UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q



| |  | [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
      15(d) OF THE SECURITIESAND EXCHANGE ACT OF 1934
| |  | --- | ------------------------------------------------------------------------------------------------

FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

OR



| |  | [   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR
      15(d) OF THE SECURITIESAND 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 OFINCORPORATION OR ORGANIZATION)                        |  | 77-0121400(I.R.S.
      EMPLOYERIDENTIFICATION NUMBER)
|4880 SANTA ROSA ROAD,
      SUITE 300CAMARILLO, 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 November 13, 2002,
there were 17,929,967 shares of Class A common stock and 5,553,696 shares of
Class B common stock of Salem Communications Corporation outstanding.









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SALEM COMMUNICATIONS CORPORATIONINDEX

|                                     |                                                                                                     |  |          |    | 
|------------------------------------ | --------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                     |                                                                                                     |  | PAGE NO.
|                                     |                                                                                                     |  |         
|COVER PAGE                           |                                                                                                     |  | 1        |   
|INDEX                                |                                                                                                     |  | 2        |   
|PART I 
      FINANCIAL INFORMATION |                                                                                                     |  | 3        |   
|                                     | Item 1. Financial Statements (Unaudited)                                                            |  |          | 3  | 
|                                     | Item 2. Managements Discussion and Analysis of Financial
      Condition and Results of Operations |  |          | 16 | 
|                                     | Item 3. Quantitative and Qualitative Disclosures About Market
      Risk                            |  |          | 27 | 
|                                     | Item 4. Controls and Procedures                                                                     |  |          | 28 | 
|PART II 
      OTHER INFORMATION    |                                                                                                     |  | 28       |   
|                                     | Item 1. Legal Proceedings                                                                           |  |          | 28 | 
|                                     | Item 2. Changes in Securities and Use of
    Proceeds                                               |  |          | 28 | 
|                                     | Item 3. Defaults upon Senior Securities                                                             |  |          | 28 | 
|                                     | Item 4. Submission of Matters to a Vote of Security
      Holders                                   |  |          | 28 | 
|                                     | Item 5. Other Information                                                                           |  |          | 28 | 
|                                     | Item 6. Exhibits and Reports on Form 8-K                                                            |  |          | 29 | 
|SIGNATURES                           |                                                                                                     |  | 30       |   
|CERTIFICATIONS                       |                                                                                                     |  | 31       |   
|EXHIBIT INDEX                        |                                                                                                     |  | 33       |   

2



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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 reports on Forms 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission (the SEC). 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).

PART I  FINANCIAL INFORMATION

SALEM COMMUNICATIONS CORPORATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)







3



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SALEM COMMUNICATIONS CORPORATIONCONDENSED
CONSOLIDATED BALANCE SHEETS(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

|                                                                         |                                                                                                                                                                         |                                      |         |              |  |               |         |             |  | 
|------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------- | ------------ |  | ------------- | ------- | ----------- |  | 
|                                                                         |                                                                                                                                                                         |                                      |         | December 31, |  | September 30,
|                                                                         |                                                                                                                                                                         |                                      |         | 2001         |  | 2002         
|                                                                         |                                                                                                                                                                         |                                      |         |              |  |              
|                                                                         |                                                                                                                                                                         |                                      |         |              |  |               |         | (Unaudited)
|                                                                         |                                                                                                                                                                         | ASSETS                               |         |              |  |               |         |             |  | 
|Current assets:                                                         
|                                                                         | Cash and
      cash equivalents                                                                                                                                         |                                      | $       | 23,921       |  |               | $       | 52,148      | 
|                                                                         | Accounts
      receivable (less allowance for doubtful accounts of $5,749 in 2001 and
      $7,999 in 2002)                                                             |                                      |         | 27,695       |  |               |         | 30,333      | 
|                                                                         | Other
      receivables                                                                                                                                                 |                                      |         | 1,284        |  |               |         | 1,208       | 
|                                                                         | Prepaid
      expenses                                                                                                                                                  |                                      |         | 1,282        |  |               |         | 2,084       | 
|                                                                         | Due from stockholders                                                                                                                                                   |                                      |         | 302          |  |               |         | 167         | 
|                                                                         | Deferred income taxes                                                                                                                                                   |                                      |         | 1,531        |  |               |         | 2,840       | 
|                                                                         |                                                                                                                                                                         |                                      |         |              |  |               |         |            
|Total current assets                                                     |                                                                                                                                                                         |                                      | 56,015  |              |  |               | 88,780  |            
|Property,
      plant and equipment, net                                 |                                                                                                                                                                         |                                      | 93,087  |              |  |               | 96,718  |            
|Broadcast
      licenses                                                 |                                                                                                                                                                         |                                      | 323,848 |              |  |               | 358,259 |            
