531 |  
|                                                                   | Other media        |   | 2,165                         |                        |      |   | 1,640  |  
|                                                                   | Corporate          |   | 1,615                         |                        |      |   | 2,429  |  
|                                                                   |                    |   |                               |                        |     
|Consolidated property, plant and equipment                         |                    | $ | 76,294                        |                        |      | $ | 95,600 |  
|                                                                   |                    |   |                               |                        |     
|                                                                  

10



---



|                                                                                         |                                                       |   |                               |   |      |   |        |   | 
|---------------------------------------------------------------------------------------- | ----------------------------------------------------- | - | ----------------------------- | - | ---- | - | ------ | - | 
|Reconciliation of operating income before depreciation and amortization to pretax income |                                                       |   |                               |   |      |   |       
|                                                                                        
|                                                                                         |                                                       |   | Three Months Ending March 31,
|                                                                                         |                                                       |   |                              
|                                                                                         |                                                       |   | 2001                          |   | 2002
|                                                                                         |                                                       |   |                               |   |     
|                                                                                         |                                                       |   | (Dollars in thousands)       
|                                                                                        
|                                                                                         | Operating income before depreciation and amortization | $ | 5,797                         |   |      | $ | 7,006  |  
|                                                                                         | Depreciation                                          |   | (1,821                        | ) |      |   | (2,340 | )
|                                                                                         | Amortization                                          |   | (5,452                        | ) |      |   | (538   | )
|                                                                                         | Interest Income                                       |   | 795                           |   |      |   | 40     |  
|                                                                                         | Loss on sale of assets                                |   | (8                            | ) |      |   | (226   | ) | 
|                                                                                         | Interest expense                                      |   | (6,467                        | ) |      |   | (6,706 | )
|                                                                                         | Other expense, net                                    |   | (55                           | ) |      |   | (164   | )
|                                                                                         |                                                       |   |                               |   |     
|Pretax loss                                                                              |                                                       | $ | (7,211                        | ) |      | $ | (2,928 | ) | 
|                                                                                         |                                                       |   |                               |   |     

11



---



NOTE 8. CONSOLIDATING FINANCIAL STATEMENTS

The following is the consolidating information for
Salem Communication Corporation for purposes of presenting the financial position and operating results
of certain wholly-owned entities, representing guarantors of the senior subordinated notes, which are
consolidated within the company, including Salem Communications Corporation, excluding its subsidiaries
(Parent), Salem Communications Acquisition Corporation and its subsidiaries (AcqCo),
CCM Communications, Inc. and OnePlace, LLC (collectively Other Media) and Salem Communications
Holding Corporation and its subsidiaries (HoldCo).  HoldCo is the issuer of the outstanding 9%
and 91⁄2% senior
subordinated notes. Separate financial information is not presented because HoldCo has substantially no
assets, operations or cash other than its investment in subsidiaries.

SALEM COMMUNICATIONS CORPORATION
CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)

|                                             |                                       |   |                      |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |        | 
|-------------------------------------------- | ------------------------------------- | - | -------------------- | --- | ------------ | - | ------- | ----- | ------ | - | ----------- | ----- | ------------ | - | ------- | ------ |  | - | -------- | ------ | ----- | - | ------- | ------ | 
|                                             |                                       |   | As of March 31, 2002
|                                             |                                       |   |                     
|                                             |                                       |   |                      |     | Issuer and  
|                                             |                                       |   |                      |     | Guarantor   
|                                             |                                       |   | Guarantors           |     | Subsidiaries
|                                             |                                       |   |                      |     |             
|                                             |                                       |   |                      |     |              |   |         |       |        |   | Other       |       |              |   |         |        |  |   |          |        | Salem |  
|                                             |                                       |   | Parent               |     | AcqCo        |   | Media   |       | HoldCo |   | Adjustments |       | Consolidated |  
|                                             |                                       |   |                      |     |              |   |         |       |        |   |             |       |             
|                                            
|Current assets:                              |                                       |   |                      |     |              |   |         |       |        |   |            
|                                             | Cash and cash equivalents             |   | $                    | 47  |              |   | $       | 956   |        |   | $           | 193   |              |   | $       | 2,901  |  |   | $        |       |       |   | $       | 4,097 
|                                             | Accounts receivable                   |   |                      |    |              |   |         | 1,722 |        |   |             | 1,028 |              |   |         | 24,236 |  |   |          |       |       |   |         | 26,986 | 
|                                             | Other receivables                     |   |                      |    |              |   |         | 30    |        |   |             | 150   |              |   |         | 739    |  |   |          |       |       |   |         | 919   
|                                             | Prepaid expenses                      |   |                      |    |              |   |         |      |        |   |             | 158   |              |   |         | 1,258  |  |   |          |       |       |   |         | 1,416  | 
|                                             | Due from stockholders                 |   |                      |    |              |   |         |      |        |   |             |      |              |   |         | 259    |  |   |          |       |       |   |         | 259   
|                                             | Deferred income taxes                 |   |                      | 993 |              |   |         | 217   |        |   |             |      |              |   |         | 1,695  |  |   |          | (1,222 | )     |   |         | 1,683  | 
|                                             |                                       |   |                      |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |       
|Total current assets                         |                                       |   | 1,040                |     |              |   | 2,925   |       |        |   | 1,529       |       |              |   | 31,088  |        |  |   | (1,222   | )      |       |   | 35,360 
|Property, plant, equipment and software, net |                                       |   |                     |     |              |   | 4,663   |       |        |   | 1,640       |       |              |   | 89,297  |        |  |   |         |        |       |   | 95,600  |       
|Intangible assets, net                       |                                       |   |                     |     |              |   | 93,514  |       |        |   | 5,683       |       |              |   | 253,516 |        |  |   |         |        |       |   | 352,713
|Bond issue costs                             |                                       |   |                     |     |              |   |        |       |        |   |            |       |              |   | 7,517   |        |  |   |         |        |       |   | 7,517   |       
|Deferred income taxes                        |                                       |   |                     |     |              |   |        |       |        |   |            |       |              |   |        |        |  |   |         |        |       |   |        
|Due from stockholders                        |                                       |   |                     |     |              |   |        |       |        |   |            |       |              |   | 457     |        |  |   |         |        |       |   | 457     |       
|Other assets                                 |                                       |   | 254,127              |     |              |   |        |       |        |   | (410        | )     |              |   | 102,125 |        |  |   | (347,591 | )      |       |   | 8,251   |       
|                                             |                                       |   |                      |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |       
|Total assets                                 |                                       | $ | 255,167              |     |              | $ | 101,102 |       |        | $ | 8,442       |       |              | $ | 484,000 |        |  | $ | (348,813 | )      |       | $ | 499,898 |       
|                                             |                                       |   |                      |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |        
|Current liabilities:                         |                                       |   |                      |     |             
|                                             | Accounts payable and accrued expenses |   | $                    |    |              |   | $       | 362   |        |   | $           | 513   |              |   | $       | 4,154  |  |   | $        |       |       |   | $       | 5,029  | 
|                                             | Accrued compensation and other        |   |                      |    |              |   |         | 199   |        |   |             | 263   |              |   |         | 4,130  |  |   |          |       |       |   |         | 4,592  | 
|                                             | Accrued interest                      |   |                      |    |              |   |         |      |        |   |             |      |              |   |         | 8,451  |  |   |          |       |       |   |         | 8,451  | 
|                                             | Deferred subscription revenue         |   |                      |    |              |   |         |      |        |   |             | 1,315 |              |   |         |       |  |   |          |       |       |   |         | 1,315  | 
|                                             | Income taxes payable                  |   |                      | (4  | )            |   |         |       | 461    |   |             | 6     |              |   |         | 267    |  |   |          | (627   | )     |   |         | 103    | 
|                                             | Current maturities of long-term debt  |   |                      |    |              |   |         |      |        |   |             | 16    |              |   |         | 642    |  |   |          |       |       |   |         | 658    | 
|                                             |                                       |   |                      |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |       
|Total current liabilities                    |                                       |   | (4                   | )   |              |   | 1,022   |       |        |   | 2,113       |       |              |   | 17,644  |        |  |   | (627     | )      |       |   | 20,148  |       
|Long-term debt                               |                                       |   | 111,851              |     |              |   | 1,024   |       |        |   | 25,408      |       |              |   | 312,801 |        |  |   | (143,410 | )      |       |   | 307,674 |       
|Deferred income taxes                        |                                       |   | 3,527                |     |              |   | 20,093  |       |        |   |            |       |              |   | 16,460  |        |  |   | (25,211  | )      |       |   | 14,869  |       
|Other liabilities                            |                                       |   | 165                  |     |              |   |        |       |        |   | 6,271       |       |              |   | (4,677  | )      |  |   | (163     | )      |       |   | 1,596   |       
|Stockholders equity                         |                                       |   | 139,628              |     |              |   | 78,963  |       |        |   | (25,350     | )     |              |   | 141,772 |        |  |   | (179,402 | )      |       |   | 155,611 |       
|                                             |                                       |   |                      |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |       
|Total liabilities and stockholders equity   |                                       | $ | 255,167              |     |              | $ | 101,102 |       |        | $ | 8,442       |       |              | $ | 484,000 |        |  | $ | (348,813 | )      |       | $ | 499,898 |       
|                                             |                                       |   |                      |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |       