|Goodwill                                                                 |                                                                                                                                                                         |                                      | 14,154  |              |  |               | 9,198   |            
|Amortizable intangible assets, net                                       |                                                                                                                                                                         |                                      | 6,057   |              |  |               | 4,554   |            
|Bond issue costs                                                         |                                                                                                                                                                         |                                      | 7,685   |              |  |               | 7,136   |            
|Fair value of interest swap agreement                                    |                                                                                                                                                                         |                                      |        |              |  |               | 6,465   |            
|Due from stockholders                                                    |                                                                                                                                                                         |                                      | 448     |              |  |               | 123     |            
|Other assets                                                             |                                                                                                                                                                         |                                      | 5,960   |              |  |               | 6,646   |            
|                                                                         |                                                                                                                                                                         |                                      |         |              |  |               |         |            
|Total assets                                                             |                                                                                                                                                                         | $                                    | 507,254 |              |  | $             | 577,879 |            
|                                                                         |                                                                                                                                                                         |                                      |         |              |  |               |         |            
|                                                                         |                                                                                                                                                                         | LIABILITIES AND STOCKHOLDERS EQUITY |         |              |  |               |         |             |  | 
|Current liabilities:                                                    
|                                                                         | Accounts payable                                                                                                                                                        |                                      | $       | 828          |  |               | $       | 928         | 
|                                                                         | Accrued expenses                                                                                                                                                        |                                      |         | 3,726        |  |               |         | 6,289       | 
|                                                                         | Accrued
      compensation and related expenses                                                                                                                         |                                      |         | 4,136        |  |               |         | 5,531       | 
|                                                                         | Accrued interest                                                                                                                                                        |                                      |         | 9,748        |  |               |         | 8,924       | 
|                                                                         | Deferred subscription revenue                                                                                                                                           |                                      |         | 1,457        |  |               |         | 1,412       | 
|                                                                         | Income taxes payable                                                                                                                                                    |                                      |         | 44           |  |               |         | 135         | 
|                                                                         | Current
      portion of long-term debt and capital lease obligations                                                                                                   |                                      |         | 665          |  |               |         | 651         | 
|                                                                         |                                                                                                                                                                         |                                      |         |              |  |               |         |            
|Total current liabilities                                                |                                                                                                                                                                         |                                      | 20,604  |              |  |               | 23,870  |            
|Long-term
      debt and capital lease obligations, less current portion |                                                                                                                                                                         |                                      | 311,621 |              |  |               | 354,673 |            
|Deferred income taxes                                                    |                                                                                                                                                                         |                                      | 15,914  |              |  |               | 25,207  |            
|Other liabilities                                                        |                                                                                                                                                                         |                                      | 1,745   |              |  |               | 1,535   |            
|                                                                         |                                                                                                                                                                         |                                      |         |              |  |               |         |            
|Stockholders equity:                                                   
|                                                                         | Class A common stock, $0.01 par value; authorized 80,000,000
      shares; issued and outstanding 17,904,942 shares and 17,929,967 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      |  |               |         | 147,960     | 
|                                                                         | Retained earnings                                                                                                                                                       |                                      |         | 9,720        |  |               |         | 24,399      |  | 
|                                                                         |                                                                                                                                                                         |                                      |         |              |  |               |         |            
|Total stockholders equity                                               |                                                                                                                                                                         |                                      | 157,370 |              |  |               | 172,594 |            
|                                                                         |                                                                                                                                                                         |                                      |         |              |  |               |         |            
|Total
      liabilities and stockholders equity                         |                                                                                                                                                                         | $                                    | 507,254 |              |  | $             | 577,879 |            
|                                                                         |                                                                                                                                                                         |                                      |         |              |  |               |         |            

See accompanying notes

4



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

|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |            |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | ------ | ----------------- | - | ---------- | ------ | ---- | - | ---------- | ------- | - | - | ---------- | ------- | -
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   | Three Months Ended |        | Nine Months Ended
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   | September 30,      |        | September 30,    
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                  
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   | 2001               |        | 2002              |   | 2001       |        | 2002
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |     
|Gross broadcasting revenue                                                                                                                                            |                                                                                                                                                                                                                                                                                                                        | $ | 36,304             |        |                   | $ | 42,238     |        |      | $ | 105,379    |         |   | $ | 122,554    |        
|Less agency commissions                                                                                                                                               |                                                                                                                                                                                                                                                                                                                        |   | 2,956              |        |                   |   | 3,574      |        |      |   | 8,809      |         |   |   | 10,376     |        
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |            |        
|Net broadcasting revenue                                                                                                                                              |                                                                                                                                                                                                                                                                                                                        |   | 33,348             |        |                   |   | 38,664     |        |      |   | 96,570     |         |   |   | 112,178    |        
|Other media revenue                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                        |   | 1,973              |        |                   |   | 2,035      |        |      |   | 6,041      |         |   |   | 5,586      |        
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |           
|Total revenue                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                        |   | 35,321             |        |                   |   | 40,699     |        |      |   | 102,611    |         |   |   | 117,764    |        
|Operating expenses:                                                                                                                                                  
|                                                                                                                                                                      | Broadcasting operating expenses, exclusive of depreciation and amortization shown below
      (including $256 and $744 for the quarters ended September 30, 2001 and 2002, respectively,
      and $869 and $1,244 for the nine months ended September 30, 2001 and 2002, respectively,
      paid to related parties) |   |                    | 20,991 |                   |   |            | 24,682 |      |   |            | 60,871  |   |   |            | 73,983  |  
|                                                                                                                                                                      | Other
      media operating expenses, exclusive of depreciation and amortization shown below                                                                                                                                                                                                                           |   |                    | 2,274  |                   |   |            | 1,878  |      |   |            | 7,290   |   |   |            | 5,613   |  
|                                                                                                                                                                      | Corporate
      expenses, exclusive of depreciation and amortization shown below
      (including $53 and $71 for the quarters ended September 30, 2001
      and 2002, respectively, and $161 and $182 for the nine months ended
      September 30, 2001 and 2002, respectively, paid to related parties)            |   |                    | 3,249  |                   |   |            | 3,882  |      |   |            | 10,484  |   |   |            | 11,300  |  
|                                                                                                                                                                      | Legal settlement                                                                                                                                                                                                                                                                                                       |   |                    |       |                   |   |            |       |      |   |            |        |   |   |            | 2,300   |  
|                                                                                                                                                                      | Depreciation and amortization (including $387 and $167 for the
      quarters ended September 30, 2001 and 2002, respectively, and $1,338 and
      $508 for the nine months ended September 30, 2001 and 2002, respectively,
      for other media businesses)                                                        |   |                    | 7,545  |                   |   |            | 2,843  |      |   |            | 22,145  |   |   |            | 8,600   |  
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |           
|Total operating expenses                                                                                                                                              |                                                                                                                                                                                                                                                                                                                        |   | 34,059             |        |                   |   | 33,285     |        |      |   | 100,790    |         |   |   | 101,796    |        
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |           
|Operating income                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   | 1,262              |        |                   |   | 7,414      |        |      |   | 1,821      |         |   |   | 15,968     |        
|Other income (expense):                                                                                                                                               |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |       
|                                                                                                                                                                      | Interest income                                                                                                                                                                                                                                                                                                        |   |                    | 290    |                   |   |            | 52     |      |   |            | 1,844   |   |   |            | 114     |  
|                                                                                                                                                                      | Interest expense                                                                                                                                                                                                                                                                                                       |   |                    | (6,970 | )                 |   |            | (6,868 | )    |   |            | (19,719 | ) |   |            | (20,293 | )
|                                                                                                                                                                      | Gain (loss) on sale of assets                                                                                                                                                                                                                                                                                          |   |                    | 20,554 |                   |   |            | (97    | )    |   |            | 23,072  |   |   |            | (548    | )
|                                                                                                                                                                      | Other expense, net                                                                                                                                                                                                                                                                                                     |   |                    | (102   | )                 |   |            | (122   | )    |   |            | (264    | ) |   |            | (398    | )
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |           
|Income
      before income taxes and discontinued operations                                                                                                          |                                                                                                                                                                                                                                                                                                                        |   | 15,034             |        |                   |   | 379        |        |      |   | 6,754      |         |   |   | (5,157     | )      
|Provision (benefit) for income taxes                                                                                                                                  |                                                                                                                                                                                                                                                                                                                        |   | 5,434              |        |                   |   | 131        |        |      |   | 2,508      |         |   |   | (1,965     | )      
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |           
|Income (loss)
      before discontinued operations                                                                                                                    |                                                                                                                                                                                                                                                                                                                        |   | 9,600              |        |                   |   | 248        |        |      |   | 4,246      |         |   |   | (3,192     | )      
|Income
      (loss) from discontinued operations (including gain on sale of $17,848
net of taxes of $10,040 for the quarter and nine months ended September 30, 2002) |                                                                                                                                                                                                                                                                                                                        |   | (240               | )      |                   |   | 17,858     |        |      |   | (895       | )       |   |   | 17,871     |        
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |           
|Net income                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                        | $ | 9,360              |        |                   | $ | 18,106     |        |      | $ | 3,351      |         |   | $ | 14,679     |        
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |            |        
|Basic
      earnings per share before discontinued operations                                                                                                         |                                                                                                                                                                                                                                                                                                                        | $ | 0.41               |        |                   | $ | 0.01       |        |      | $ | 0.18       |         |   | $ | (0.13      | )      
|Income (loss) from
discontinued operations per share                                                                                                                  |                                                                                                                                                                                                                                                                                                                        |   | (0.01              | )      |                   |   | 0.76       |        |      |   | (0.04      | )       |   |   | 0.76       |        
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |            |        
|Basic net earnings per share                                                                                                                                          |                                                                                                                                                                                                                                                                                                                        | $ | 0.40               |        |                   | $ | 0.77       |        |      | $ | 0.14       |         |   | $ | 0.63       |        
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |            |        
|Diluted
      earnings per share before discontinued operations                                                                                                       |                                                                                                                                                                                                                                                                                                                        | $ | 0.41               |        |                   | $ | 0.01       |        |      | $ | 0.18       |         |   | $ | (0.14      | )      
|Income (loss) from
discontinued operations per share                                                                                                                  |                                                                                                                                                                                                                                                                                                                        |   | (0.01              | )      |                   |   | 0.76       |        |      |   | (0.04      | )       |   |   | 0.76       |        
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |            |        
|Diluted net earnings per share                                                                                                                                        |                                                                                                                                                                                                                                                                                                                        | $ | 0.40               |        |                   | $ | 0.77       |        |      | $ | 0.14       |         |   | $ | 0.62       |        
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |            |        
|Basic
      weighted average shares outstanding                                                                                                                       |                                                                                                                                                                                                                                                                                                                        |   | 23,456,499         |        |                   |   | 23,483,663 |        |      |   | 23,456,225 |         |   |   | 23,470,477
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |            |        
|Diluted
      weighted average shares outstanding                                                                                                                     |                                                                                                                                                                                                                                                                                                                        |   | 23,548,673         |        |                   |   | 23,564,626 |        |      |   | 23,515,801 |         |   |   | 23,573,149 |        
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                        |   |                    |        |                   |   |            |        |      |   |            |         |   |   |            |        