12



---



SALEM COMMUNICATIONS CORPORATION
CONSOLIDATING INCOME STATEMENT
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

|                                     |                                 |   |                                   |        |              |   |       |       |        |   |             |       |              |   |        |        |   |   |      |        |       |   |        |        |  
|------------------------------------ | ------------------------------- | - | --------------------------------- | ------ | ------------ | - | ----- | ----- | ------ | - | ----------- | ----- | ------------ | - | ------ | ------ | - | - | ---- | ------ | ----- | - | ------ | ------ | -
|                                     |                                 |   | Three Months Ended March 31, 2002
|                                     |                                 |   |                                  
|                                     |                                 |   |                                   |        | Issuer and  
|                                     |                                 |   |                                   |        | Guarantor   
|                                     |                                 |   | Guarantors                        |        | Subsidiaries
|                                     |                                 |   |                                   |        |             
|                                     |                                 |   |                                   |        |              |   |       |       |        |   | Other       |       |              |   |        |        |   |   |      |        | Salem |  
|                                     |                                 |   | Parent                            |        | AcqCo        |   | Media |       | HoldCo |   | Adjustments |       | Consolidated |  
|                                     |                                 |   |                                   |        |              |   |       |       |        |   |             |       |             
|Gross broadcasting revenue           |                                 | $ |                                  |        |              | $ | 2,527 |       |        | $ |            |       |              | $ | 36,563 |        |   | $ | (214 | )      |       | $ | 38,876 |       
|Less agency commissions              |                                 |   |                                  |        |              |   | (186  | )     |        |   |            |       |              |   | (3,165 | )      |   |   |     |        |       |   | (3,351 | )     
|                                     |                                 |   |                                   |        |              |   |       |       |        |   |             |       |              |   |        |        |   |   |      |        |       |   |        |       
|Net broadcasting revenue             |                                 |   |                                  |        |              |   | 2,341 |       |        |   |            |       |              |   | 33,398 |        |   |   | (214 | )      |       |   | 35,525 |       
|Other media revenue                  |                                 |   |                                  |        |              |   |      |       |        |   | 1,778       |       |              |   |       |        |   |   | (83  | )      |       |   | 1,695  |       
|                                     |                                 |   |                                   |        |              |   |       |       |        |   |             |       |              |   |        |        |   |   |      |        |       |   |        |       
|Total revenue                        |                                 |   |                                  |        |              |   | 2,341 |       |        |   | 1,778       |       |              |   | 33,398 |        |   |   | (297 | )      |       |   | 37,220 |       
|Operating expenses:                 
|                                     | Broadcasting operating expenses |   |                                   |       |              |   |       | 1,788 |        |   |             |      |              |   |        | 22,885 |   |   |      | (179   | )     |   |        | 24,494 |  
|                                     | Other media operating expenses  |   |                                   |       |              |   |       |      |        |   |             | 1,989 |              |   |        |       |   |   |      | 44     |       |   |        | 2,033  |  
|                                     | Corporate expenses              |   |                                   |       |              |   |       | 220   |        |   |             |      |              |   |        | 3,681  |   |   |      | (214   | )     |   |        | 3,687  |  
|                                     | Depreciation and amortization   |   |                                   |       |              |   |       | 89    |        |   |             | 175   |              |   |        | 2,614  |   |   |      |       |       |   |        | 2,878  |  
|                                     |                                 |   |                                   |        |              |   |       |       |        |   |             |       |              |   |        |        |   |   |      |        |       |   |        |       
|Total operating expenses             |                                 |   |                                  |        |              |   | 2,097 |       |        |   | 2,164       |       |              |   | 29,180 |        |   |   | (349 | )      |       |   | 33,092 |       
|                                     |                                 |   |                                   |        |              |   |       |       |        |   |             |       |              |   |        |        |   |   |      |        |       |   |        |       
|Net operating income (loss)          |                                 |   |                                  |        |              |   | 244   |       |        |   | (386        | )     |              |   | 4,218  |        |   |   | 52   |        |       |   | 4,128  |       
|Other income (expense):              |                                 |   |                                   |       
|                                     | Interest income                 |   |                                   |       |              |   |       | 3     |        |   |             | 15    |              |   |        | 2,708  |   |   |      | (2,686 | )     |   |        | 40     |  
|                                     | Loss on sale of assets          |   |                                   |       |              |   |       |      |        |   |             | (20   | )            |   |        | (206   | ) |   |      |       |       |   |        | (226   | )
|                                     | Interest expense                |   |                                   | (2,265 | )            |   |       |      |        |   |             | (423  | )            |   |        | (6,704 | ) |   |      | 2,686  |       |   |        | (6,706 | )
|                                     | Other expense                   |   |                                   |       |              |   |       |      |        |   |             |      |              |   |        | (164   | ) |   |      |       |       |   |        | (164   | )
|                                     |                                 |   |                                   |        |              |   |       |       |        |   |             |       |              |   |        |        |   |   |      |        |       |   |        |       
|Income (loss) before income taxes    |                                 |   | (2,265                            | )      |              |   | 247   |       |        |   | (814        | )     |              |   | (148   | )      |   |   | 52   |        |       |   | (2,928 | )     
|Provision (benefit) for income taxes |                                 |   | (906                              | )      |              |   | 95    |       |        |   | (325        | )     |              |   | 60     |        |   |   | (53  | )      |       |   | (1,129 | )     
|                                     |                                 |   |                                   |        |              |   |       |       |        |   |             |       |              |   |        |        |   |   |      |        |       |   |        |       
|Net income (loss)                    |                                 | $ | (1,359                            | )      |              | $ | 152   |       |        | $ | (489        | )     |              | $ | (208   | )      |   | $ | 105  |        |       | $ | (1,799 | )     
|                                     |                                 |   |                                   |        |              |   |       |       |        |   |             |       |              |   |        |        |   |   |      |        |       |   |        |       