See accompanying notes

5



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

|                                                                                        |                                                     |                                                 |          |                   |        |      |         |         |        |  
|--------------------------------------------------------------------------------------- | --------------------------------------------------- | ----------------------------------------------- | -------- | ----------------- | ------ | ---- | ------- | ------- | ------ | -
|                                                                                        |                                                     |                                                 |          | Nine Months Ended
|                                                                                        |                                                     |                                                 |          | September 30,    
|                                                                                        |                                                     |                                                 |          |                  
|                                                                                        |                                                     |                                                 |          | 2001              |        | 2002
|                                                                                        |                                                     |                                                 |          |                   |        |     
|OPERATING
      ACTIVITIES                                                              |                                                     |                                                 |          |                   |        |      |         |        
|Net income                                                                              |                                                     | $                                               | 3,351    |                   |        | $    | 14,679  |        
|Adjustments to reconcile net income to net cash provided by
      operating activities: |                                                     |                                                 |          |                   |        |      |         |        
|                                                                                        | Gain on sale of discontinued operations, net of tax |                                                 |          |                  |        |      |         | (17,848 | )     
|                                                                                        | Depreciation and amortization                       |                                                 |          | 23,090            |        |      |         | 8,600  
|                                                                                        | Amortization of bond issue costs and bank loan fees |                                                 |          | 714               |        |      |         | 1,197   |       
|                                                                                        | Provision
      for bad debts                       |                                                 |          | 1,762             |        |      |         | 3,623   |       
|                                                                                        | Deferred
      income taxes                         |                                                 |          | 1,622             |        |      |         | (1,995  | )     
|                                                                                        | Gain on
      sale of assets                        |                                                 |          | (23,072           | )      |      |         | 548     |       
|                                                                                        | Changes in
      operating assets and liabilities: 
|                                                                                        |                                                     | Accounts receivable                             |          |                   | (2,747 | )    |         |         | (6,259 | )
|                                                                                        |                                                     | Prepaid
      expenses and other current assets |          |                   | (145   | )    |         |         | (267   | )
|                                                                                        |                                                     | Accounts
      payable and accrued expenses     |          |                   | 5,587  |      |         |         | 3,235  |  
|                                                                                        |                                                     | Deferred
      subscription revenue             |          |                   | (68    | )    |         |         | (46    | )
|                                                                                        |                                                     | Other liabilities                               |          |                   | 479    |      |         |         | 69     |  
|                                                                                        |                                                     | Income taxes payable                            |          |                   | (156   | )    |         |         | 90     |  
|                                                                                        |                                                     |                                                 |          |                   |        |      |        
|Net cash
      provided by operating activities                                         |                                                     |                                                 | 10,417   |                   |        |      | 5,626   |        
|                                                                                       
|INVESTING ACTIVITIES                                                                   
|Capital expenditures                                                                    |                                                     |                                                 | (22,638  | )                 |        |      | (11,192 | )      
|Deposits
      on radio station acquisitions                                            |                                                     |                                                 | (925     | )                 |        |      | (700    | )      
|Purchases
      of radio stations                                                       |                                                     |                                                 | (102,953 | )                 |        |      | (45,751 | )      
|Proceeds
      from sale of property, plant and equipment and intangible assets         |                                                     |                                                 | 131,581  |                   |        |      | 44,420 
|Other assets                                                                            |                                                     |                                                 | (1,094   | )                 |        |      | (298    | )      
|                                                                                        |                                                     |                                                 |          |                   |        |      |        
|Net cash
      provided by (used in) investing activities                               |                                                     |                                                 | 3,971    |                   |        |      | (13,521 | )      
|                                                                                       
|FINANCING ACTIVITIES                                                                   
|Proceeds
      from issuance of long-term debt and notes payable                        |                                                     |                                                 | 169,516  |                   |        |      | 40,550  |        
|Payments
      of long-term debt and notes payable                                      |                                                     |                                                 | (147,966 | )                 |        |      | (4,000  | )      
|Proceeds
      from exercise of stock options                                           |                                                     |                                                 | 33       |                   |        |      | 544     |        
|Payments
      on capital lease obligations                                             |                                                     |                                                 | (63      | )                 |        |      | (35     | )      
|Payments
      of costs related to bank credit facility and debt
    refinancing        |                                                     |                                                 | (744     | )                 |        |      | (751    | )      
|Payments
      of bond issue costs                                                      |                                                     |                                                 | (5,243   | )                 |        |      | (186    | )      
|                                                                                        |                                                     |                                                 |          |                   |        |      |        
|Net cash
      provided by financing activities                                         |                                                     |                                                 | 15,533   |                   |        |      | 36,122  |        
|                                                                                        |                                                     |                                                 |          |                   |        |      |        
|Net
      increase (decrease) in cash and cash equivalents                              |                                                     |                                                 | 29,921   |                   |        |      | 28,227  |        
|Cash and
      cash equivalents at beginning of period                                  |                                                     |                                                 | 3,928    |                   |        |      | 23,921  |        
|                                                                                        |                                                     |                                                 |          |                   |        |      |        
|Cash and
      cash equivalents at end of period                                        |                                                     | $                                               | 33,849   |                   |        | $    | 52,148  |        
|                                                                                        |                                                     |                                                 |          |                   |        |      |        
|Supplemental disclosures of cash flow information:                                      |                                                     |                                                 |          |                   |        |      |         |        
|                                                                                        | Cash paid
      during the period for:              |                                                 |          |                   |        |     
|                                                                                        |                                                     | Interest                                        |          | $                 | 13,324 |      |         | $       | 20,994 |  
|                                                                                        |                                                     | Income taxes                                    |          |                   | 407    |      |         |         | 200    |  

See accompanying notes

6



---



SALEM COMMUNICATIONS CORPORATIONNOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

Information with respect to
the three months and nine months ended September 30, 2002 and 2001 is unaudited.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles (GAAP) 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 the 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 nine months
ended September 30, 2002:

|                  |  |                             |  |                    |  |                        |        |         |  | 
|----------------- |  | --------------------------- |  | ------------------ |  | ---------------------- | ------ | ------- |  | 
|                  |  |                             |  |                    |  | Allocated             
|                  |  |                             |  |                    |  | Purchase               |        | Format 
|Acquisition Date  |  | Station                     |  | Market Served      |  | Price                  |        | Changed
|                  |  |                             |  |                    |  |                        |        |         | 
|                  |  |                             |  |                    |  | (Dollars in thousands)
|January 12, 2002  |  | KLNA-FM
      (now KKFS-FM) |  | Sacramento, CA     |  | $                      | 8,675  |         |  | 
|February 15, 2002 |  | KIKN-AM                     |  | Seattle,
      WA  |  |                        | 525    |         |  | 
|May 2, 2002       |  | KJUN-FM
      (now KFIS-FM) |  | Portland,
      OR |  |                        | 35,800 |         |  | 
|August 13, 2002   |  | KJPN-AM (now KHCM-AM)       |  | Honolulu,
      HI |  |                        | 650    |         |  | 
|                  |  |                             |  |                    |  |                        |        |        
|                  |  |                             |  |                    |  | $                      | 45,650 |         |  | 
|                  |  |                             |  |                    |  |                        |        |        

On
December 6, 2000, Gospel Communications International (GCI) made a demand for
arbitration upon us, as disclosed in our annual report on Form 10K for the year
ended December 31, 2001 and our quarterly reports on Form 10Q for the quarters
ended March 31, 2002 and June 30, 2002. On July 15, 2002, we reached a
confidential settlement with GCI for $2.3 million. We paid $0.3 million during the
third quarter of 2002 and paid the remaining $2.0 million on October 4, 2002.

On August 1, 2002, we
entered into an agreement to acquire the assets of radio stations WRLGFM and
WYYBFM in Nashville, Tennessee, for $5.6 million in cash. We began to operate
both stations under a local marketing agreement on August 5, 2002. We anticipate
this transaction to close in the fourth quarter of 2002.

On September 30, 2002, the
company sold the assets of radio station WYGYFM, Cincinnati, Ohio for $45.0
million. Of the proceeds, $30.0 million was placed in an account with a
qualified intermediary under a likekind exchange agreement in order to preserve
our ability to effect a tax-deferred exchange. The sale of WYGYFM was treated as a
discontinued operation, and accordingly, the gain on the sale of
the assets of WYGYFM of $17.9 million (net of deferred taxes of $10.1 million)
and the operations of WYGYFM were reflected net in income (loss) from
discontinued operations in the accompanying statement of operations.
All prior periods were restated to reflect the operations of WYGYFM net in
income (loss) from discontinued operations to be consistent with
the current period presentation.

On October 4, 2002, the company
acquired the assets of the Internet portal operations of Crosswalk.com for
$4.1 million. We began to operate Crosswalk.com pursuant to a local marketing
agreement on September 3, 2002.

7



---



NOTE 3. ACCOUNTING CHANGE - GOODWILL AND OTHER INTANGIBLE ASSETS

Statement of Financial
Accounting Standards No. 145

The Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections, on April 30, 2002.
SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses
from extinguishments of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. Upon adoption of SFAS No. 145,
companies will be required to apply the criteria in Accounting Principles Board
(APB) Opinion No. 30,
Reporting the Results of Operations, Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions (Opinion No. 30), in determining the classification of
gains and losses resulting from the extinguishments of debt.

Additionally, SFAS No. 145
amends SFAS No. 13 to require that certain lease modifications that have
economic effects similar to sale-leaseback transactions be accounted for in the
same manner as sale-leaseback transactions.

SFAS No. 145 becomes effective
for fiscal years beginning after May 15, 2002 (e.g., January 1, 2003 for
calendaryear companies), with early adoption of the provisions related to the
rescission of SFAS No. 4 encouraged. Upon adoption, companies are required to
reclassify prior period items that do not meet the extraordinary item
classification criteria in Opinion No. 30. The company has not determined the
effect that SFAS No. 145 will have on its consolidated financial
statements.

Statements of Financial
Accounting Standards Nos. 141 & 142

In June 2001, the FASB
issued SFAS No. 141, Business Combinations, and SFAS 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. FCC broadcast licenses
are considered indefinitelived intangible assets. 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. 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 which resulted in no impairment charge.

8



---



The following table provides
a reconciliation of reported net income for the three months and nine months
ended September 30, 2001 to net income that would have been reported had SFAS
No. 142 been applied as of January 1, 2001:

|                                            |                                                                         |   |                                              |       |                    |   |        |       | 
|------------------------------------------- | ----------------------------------------------------------------------- | - | -------------------------------------------- | ----- | ------------------ | - | ------ | ----- | 
|                                            |                                                                         |   |                                             
|                                            |                                                                         |   | Three Months Ended                           |       | Nine Months Ended 
|                                            |                                                                         |   | September 30, 2001                           |       | September 30, 2001
|                                            |                                                                         |   |                                             
|                                            |                                                                         |   | (Dollars in thousands,except per share data)
|                                            |                                                                         |   |                                             
|Reported
      net income                   |                                                                         | $ | 9,360                                        |       |                    | $ | 3,351  |      
|                                            | Add back
      goodwill and broadcast licenses amortization, net of tax |   |                                              | 3,372 |                    |   |        | 9,908 | 
|                                            |                                                                         |   |                                              |       |                    |   |       
|Adjusted
      net income                   |                                                                         | $ | 12,732                                       |       |                    | $ | 13,259 |      
|                                            |                                                                         |   |                                              |       |                    |   |        |      
|Basic and
      diluted earnings per share: |                                                                         |   |                                              |       |                    |   |        |      
|                                            | As reported                                                             | $ | 0.40                                         |       |                    | $ | 0.14   |      
|                                            | Goodwill
      and broadcast license amortization, net of tax           |   | 0.14                                         |       |                    |   | 0.43   |      
|                                            |                                                                         |   |                                              |       |                    |   |        |      
|As adjusted                                 |                                                                         | $ | 0.54                                         |       |                    | $ | 0.57   |      
|                                            |                                                                         |   |                                              |       |                    |   |        |      

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 September 30, 2002
|                                    |  |                         
|                                    |  |                          |                        |        |              |   | Accumulated
|                                    |  |                          | Cost                   |        | Amortization |   | Net        
|                                    |  |                          |                        |        |              |   |            
|                                    |  |                          | (Dollars in thousands)
|                                    |  |                          |                       
|Noncompetition agreements           |  | $                        | 12,618                 |        |              | $ | (12,206     | )       |   | $ | 412  
|Customer
      lists and contracts  |  |                          | 7,094                  |        |              |   | (4,158      | )       |   |   | 2,936
|Favorable
      and assigned leases |  |                          | 1,800                  |        |              |   | (1,185      | )       |   |   | 615  
|Other
      intangible assets       |  |                          | 2,441                  |        |              |   | (1,850      | )       |   |   | 591  
|                                    |  |                          |                        |        |              |   |             |         |   |   |       |      
|                                    |  |                          | $                      | 23,953 |              |   | $           | (19,399 | ) |   | $     | 4,554
|                                    |  |                          |                        |        |              |   |             |         |   |   |       |      

9



---



Based on the amortizable
intangible assets as of September 30, 2002, we estimate amortization expense for
the next five years to be as follows:

|                         |  |                        |      
|------------------------ |  | ---------------------- | -----
|Year Ending December 31, |  | Amortization Expense  
|                         |  |                       
|                         |  | (Dollars in thousands)
|2003                     |  | $                      | 1,220
|2004                     |  |                        | 1,193
|2005                     |  |                        | 942  
|2006                     |  |                        | 394  
|2007                     |  |                        | 137  

NOTE 4. BASIC AND DILUTED EARNINGS PER SHARE

Basic earnings per share is
computed by dividing net earnings by the weighted average number of shares of
common stock outstanding. Diluted earnings per share is computed by dividing net
earnings by the weighted average number of shares of common stock and when
dilutive, common stock share equivalents outstanding. Options to purchase
492,380 and 566,460 shares of Class A common stock were outstanding as of
September 30, 2001 and 2002, respectively.