13



---



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 disposition of certain assets of other media
businesses. See note 2 to our condensed consolidated financial statements.

We believe that 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 themes. Our core business is the ownership and operation of
radio stations in large metropolitan markets. We own and operate 82 radio stations, including 57 stations in
22 of the top 25 markets. This makes us the sixth largest operator measured by number of stations overall and
the third largest operator measured by number of stations in the top 25 markets. In addition, management
believes that we are the thirteenth largest radio broadcaster measured by net broadcasting revenues for the
year ended December 31, 2001. We also own Salem Radio Network®, which we believe to be a leading
developer, producer and syndicator of religious and family issues oriented talk, news and music, but not of
general broadcast programming, with over 1,600 affiliated radio stations. In addition, we own complementary
Internet and publishing businesses.

Historically, our principal sources of revenue have
been:

      the sale of block
program time, both to national and local program producers,

           the sale of
advertising time on our radio stations, both to national and local advertisers, and

           the sale of
advertising time on our national radio network.

Our broadcasting revenue is affected primarily by the
program rates our radio stations charge and by the advertising rates our radio
stations and networks charge. The rates for block program time are based upon our stations ability
to attract audiences that will support the program producers through contributions and purchases of
their products. Advertising rates are based upon the demand for
advertising time, which in turn is based on our stations and networks ability to produce results
for its advertisers. Historically we have not subscribed to traditional audience measuring services.
Instead, we have marketed ourselves to advertisers based upon the
responsiveness of our audience. In selected markets we subscribe to Arbitron, which develops
quarterly reports to measure a radio stations audience share in the demographic groups targeted
by advertisers. 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
our 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.

14



---



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 when, due to the nature of the radio station, our
plans for the market and other circumstances, we find it beneficial or advisable to change its format.
This transition period is when we develop a radio stations customer and listener base. During this
period, a station will typically generate negative or insignificant cash flow.

In the broadcasting industry, radio stations
often utilize trade or barter agreements to exchange advertising time for goods or
services (such as other media advertising, travel or lodging), in lieu of cash. In order to preserve
the sale of our advertising time for cash, we generally enter into trade agreements only if the goods
or services bartered to us will be used in our business. We have minimized our use of trade agreements
and have generally sold most of our advertising time for cash. In 2001, we sold 94% 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). Beginning in 2000, in connection
with the launch of our contemporary Christian music format in several markets, we incurred increased
amounts for promotional expenses and music license fees. In addition to these expenses, our networks
incur programming costs and lease expenses for satellite communication facilities. We also incur and
will continue to incur significant depreciation and interest expense as a result of
completed and future acquisitions of radio stations and existing and future borrowings.

OnePlace, our Internet business, earns its revenue
from the (i) sales of streaming services, (ii) sales of banner advertising and
sponsorships on the Internet, and (iii) sales of software and software support contracts. CCM, our
publishing business, 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 is
customarily measured by the ability of its stations to generate broadcast cash
flow and EBITDA. We define broadcast cash flow as net operating income, excluding other media revenue
and other media operating expenses, 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, plus the tax benefit from non-book amortization
of broadcast licenses and goodwill.

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 networks that we own or operate
in the same format during the current period compared with the results of the same
stations for the corresponding period of the prior year. We do not include a station or a network
in the comparison unless it has been owned or operated for at least an entire quarter included in
each of the current and corresponding prior year periods.

15



---



RESULTS OF OPERATIONS

Quarter ended March 31, 2002 compared to quarter ended March 31, 2001

NET BROADCASTING REVENUE.      Net broadcasting
revenue increased $5.4 million or 17.9% to $35.5 million for the quarter ended March 31, 2002
from $30.1 million for the same quarter of the prior year. The growth is attributable to the increase
in same station revenue and the acquisitions of radio stations and a network during 2001,
partially offset by the sales of radio stations during 2001. On a same station basis, net revenue
improved $3.1 million or 14.0% to $25.2 million for the quarter ended March 31, 2002 from $22.1
million for the same quarter of the prior year. The improvement was primarily due to an increase in net
revenue at radio stations we acquired in 2000 that were launched as music stations and a small increase
in net revenue from our talk stations. Revenue from advertising as a percentage of our gross broadcasting
revenue increased to 47.7% for the quarter ended March 31, 2002 from 41.0% for the same quarter of the prior
year. Revenue from block program time as a percentage of our gross broadcasting revenue decreased to 38.6%
for the quarter ended March 31, 2002 from 43.5% for the same quarter of the prior year. This change in our
revenue mix is primarily due to our continued efforts to develop more advertising revenue in all of our
markets as well as the launch of our contemporary Christian music format.

OTHER MEDIA REVENUE.      Other media
revenue decreased $0.3 million or 15.0% to $1.7 million for the quarter ended March 31, 2002 from $2.0 million
for the same quarter in the prior year. The decrease is due primarily to reduced revenues from print
advertising in a softening publishing market, partially offset by increased revenue from banner advertising.