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

|                                                    |                                                                            |   |                                               |            |  |                   |        |            |      |   |        |            |  |   |         |            | 
|--------------------------------------------------- | -------------------------------------------------------------------------- | - | --------------------------------------------- | ---------- |  | ----------------- | ------ | ---------- | ---- | - | ------ | ---------- |  | - | ------- | ---------- | 
|                                                    |                                                                            |   | Three Months Ended                            |            |  | Nine Months Ended
|                                                    |                                                                            |   | September 30,                                 |            |  | September 30,    
|                                                    |                                                                            |   |                                               |            |  |                  
|                                                    |                                                                            |   | 2001                                          |            |  | 2002              |        |            | 2001 |   |        | 2002      
|                                                    |                                                                            |   |                                               |            |  |                   |        |            |      |   |        |           
|                                                    |                                                                            |   | (Dollars in thousands, except per share data)
|Numerator:                                         
|                                                    | Net income                                                                 |   | $                                             | 9,360      |  |                   | $      | 18,106     |      |   | $      | 3,351      |  |   | $       | 14,679     | 
|Denominator for basic earnings per share:          
|                                                    | Weighted average shares outstanding                                        |   |                                               | 23,456,499 |  |                   |        | 23,483,663 |      |   |        | 23,456,225 |  |   |         | 23,470,477 | 
|                                                   
|Effect of
      dilutive securities  stock options |                                                                            |   | 92,174                                        |            |  |                   | 80,963 |            |      |   | 59,576 |            |  |   | 102,672
|                                                    |                                                                            |   |                                               |            |  |                   |        |            |      |   |        |            |  |   |        
|Denominator for diluted earnings per share          |                                                                            |   |                                               |            |  |                   |        |            |      |   |        |            |  |   |         |           
|                                                    | Weighted
      average shares outstanding adjusted for dilutive securities |   |                                               | 23,548,673 |  |                   |        | 23,564,626 |      |   |        | 23,515,801 |  |   |         | 23,573,149
|                                                    |                                                                            |   |                                               |            |  |                   |        |            |      |   |        |            |  |   |        
|Basic earnings per share                            |                                                                            | $ | 0.40                                          |            |  | $                 | 0.77   |            |      | $ | 0.14   |            |  | $ | 0.63    |           
|                                                    |                                                                            |   |                                               |            |  |                   |        |            |      |   |        |            |  |   |        
|Diluted earnings per share                          |                                                                            | $ | 0.40                                          |            |  | $                 | 0.77   |            |      | $ | 0.14   |            |  | $ | 0.62    |           
|                                                    |                                                                            |   |                                               |            |  |                   |        |            |      |   |        |            |  |   |        

10



---



NOTE 5. DERIVATIVE INSTRUMENTS

We are exposed to
fluctuations in interest rates. We actively monitor these fluctuations and use
derivative instruments from time to time to manage the related risk. In
accordance with our risk management strategy, we use derivative instruments
only for the purpose of managing risk associated with an asset, liability,
committed transaction, or probable forecasted transaction that is
identified by management. Our use of derivative instruments may result in
short-term gains or losses and may increase volatility in our earnings.

We had one interest rate
swap agreement outstanding as of September 30, 2002, which is used to manage our
exposure to changes in the fair value of a recognized asset or liability that
may result due to changes in interest rates. The counter party to this interest
rate swap agreement is a major financial institution. Although we are exposed
to credit loss in the event of nonperformance by the counter party, we do not
anticipate nonperformance by the counter party nor would we expect any such
loss to be material.

On January 1, 2001, we
adopted SFAS No. 133, as amended, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS
No. 137, Accounting for Derivative Instruments and Hedging
ActivitiesDeferral of the Effective Date of SFAS No. 133,
and SFAS No. 138, Accounting for Certain Derivative Instruments
and Certain Hedging Activities. SFAS No. 133, as amended,
requires all derivative instruments to be measured at fair value and recognized
as either assets or liabilities. In addition, all derivative instruments used
in hedging transactions must be designated, reassessed and documented
pursuant to the provisions of SFAS No. 133, as amended.

Under Statement No. 133, as
amended, the accounting for changes in the fair value of a derivative instrument
at each new measurement date is dependent upon its intended use. The change in
the fair value of a derivative instrument designated as a hedge of the exposure
to changes in the fair value of a recognized asset or liability or a firm
commitment, referred to as a fair value hedge, is recognized as gain or loss in
earnings in the period of the change together with an offsetting gain or loss
on the hedged item attributable to the risk being hedged. The differential paid
or received on the interest rate swap is recognized in earnings as an adjustment
to interest expense.

At September 30, 2002, an
interest rate swap agreement with a notional principal amount of $66.0 million
was outstanding. This agreement expires in 2011 when the 9% notes mature, and
effectively swaps the 9.0% fixed interest rate on $66.0 million of our debt
for a floating rate equal to the LIBOR rate plus 3.09%. The estimated fair
value of this swap agreement and the change in fair value of the debt hedged by
the swap, based on current market rates, was $6.5 million
at September 30, 2002. The fair value of the swap agreement is included with
long-term assets, and the change in fair value of the debt hedged by the swap is
recorded in long-term debt consistent with
the maturity date of the swap. Because this fair value hedge is 100% effective
(that is, the change in the fair value of the hedge instrument is designed to be equal to the
change in the fair value of the item being hedged), there was no income statement
effect relative to the change in the fair value of the swap agreement. Interest expense
for the quarter ended September 30, 2002 was reduced by $0.6 million as a result
of the 9.0% fixed interest rate on our debt and the floating interest rate under
the swap agreement, which was 5.04% for the quarter ended September 30, 2002.

NOTE 6. CONTINGENCIES

Incident to our business
activities, we are party to legal proceedings, lawsuits and other claims. 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.

NOTE 7. SUBSEQUENT EVENTS

On October 4, 2002, the company
acquired the assets of the Internet portal operations of Crosswalk.com for
$4.1 million. We began to operate Crosswalk.com pursuant to a local marketing
agreement on September 3, 2002.

11



---



NOTE 8. 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 - which includes our talk and
music formats and our various radio networks. The remaining non-reportable
segments consist of OnePlace, LLC (OnePlace) and CCM Communications, Inc. (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.

Management uses operating
income before depreciation and amortization as its measure of profitability for
purposes of assessing performance and allocating resources. For our broadcast
segment, this represents broadcast cash flow. The legal settlement is not
considered by the Chief Operating Decision Maker when evaluating performance.

|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |   |  |   |         |   | 
|------------------------------------------------------------------------- | ------------------ | - | ---------------------- | - | ------------------ | - | ------ | - | ---- | - | ------- | - |  | - | ------- | - | 
|                                                                          |                    |   | Three Months Ending    |   | Nine Months Ending
|                                                                          |                    |   | September 30,          |   | September 30,     
|                                                                          |                    |   |                        |   |                   
|                                                                          |                    |   | 2001                   |   | 2002               |   | 2001   |   | 2002
|                                                                          |                    |   |                        |   |                    |   |        |   |     
|                                                                          |                    |   | (Dollars in thousands)
|                                                                         
|Net revenue                                                              
|                                                                          | Radio broadcasting | $ | 33,269                 |   |                    | $ | 38,664 |   |      | $ | 96,623  |   |  | $ | 112,178 |  
|                                                                          | Other media        |   | 2,084                  |   |                    |   | 2,565  |   |      |   | 6,328   |   |  |   | 6,116   |  
|                                                                          | Eliminations       |   | (32                    | ) |                    |   | (530   | ) |      |   | (340    | ) |  |   | (530    | )
|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |  
|Consolidated net revenue                                                  |                    | $ | 35,321                 |   |                    | $ | 40,699 |   |      | $ | 102,611 |   |  | $ | 117,764 |  
|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |  
|                                                                         
|Operating
      expenses (excluding depreciation and amortization)       
|                                                                          | Radio broadcasting | $ | 21,286                 |   |                    | $ | 27,303 |   |      | $ | 61,557  |   |  | $ | 76,604  |  
|                                                                          | Other media        |   | 2,194                  |   |                    |   | 2,450  |   |      |   | 7,342   |   |  |   | 8,485   |  
|                                                                          | Corporate          |   | 3,249                  |   |                    |   | 3,882  |   |      |   | 10,484  |   |  |   | 11,300  |  
|                                                                          | Eliminations       |   | (215                   | ) |                    |   | (3,193 | ) |      |   | (738    | ) |  |   | (3,193  | )
|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |  
|Consolidated operating expenses (excluding depreciation and amortization) |                    | $ | 26,514                 |   |                    | $ | 30,442 |   |      | $ | 78,645  |   |  | $ | 93,196  |  
|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |  
|                                                                         
|Operating
      income before depreciation and amortization              
|                                                                          | Radio broadcasting | $ | 11,983                 |   |                    | $ | 11,361 |   |      | $ | 35,066  |   |  | $ | 35,574  |  
|                                                                          | Other media        |   | (110                   | ) |                    |   | 115    |   |      |   | (1,014  | ) |  |   | (2,369  | )
|                                                                          | Corporate          |   | (3,249                 | ) |                    |   | (3,882 | ) |      |   | (10,484 | ) |  |   | (11,300 | )
|                                                                          | Eliminations       |   | 183                    |   |                    |   | 2,663  |   |      |   | 398     |   |  |   | 2,663  
|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |  
|Consolidated
operating income before depreciation and amortization        |                    | $ | 8,807                  |   |                    | $ | 10,257 |   |      | $ | 23,966  |   |  | $ | 24,568  |  
|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |  
|                                                                         
|Depreciation expense                                                     
|                                                                          | Radio broadcasting | $ | 1,635                  |   |                    | $ | 2,128  |   |      | $ | 4,198   |   |  | $ | 6,364   |  
|                                                                          | Other media        |   | 128                    |   |                    |   | 104    |   |      |   | 557     |   |  |   | 319    
|                                                                          | Corporate          |   | 129                    |   |                    |   | 150    |   |      |   | 738     |   |  |   | 381     |  
|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |  
|Consolidated depreciation expense                                         |                    | $ | 1,892                  |   |                    | $ | 2,382  |   |      | $ | 5,493   |   |  | $ | 7,064   |  
|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |  
|                                                                         
|Amortization expense                                                     
|                                                                          | Radio broadcasting | $ | 5,392                  |   |                    | $ | 398    |   |      | $ | 15,870  |   |  | $ | 1,345  
|                                                                          | Other media        |   | 261                    |   |                    |   | 63     |   |      |   | 782     |   |  |   | 191     |  
|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |  
|Consolidated amortization expense                                         |                    | $ | 5,653                  |   |                    | $ | 461    |   |      | $ | 16,652  |   |  | $ | 1,536  
|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |  
|                                                                         
|Operating income                                                         
|                                                                          | Radio broadcasting | $ | 4,956                  |   |                    | $ | 8,835  |   |      | $ | 14,998  |   |  | $ | 27,865 
|                                                                          | Other media        |   | (499                   | ) |                    |   | (52    | ) |      |   | (2,353  | ) |  |   | (2,879  | )
|                                                                          | Corporate          |   | (3,378                 | ) |                    |   | (4,032 | ) |      |   | (11,222 | ) |  |   | (11,681 | )
|                                                                          | Eliminations       |   | 183                    |   |                    |   | 2,663  |   |      |   | 398     |   |  |   | 2,663   |  
|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |  
|Consolidated operating income                                             |                    | $ | 1,262                  |   |                    | $ | 7,414  |   |      | $ | 1,821   |   |  | $ | 15,968  |  
|                                                                          |                    |   |                        |   |                    |   |        |   |      |   |         |  

12



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|                                                |                    |   |                        |  |               |   |        |  | 
|----------------------------------------------- | ------------------ | - | ---------------------- |  | ------------- | - | ------ |  | 
|                                                |                    |   | December 31,           |  | September 30,
|                                                |                    |   | 2001                   |  | 2002         
|                                                |                    |   |                        |  |              
|                                                |                    |   | (Dollars in thousands)
|                                               
|Total
      property, plant and equipment, net 
|                                                | Radio broadcasting | $ | 89,358                 |  |               | $ | 93,133
|                                                | Other media        |   | 1,668                  |  |               |   | 1,099 
|                                                | Corporate          |   | 2,061                  |  |               |   | 2,486 
|                                                |                    |   |                        |  |               |  
|Consolidated property, plant and equipment, net |                    | $ | 93,087                 |  |               | $ | 96,718
|                                                |                    |   |                        |  |               |  
|                                               