BROADCASTING OPERATING EXPENSES.      
Broadcasting operating expenses increased $4.6 million or 23.1% to $24.5 million for the quarter ended
March 31, 2002 from $19.9 million for the same quarter of the prior year. The increase is primarily
attributable to operating expenses associated with the acquisitions of radio stations and a network
during 2001, partially offset by a decrease in operating expenses associated with stations
sold during 2001. On a same station basis, broadcasting operating expenses increased $1.1 million or 7.7% to $15.4 million
for the quarter ended March 31, 2002 from $14.3 million for the same quarter of the prior year. The increase is primarily
due to incremental selling and production expenses incurred to produce the increased revenue in the period
and increased music license fees.

OTHER MEDIA OPERATING EXPENSES.      Other
media operating expenses decreased $0.5 million or 20.0% to $2.0 million for the quarter ended
March 31, 2002 from $2.5 million for the same quarter in the prior year.
The decrease is attributable primarily to the reduction of selling expenses of $0.2 miilion associated with
our publishing business, lower legal fees of $0.2 million associated with the Gospel Communications
International, Inc. lawsuit and reduced audio streaming costs of $0.1 million for our Internet business
due to the streaming of fewer affiliates.

BROADCAST CASH FLOW.      Broadcast cash
flow increased $0.8 million or 7.8% to $11.0 million for the quarter ended March 31, 2002 from $10.2
million for the same quarter of the prior year. As a percentage of net broadcasting revenue, broadcast
cash flow decreased to 31.0% for the quarter ended March 31, 2002 from 33.9% for the same quarter
of the prior year. The decrease is primarily attributable to the effect of radio stations acquired during 2001
that previously operated with formats other than their current format and the effect of the
launch of the contemporary Christian music format in several markets. Acquired and reformatted radio
stations typically produce low margins during the first several years following conversion. Broadcast cash
flow margins improve as we implement scheduled program rate increases and increase advertising revenue
on our stations. On a same station basis, broadcast cash flow improved $2.0 million or 25.6% to $9.8 million
for the quarter ended March 31, 2002 from $7.8 million for the same quarter of the prior year.

CORPORATE EXPENSES.      Corporate expenses
decreased $0.2 million or 5.1% to $3.7 million in the quarter ended March 31, 2002 from $3.9 million in
the same quarter of the prior year, primarily due to the elimination of office rent as a result of the
purchase of our corporate headquarters, partially offset by an increase in additional
overhead costs associated with the acquisitions of radio stations and a network during 2001.

EBITDA.      EBITDA
increased $1.2 million
or 20.7% to $7.0 million for the quarter ended March 31, 2002 from $5.8 million for the same quarter of
the prior year. As a percentage of total revenue, EBITDA increased to 18.8% for the quarter ended
March 31, 2002 from 18.1% for the same quarter of the prior year. The increase is primarily attributable to the effect of
stations acquired during 2001 and 2002 that previously operated with formats other than
their current format, the launch of the contemporary Christian music format in several markets and the improvement
of results in other media.

16



---



DEPRECIATION AND AMORTIZATION.      Depreciation
and amortization expense decreased $4.5 million or 61.6% to $2.9 million for the quarter ended March 31, 2002 from $7.3 million
for the same quarter of the prior year. The decrease is due principally to the adoption of SFAS No. 142, which requires
the company to discontinue amortizing broadcast licenses and goodwill.

OTHER INCOME (EXPENSE).      Interest income
was $0.8 million for the quarter ended March 31, 2001, primarily related to interest earned on the investment of the
proceeds from the sale of the assets of radio station KALC-FM, Denver, Colorado for $100 million
in January 2001. Loss on disposal of assets of $0.2 million for the quarter ended March 31, 2002 is
primarily due to the disposition of certain property, plant and equipment and intangible assets.
Interest expense increased $0.2 million or 3.1% to $6.7 million for the quarter ended March 31, 2002 from
$6.5 million for the same quarter of the prior year. The increase is primarily due to increased long-term
debt related to our radio station and network acquisitions in 2001. Other expense, net was $0.2 million
for the quarter ended March 31, 2002 and was related primarily to bank committment fees related to our
credit facility.

PROVISION (BENEFIT) FOR INCOME TAXES.      
Provision (benefit) for income taxes as a percentage of income (loss) before income taxes
(that is, the effective tax rate) was 38.6% for the quarters ended March 31, 2002 and 35.3% for the
same quarter of the prior year. For the quarters ended March 31, 2002 and 2001 the effective tax rates
differ from the federal statutory income rate of 34.0% primarily due to the effect of state income taxes
and certain expenses that are not deductible for tax purposes.

NET INCOME (LOSS).      We recognized a net
loss of $1.8 million for the quarter ended March 31, 2002 as compared to a net loss of $4.7 million
for the same quarter of the prior year.  Assuming the company had adopted the provisions of SFAS No. 142 on January 1, 2001,
the net loss for the quarter ended March 31, 2001 would have been $1.3 million.

AFTER-TAX CASH FLOW.      After-tax
cash flow, including the tax benefit from non-book amortization, increased $1.4 million or 53.8% to $4.0
million for the quarter March 31, 2002 from $2.6 million for the same quarter of the prior year. After-tax
cash flow was negatively impacted by the after-tax cash flow of our other media businesses. After-tax cash
flow excluding our other media losses (net of income tax) increased $1.2 million or 40.0% to $4.2 million for
the quarter ended March 31, 2002 from $3.0 million for the same quarter of the prior year.  The increase is
due primarily to an increase in broadcast cash flow and a decrease in corporate expenses, partially offset by a
decrease in interest income.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed acquisitions of radio
stations through borrowings, including borrowings under credit facilities and, to a lesser extent, from operating cash flow
and selected asset dispositions.  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 the senior subordinated notes from operating
cash flow and borrowings under our credit faclility.

We will fund future acquisitions from cash on hand,
borrowings under our credit facility, sales of existing radio stations and operating cash flow. We believe
that cash on hand, cash flow from operations and borrowings under the credit facility will be sufficient to permit us to meet our
financial obligations, fund pending acquisitions and fund operations for at least the next twelve months.

Cash. Cash and cash equivalents was $4.1 million
at March 31, 2002. Working capital was $15.2 million at March 31, 2002. Cash and cash equivalents
was $23.9 million at December 31, 2001. The decrease in cash and cash equivalents is due to the use of $9.1
million to acquire two radio stations, $4.7 million for capital expenditures and $4.0 million to repay
borrowings under our credit facility.

17



---



Net cash provided by operating activities decreased to
$1.0 million for the quarter ended March 31, 2002 compared to $7.8 million in the same period of the prior
year, primarily due to an increase in accrued interest due to our issuance of senior subordinated notes
in 2001.

Net cash used in investing activities was $16.8
million for the quarter ended March 31, 2002, compared to net cash provided by investing activities of
$52.8 million for the same quarter of the prior year. The decrease is due to cash received for the sale of
the assets of radio station KALC-FM, Denver, Colorado, in January 2001 for $100 million, cash used for
acquisitions ($9.1 million cash used to purchase the assets of two radio stations during the quarter ended
March 31, 2002 as compared to $38.2 million cash used to purchase the assets of five radio stations for the
same period of the prior year) and a decrease in capital expenditures.

Net cash used in financing activities was $4.0 million for the quarter ended
March 31, 2002, compared to net cash provided by financing activities of $0.7 million for the same quarter
of the prior year. The difference was primarily due to payments made on our long-term debt during the quarter
ended March 31, 2002.

Credit Facility.Our wholly-owned subsidiary,
Salem Communications Holding Corporation (HoldCo) is the borrower under
our credit facility. At March 31, 2002, $57.6 million was outstanding under the credit facility.  The credit
facility was amended as of May 2, 2002.  The description of the credit facility as set forth below reflects
the terms of the amendment.  The borrowing capacity  and aggregate commitments under the credit facility is
$146.25 million at March 31, 2002. Some
financial ratio tests were modified in May 2002 to provide HoldCo with additional borrowing flexibility.
The credit facility matures on June 30, 2007. In June 2001, HoldCo used the net proceeds of the offering
of its 9% Senior Subordinated Notes due 2011 to repay approximately $145.5 million of borrowings under the
credit facility.

Amounts outstanding under the credit facility bear
interest at a base rate, at HoldCos option, of the banks prime rate or LIBOR, plus a spread.
For purposes of determining the interest rate under the credit facility, the prime rate spread ranges from
0% to 1.875%, and the LIBOR spread ranges from 0.875% to 3.25%.

The maximum amount that HoldCo may borrow under the credit facility is limited
by a ratio of our consolidated existing total adjusted debt to pro forma twelve-month cash flow (the Total Adjusted Funded
Debt to Cash Flow Ratio).  The credit facility will allow us to adjust our total debt as used in such calculation by the lesser
of 50% of the aggregate purchase price of acquisitions of newly acquired non-religious formatted radio stations that we reformat
to a religious talk, conservative talk or religious music format or $30.0 million and the cash flow from such stations will not
be considered in the calculation of the ratio.  The maximum Total Adjusted Funded Debt to Cash Flow Ratio allowed under the credit
facility is 6.75 to 1 through May 1, 2002 and 7.25 to 1 from May 2, 2002 through December 30, 2002.
Thereafter, the maximum ratio will decline periodically
until December 31, 2006, at which point it will remain at 4.25 to 1 through June 2007.  The Total Adjusted
Funded Debt to Cash Flow Ratio under the credit facility at March 31, 2002 was 6.31 to 1, resulting in a
borrowing availability of approximately $19.2 million.

The 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 us on a consolidated basis to maintain specified financial ratios and comply with certain finacial
tests, including ratios for maximum leverage as described, minimum interest coverage (not less than 1.4 to 1,
thereafter increasing periodically until January 1, 2005, at which point it will remain at 2.5 to 1 until
June 2007), minimum debt service coverage (a static ratio of not less than 1.1 to 1), a maximum consolidated
senior leverage ratio (a static ratio of 3.5 to 1) and a minimum fixed charge coverage (a static ratio of not
less than 1.1 to 1).  As of March 31, 2002, we were in compliance with all such covenants.  We and all our
subsidiaries, except for HoldCo, are guarantors of borrowings under the credit facility.  The credit facility
is secured by pledges of all of our and our subsidiaries' assets and all of the capital stock of our
subsidiares.

91⁄2% Senior Subordinated Notes due 2007.
In September 1997, we issued $150.0 million principal amount of 91⁄2% senior subordinated notes due 2007.
In July 1999, we repurchased $50.0 million in principal amount of those notes with a portion of the net
proceeds of our initial public offering.

In August 2000, HoldCo assumed the indenture governing
the existing 91⁄2% notes in connection  with the assignment of substantially all of our assets and
liabilities to HoldCo, including the obligations as successor issuer under that indenture.  The indenture for
the 91⁄2% notes contains restrictive covenants that, among others, limit the incurrence of debt by
HoldCo and its subsidiaries, the payment of dividends, the use of proceeds of specified asset sales and
transactions with affiliates.  HoldCo is required to pay $9.5 million per year in interest on the outstanding
91⁄2% notes.  We and all of our subsidiaries (other than HoldCo) are guarantors of the 91⁄2% notes.

9% Senior Subordinated Notes due 2011. In June 2001, HoldCo issued $150.0
million principal amount of 9% senior subordinated notes due 2011.  HoldCo used the net proceeds to repay approximately $145.5 million
in borrowings under the credit facility.  The indenture for the 9% notes contains restrictive coventants that, among others, limit the
incurrence of debt by HoldCo and its subsidiaries, the payment of dividends, the use of proceeds of specified asset sales and
transactions with affiliates.  HoldCo is required to pay $13.5 million per year in interest on the 9% notes.  We and all our
subsidiaries (other than HoldCo) are guarantors of the 9% notes.

The issuance of the 9% notes places HoldCo and its subsidiaries close to
the maximum indebtedness allowed under the indentures, thus limiting future indebtedness including additional borrowings
under the credit facility.

18



---



CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition
and results of operations are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States.  The preparation of these
financial statements requires management to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our estimates, including those related to allowance for doubtful accounts,
acquisitions of radio station and network assets, goodwill and other intangible assets, barter transactions
and income taxes. We base our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.

We believe the following accounting policies and the
related judgments and estimates affect the preparation of our consolidated financial statements.

Acquisitions of radio station and network assets

Most of our radio station acquisitions have consisted
primarily of the FCC licenses to broadcast in a particular market. We often do not acquire the existing
format, or we change the format upon acquisition when we find it beneficial.  As a result, a substantial
portion of the purchase price for the assets of a radio station is allocated to the FCC license. It is generally our
policy to retain third-party appraisers to value radio stations, networks or
other media businesses under consideration for acquisition. The allocations assigned to acquired FCC licenses
and other assets are subjective by their nature and require
our careful consideration and judgment. We believe the allocations represent appropriate estimates of the
fair value of the assets acquired. As part of the valuation and appraisal process, the third-party
appraisers prepare reports which assign values to the various asset categories in our financial statements.
Our management reviews these reports for reasonableness. The reports form the basis to record the
acquisition of the radio station, network or other media business at the close of the transaction. When we
exchange assets, we consider whether the exchange is an exchange of a business or otherwise requires the
assets received to be recorded at fair value with the recognition of a gain or loss on the transaction, or the
exchange is an exchange of similar productive assets that should be recorded on a historical cost basis
with no gain or loss recorded. In accordance with purchase accounting methodology, the operating results of
the acquired assets and businesses are included in the consolidated operating results since the dates of
acquisition.