The following table
reconciles operating income before depreciation and amortization to income
before income taxes and discontinued operations:

|                                                            |                                                        |   |                        |   |  |                    |        |   |      |   |         |      |  |   |         |   | 
|----------------------------------------------------------- | ------------------------------------------------------ | - | ---------------------- | - |  | ------------------ | ------ | - | ---- | - | ------- | ---- |  | - | ------- | - | 
|                                                           
|                                                            |                                                        |   | Three Months Ending    |   |  | Nine Months Ending
|                                                            |                                                        |   | September 30,          |   |  | September 30,     
|                                                            |                                                        |   |                        |   |  |                   
|                                                            |                                                        |   | 2001                   |   |  | 2002               |        |   | 2001 |   |         | 2002
|                                                            |                                                        |   |                        |   |  |                    |        |   |      |   |         |     
|                                                            |                                                        |   | (Dollars in thousands)
|                                                           
|Operating
      income before depreciation and amortization |                                                        | $ | 8,808                  |   |  | $                  | 10,257 |   |      | $ | 23,966  |      |  | $ | 24,568  |  
|Depreciation                                                |                                                        |   | (1,892                 | ) |  |                    | (2,382 | ) |      |   | (5,493  | )    |  |   | (7,064  | )
|Amortization                                                |                                                        |   | (5,653                 | ) |  |                    | (461   | ) |      |   | (16,652 | )    |  |   | (1,536  | )
|Interest income                                             |                                                        |   | 290                    |   |  |                    | 52     |   |      |   | 1,844   |      |  |   | 114     |  
|Gain (loss) on sale of assets                               |                                                        |   | 20,554                 |   |  |                    | (97    | ) |      |   | 23,072  |      |  |   | (548    | )
|Interest expense                                            |                                                        |   | (6,970                 | ) |  |                    | (6,868 | ) |      |   | (19,719 | )    |  |   | (20,293 | )
|Other expense, net                                          |                                                        |   | (102                   | ) |  |                    | (122   | ) |      |   | (264    | )    |  |   | (398    | )
|                                                            |                                                        |   |                        |   |  |                    |        |   |      |   |         |     
|                                                            | Income before income taxes
and discontinued operations | $ | 15,035                 |   |  | $                  | 379    |   |      | $ | 6,754   |      |  | $ | (5,157  | )
|                                                            |                                                        |   |                        |   |  |                    |        |   |      |   |         |     

13



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NOTE 9. CONSOLIDATING FINANCIAL STATEMENTS

The following is the unaudited
consolidating information for Salem Communications 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 and
OnePlace (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 for HoldCo 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 September 30, 2002
|                                             |                                           |   |                         
|                                             |                                           |   |                          |     | Issuer and  
|                                             |                                           |   |                          |     | Guarantor   
|                                             |                                           |   | Guarantors               |     | Subsidiaries
|                                             |                                           |   |                          |     |             
|                                             |                                           |   |                          |     |              |   |         |       |        |   | Other       |       |              |   |         |        |  |   |          |      | Salem |  
|                                             |                                           |   | Parent                   |     | AcqCo        |   | Media   |       | HoldCo |   | Adjustments |       | Consolidated |  
|                                             |                                           |   |                          |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |      |       |   |         |       
|Current assets:                              |                                           |   |                          |     |              |   |         |       |        |   |            
|                                             | Cash and cash equivalents                 |   | $                        | 47  |              |   | $       | 1,430 |        |   | $           | (96   | )            |   | $       | 50,767 |  |   | $        |     |       |   | $       | 52,148
|                                             | Accounts receivable                       |   |                          |    |              |   |         | 1,944 |        |   |             | 1,694 |              |   |         | 26,695 |  |   |          |     |       |   |         | 30,333 | 
|                                             | Other receivables                         |   |                          |    |              |   |         | 5     |        |   |             | 122   |              |   |         | 1,081  |  |   |          |     |       |   |         | 1,208 
|                                             | Prepaid expenses                          |   |                          |    |              |   |         | (48   | )      |   |             | 173   |              |   |         | 1,959  |  |   |          |     |       |   |         | 2,084  | 
|                                             | Due from stockholders                     |   |                          |    |              |   |         |      |        |   |             |      |              |   |         | 167    |  |   |          |     |       |   |         | 167   
|                                             | Deferred income taxes                     |   |                          | 993 |              |   |         | 10    |        |   |             | 1     |              |   |         | 2,073  |  |   |          | (237 | )     |   |         | 2,840  | 
|                                             |                                           |   |                          |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |      |       |   |         |       
|Total current assets                         |                                           |   | 1,040                    |     |              |   | 3,341   |       |        |   | 1,894       |       |              |   | 82,742  |        |  |   | (237     | )    |       |   | 88,780 
|Property, plant, equipment and software, net |                                           |   |                         |     |              |   | 4,856   |       |        |   | 1,614       |       |              |   | 90,248  |        |  |   |         |      |       |   | 96,718  |       
|Intangible assets, net                       |                                           |   |                         |     |              |   | 93,620  |       |        |   | 5,558       |       |              |   | 272,833 |        |  |   |         |      |       |   | 372,011
|Bond issue costs                             |                                           |   |                         |     |              |   |        |       |        |   |            |       |              |   | 7,136   |        |  |   |         |      |       |   | 7,136   |       
|Fair value of interest swap agreement        |                                           |   |                         |     |              |   |        |       |        |   |            |       |              |   | 6,465   |        |  |   |         |      |       |   | 6,465   |       
|Due from stockholders                        |                                           |   |                         |     |              |   |        |       |        |   |            |       |              |   | 123     |        |  |   |         |      |       |   | 123     |       
|Intercompany receivables                     |                                           |   | 254,127                  |     |              |   |        |       |        |   