Allowance for bad debt

We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers to make required payments. An analysis is
performed by applying various percentages based on the age of the receivable and performing other subjective
analysis. A considerable amount of judgment is required in assessing the likelihood of ultimate realization of these
receivables including the current creditworthiness of each customer. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to make payments, additional
allowances may be required.

Intangible Assets

Under the Financial Accounting Standards Board's
new rules (Statement of Accounting Standard (SFAS) No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible
Assets), we will no longer amortize goodwill and intangible assets deemed to have indefinite lives, but
will perform annual impairment tests in accordance with the Statements. We believe our FCC licenses have
indefinite lives under the new standard and accordingly amortization expense will no longer be recorded
for our FCC licenses as well as our goodwill effective July 1, 2001 for assets acquired subsequent to
June 30, 2001 and effective January 1, 2002 for all other assets. Other intangible assets will continue
to be amortized over their useful lives.

We began to apply the new rules on accounting for
goodwill and other intangible assets beginning in the first quarter of 2002. Application of the non-amortization
provisions of SFAS No. 142 is expected to result in an increase in net income of approximately $13 million
($0.56 per share) per year.

19



---



Barter

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. It is our general policy
not to preempt advertising paid for in cash with advertising paid for in trade.  For financial reporting purposes,
advertising by the radio stations exchanged for goods and services is recorded as the advertising is
broadcast and is valued at the estimated value of goods or services received or to be received. The value of the
goods and services received in such barter transactions is charged to expense when used. The estimated fair value
of the barter advertising provided versus barter expenses are approximately the same. Barter
advertising provided and barter expenses incurred are included net in broadcasting operating expenses.

Valuation allowance (deferred taxes)

For financial reporting purposes,
the company has recorded a valuation allowance of $1.7 million as of March 31, 2002 to offset a portion of
the deferred tax assets related to the state net operating loss carryforwards.  Management regularly reviews
the companys financial forecasts in an effort to determine the realizability of the net operating loss
carryforwards for tax purposes.  Accordingly, the valuation allowance is adjusted periodically based on
managements estimate of the benefit the company will receive from such carryforwards.

20



---



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Instruments.

During the three months ended March 31, 2002 and 2001,
we did not invest in market risk sensitive instruments.

Effective as of April 18, 2002, we entered into an
interest rate swap agreement for the notional principal amount of $66.0 million. This agreement expires
when the 9% senior subordinated notes mature, effectively swapping the fixed interest rate on $66.0 million
of our debt for a floating rate equal to the LIBOR rate plus 3.09%.

Market Risk.

Borrowings under the credit facility are subject
to market risk exposure, specifically to changes in LIBOR and in the prime rate in
the United States. As of March 31, 2002, we could borrow up to an additional $19.2
million under the credit facility. At March 31, 2002, we had borrowed $57.6 million under the
credit facility. Amounts outstanding under the credit facility bear interest at a base
rate, at our option, of the banks prime rate or LIBOR, plus a spread. For purposes of determining the
interest rate under the credit facility, the prime rate spread ranges from 0% to 1.875%, and the LIBOR
spread ranges from 0.875% to 3.25%. At March 31, 2002, the blended interest rate on amounts outstanding
under our credit facility was 3.77%. At March 31, 2002, a hypothetical 100 basis point increase
in the prime rate would result in additional interest expense of $0.6 million on an annualized basis.

In addition to the variable rate debt disclosed above,
we have fixed rate debt with a carrying value of $250.0 million (relating to the 91⁄2% senior
subordinated notes due 2007 and the 9% senior subordinated notes due 2011) as of March 31, 2002, with an
aggregate fair value of $260.4 million. We are exposed to changes in the fair value of these financial
instruments based on changes in the market rate of interest on this debt. The ultimate value of these notes
will be determined by  actual market prices, as all of these notes are tradeable. We estimate that a
hypothetical 1% increase in market interest rates would result in a decrease in the aggregate fair value of
the notes to approximately $246.9 million and a hypothetical 1% decrease in the market interest rates would
result in the increase of the fair value of the notes to approximately $274.9 million.

PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Incident to our business activities, we are party
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, we maintain
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, 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 our financial position,
results of operations or cash flows.

On December 6, 2000, GCI made a demand for arbitration
upon us.  The demand,  pending before an arbitration panel of the American Arbitration  Association,
alleges, among other things, we and our subsidiary OnePlace failed to provide certain  e-commerce  software to
GCI pursuant to a written contract  between GCI and OnePlace.  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.  Based on communications with the arbitrators, GCI has clarified that it seeks
$10.0 million in damages for its claims. We will vigorously defend the action and pursue the counterclaims
against GCI although  there can be no assurance  that the GCI matter  will be resolved in our favor.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

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

ITEM 5. OTHER INFORMATION

Not applicable.

21



---



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                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                               
|4.24.04 |  | Second Amendment to the Fourth Amended and Restated
Credit Agreement, dated as of April 30, 2002, by and among Salem Communications Holding Corporation, a
Delaware corporation, The Bank of New York, as administrative agent, the other agents party thereto, and the
Lenders party thereto.

(b) REPORTS ON FORM 8-K

No reports on Form 8K were filed during the
quarter ended March 31, 2002.

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.

| |              | SALEM COMMUNICATIONS CORPORATION                  | 
| | ------------ | ------------------------------------------------- | 
| | May 15, 2002 |                                                   | 
| |              | By: /s/ EDWARD G. ATSINGER III                    | 
| |              |                                                   | 
| |              | Edward G. Atsinger III                            | 
| |              | President and Chief Executive Officer             | 
| | May 15, 2002 |                                                   | 
| |              | By: /s/ DAVID A. R. EVANS                         | 
| |              |                                                   | 
| |              | David A. R. Evans                                 | 
| |              | Senior Vice President and Chief Financial Officer | 
| |              | (Principal Financial Officer)                     | 

23



---



EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                               
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  | Description of Exhibits                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                               
|4.24.04 |  | Second Amendment to the Fourth Amended and Restated
Credit Agreement, dated as of April 30, 2002, by and among Salem Communications Holding Corporation, a
Delaware corporation, The Bank of New York, as administrative agent, the other agents party thereto, and the
Lenders party thereto.

24



---



EXHIBIT 4.24.04

`SALEM COMMUNICATIONS HOLDING CORPORATION
                                                            AMENDMENT NO. 2

         AMENDMENT NO. 2 (this  Amendment),  dated as of April 30, 2002, to the Fourth Amended and Restated Credit  Agreement,  dated
as of June 15, 2001, by and among SALEM COMMUNICATIONS  HOLDING CORPORATION,  a Delaware corporation (the Borrower),  THE BANK OF NEW
YORK, as  administrative  agent for the Lenders  thereunder  (in such capacity,  the  Administrative  Agent),  the other agents party
thereto, and the Lenders party thereto, as amended by Amendment No. 1, dated as of December 27, 2001 (the Credit Agreement).

                                                                    RECITALS

I.       Except as otherwise  provided herein,  capitalized  terms used herein which are not defined herein shall have the meanings set
forth in the Credit Agreement.

II.      The Borrower has requested that the  Administrative  Agent and the Required  Lenders amend the Credit Agreement upon the terms
and conditions contained herein, and the Administrative Agent and the Required Lenders are willing to do so.

         Accordingly,  in  consideration  of the covenants,  conditions and agreements  hereinafter  set forth,  and for other good and
valuable  consideration,  the  receipt and  adequacy  of which are hereby  acknowledged,  and  pursuant  to Section  11.1 of the Credit
Agreement, the parties hereto agree as follows:

1.       Section 1.1 of the Credit  Agreement  shall be amended by amending and  restating  the defined  terms KJUN  Acquisition  and
KJUN Acquisition Date in their entirety to read as follows:

                  KFIS  Acquisition:  the acquisition by any wholly-owned  Subsidiary of the Borrower of KFIS-FM,  Portland,
         Oregon, for an amount not in excess of $35,800,000.

                  KFIS Acquisition Date:  the date on which the KFIS Acquisition is consummated.

2.       Section 1.1 of the Credit Agreement shall be amended by amending the defined term Applicable Margin as follows:

                  (a)      The proviso  immediately  following the table contained in paragraph (a) is amended and restated to
                  read as follows:

                  provided  that at all times when the Total  Leverage  Ratio  required to be  maintained  pursuant to Section
                  6.1(b) is greater than  7.00:1.00,  the Applicable  Margin with respect to all ABR Loans shall be 1.875% and
                  the Applicable  Margin with respect to all  Eurodollar  Loans and fees payable under Section 3.1(c) shall be
                  3.250%.

                  (b)      The last sentence of paragraph (b) is amended and restated to read as follows:

                  Notwithstanding  the  foregoing,  if the Borrower shall fail to deliver a Compliance  Certificate  within 60
                  days after the end of any of the first three fiscal  quarters,  or within 105 days after the end of the last
                  fiscal  quarter,  of each fiscal year (each a  certificate  delivery  date),  the  Applicable  Margin with
                  respect to all ABR Loans shall be 1.500%  (1.875% at all times when the Total  Leverage Ratio required to be
                  maintained  pursuant to Section 6.1(b) is greater than 7.00:1.00) and the Applicable  Margin with respect to
                  all  Eurodollar  Loans and fees payable under Section  3.1(c) shall be 2.750%  (3.250% at all times when the
                  Total  Leverage Ratio required to be maintained  pursuant to Section 6.1(b) is greater than  7.00:1.00),  in
                  each case for the period from and including  such  certificate  delivery date to the date of delivery by the
                  Borrower to the Administrative Agent of such Compliance Certificate.

3.       Section 6.1(b) of the Credit Agreement shall be amended and restated to read as follows:

                           (b)      On and after the 2001 Subordinated  Indenture  Issuance Date, the Parent shall maintain at
         all times a Total  Leverage  Ratio not greater than the  applicable  ratio set forth below  opposite  the  applicable
         period set forth below:

====================================================================== ====================
                               Period                                         Ratio
---------------------------------------------------------------------- --------------------
2001 Subordinated Indenture Issuance Date through December 30, 2001         6.50:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
December 31, 2001 to but excluding the KFIS Acquisition Date                6.75:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
KFIS Acquisition Date through December 30, 2002                             7.25:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
December 31, 2002 through March 30, 2003                                    7.00:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
March 31, 2003 through June 29, 2003                                        6.75:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
June 30, 2003 through September 29, 2003                                    6.50:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
September 30, 2003 through December 30, 2003                                6.25:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
December 31, 2003 through June 29, 2004                                     6.00:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
June 30, 2004 through December 30, 2004                                     5.75:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
December 31, 2004 through December 30, 2005                                 5.25:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
December 31, 2005 through December 30, 2006                                 4.75:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
December 31, 2006 and thereafter                                            4.25:1.00
====================================================================== ====================


4.       Section 6.3(b) of the Credit Agreement shall be amended by replacing the table contained therein with the following:

====================================================================== ====================
                               Period                                         Ratio
---------------------------------------------------------------------- --------------------
2001 Subordinated Indenture Issuance Date through December 31, 2001         1.40:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
January 1, 2002 through March 31, 2002                                      1.50:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
April 1, 2002 through September 30, 2002                                    1.40:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
October 1, 2002 through December 31, 2002                                   1.50:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
January 1, 2003 through June 30, 2003                                       1.60:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
July 1, 2003 through March 31, 2004                                         1.75:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
April 1, 2004 through September 30, 2004                                    2.00:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
October 1, 2004 through December 31, 2004                                   2.25:1.00
---------------------------------------------------------------------- --------------------
---------------------------------------------------------------------- --------------------
January 1, 2005 and thereafter                                              2.50:1.00
====================================================================== ====================


5.       Paragraphs 1 through 4 of this Amendment shall not become effective until:

(a)      The  Administrative  Agent shall have received  counterparts of this Amendment duly executed by the Borrower,  the Guarantors,
         the Administrative Agent and the Required Lenders.

(b)      The  Administrative  Agent  shall have  received a  certificate,  dated the date  hereof,  of the  Secretary  or an  Assistant
         Secretary  of each Loan Party  attaching  a true and  complete  copy of the  resolutions  of its Board of  Directors  or other
         authorizing  documents  and of all  documents  evidencing  all  necessary  corporate  or other  action (in form and  substance
         reasonably  satisfactory  to  the  Administrative  Agent)  taken  by it to  authorize  this  Amendment  and  the  transactions
         contemplated hereby and thereby.

(c)      The KFIS  Acquisition  shall have been  consummated in compliance  with the terms of the Credit  Agreement,  including but not
         limited to Section 8.3 of the Credit Agreement,  and the  Administrative  Agent shall have received all documents  required in
         connection therewith.

(d)      The  Administrative  Agent shall have received an opinion of General  Counsel of the Parent and the Borrower  addressed to the
         Administrative  Agent and the other Credit  Parties in form and substance  satisfactory  to the  Administrative  Agent.  It is
         understood  that such opinion is being delivered to the  Administrative  Agent and the other Credit Parties upon the direction
         of the Parent and the other Loan  Parties and that the  Administrative  Agent and the other  Credit  Parties may and will rely
         upon such opinion.

(e)      The  Administrative  Agent shall have  received,  for the account of each Lender,  a fee in an amount equal to 0.15% of the RC
         Commitment of such Lender.

(f)      The  Administrative  Agent shall have received,  for the account of each Lender executing and delivering  (without  condition)
         this  Amendment to the Administrative  Agent before 5:00 p.m.  (New York City time) on April 30, 2002, an amendment fee equal
         to 0.25% of such Lender's RC Commitment on such date; and

(g)      The Borrower shall have paid the fees and expenses of Special Counsel then due and owing.

6.       In all other respects the Credit Agreement and other Loan Documents shall remain in full force and effect.

7.       In order to induce the Administrative  Agent and the Required Lenders to execute and deliver this Amendment,  the Borrower and
the  Guarantors  each (a)  certifies  that,  immediately  before and after giving effect to this  Amendment,  all  representations  and
warranties  contained in the Loan  Documents  to which it is a party shall be true and correct in all respects  with the same effect as
though such  representations and warranties had been made on the date hereof,  except as the context otherwise requires or as otherwise
permitted by the Loan Documents or this Amendment,  (b) certifies that,  immediately  before and after giving effect to this Amendment,
no Default or Event of Default shall exist under the Loan Documents,  as amended,  and (c) agrees to pay all of the reasonable fees and
disbursements  of counsel to the  Administrative  Agent incurred in connection  with the  preparation,  negotiation and closing of this
Amendment.

8.       Each of the Borrower and the Guarantors  (a) reaffirms and admits the validity,  enforceability  and continuing  effect of all
Loan Documents to which it is a party, and its obligations  thereunder,  and (b) agrees and admits that as of the date hereof it has no
valid defenses to or offsets against any of its obligations to any Credit Party under any Loan Document to which it is a party.

9.       This Amendment may be executed in any number of separate  counterparts  and all of said  counterparts  taken together shall be
deemed to constitute one and the same  document.  It shall not be necessary in making proof of this Amendment to produce or account for
more than one counterpart signed by the party to be charged.

10.      This  Amendment  shall be governed by, and construed and  interpreted  in accordance  with, the laws of the State of New York,
without regard to principles of conflict of laws.

11.      The parties have caused this Amendment to be duly executed as of the date first written above.

                                                       [signature pages follow]`



---



| |        |                                          | 
| | ------ | ---------------------------------------- | 
| |        | SALEM COMMUNICATIONS HOLDING CORPORATION | 
| |        |                                          | 
| | By:    | /s/ AUTHORIZED SIGNATORY                 | 
| |        |                                          | 
| | Name:  |                                          | 
| | Title: |                                          | 



---



| |        |                                  | 
| | ------ | -------------------------------- | 
| |        | SALEM COMMUNICATIONS CORPORATION | 
| |        |                                  | 
| | By:    | /s/ AUTHORIZED SIGNATORY         | 
| |        |                                  | 
| | Name:  |                                  | 
| | Title: |                                  | 



---

ATEP RADIO, INC.
BISON MEDIA, INC.
CARON BROADCASTING, INC.
CCM COMMUNICATIONS, INC.
COMMON GROUND BROADCASTING, INC.
GOLDEN GATE BROADCASTING COMPANY, INC.
INSPIRATION MEDIA, INC.
KINGDOM DIRECT, INC.
NEW ENGLAND CONTINENTAL MEDIA, INC.
NEW INSPIRATION BROADCASTING COMPANY, INC.
PENNSYLVANIA MEDIA ASSOCIATES, INC.
RADIO 1210, INC.
REACH SATELLITE NETWORK, INC.
SALEM COMMUNICATIONS ACQUISITION CORPORATION
SALEM MEDIA CORPORATION
SALEM MEDIA OF COLORADO, INC.
SALEM MEDIA OF GEORGIA, INC.
SALEM MEDIA OF HAWAII, INC.
SALEM MEDIA OF KENTUCKY, INC.
SALEM MEDIA OF OHIO, INC.
SALEM MEDIA OF OREGON, INC.
SALEM MEDIA OF PENNSYLVANIA, INC.
SALEM MEDIA OF VIRGINIA, INC.
SALEM MEDIA OF TEXAS, INC.
SALEM MUSIC NETWORK, INC.
SALEM RADIO NETWORK INCORPORATED
SALEM RADIO OPERATIONS - PENNSYLVANIA, INC.
SALEM RADIO PROPERTIES, INC.
SALEM RADIO REPRESENTATIVES, INC.
SCA LICENSE CORPORATION
SOUTH TEXAS BROADCASTING, INC.
SRN NEWS NETWORK, INC.
VISTA BROADCASTING, INC.


By:
      /s/ AUTHORIZED SIGNATORYName:Title:INSPIRATION MEDIA OF PENNSYLVANIA, LPBy:
      Salem Radio Operations-Pennsylvania, Inc. its General PartnerBy:
      /s/ AUTHORIZED SIGNATORYName:Title:INSPIRATION MEDIA OF PENNSYLVANIA, LPBy:
      INSPIRATION MEDIA OF TEXAS, LLCSALEM MEDIA OF ILLINOIS, LLCSALEM MEDIA OF NEW YORK, LLCSALEM RADIO OPERATIONS, LLCSalem Media Corporation, as ManagerBy:
      /s/ AUTHORIZED SIGNATORYName:Title:ONEPLACE, LLCBy:
      Salem Communications Corporation, as ManagerBy:
      /s/ AUTHORIZED SIGNATORYName:Title:THE BANK OF NEW YORK,
in its individual capacity
and as Administrative Agent

By:
      /s/ AUTHORIZED SIGNATORYName:Title:FLEET NATIONAL BANK


By:
      /s/ AUTHORIZED SIGNATORYName:Title:UNION BANK OF CALIFORNIA, N.A.


By:
      /s/ AUTHORIZED SIGNATORYName:Title:THE BANK OF NOVA SCOTIA


By:
      /s/ AUTHORIZED SIGNATORYName:Title:FIRST HAWAIIAN BANK

By:
      /s/ AUTHORIZED SIGNATORYName:Title:CITY NATIONAL BANK

By:
      /s/ AUTHORIZED SIGNATORYName:Title:ING BARINGS LLC

By:
      /s/ AUTHORIZED SIGNATORYName:Title:BANKERS TRUST COMPANY


By:
      /s/ AUTHORIZED SIGNATORYName:Title:JP MORGAN CHASE


By:
      /s/ AUTHORIZED SIGNATORYName:Title: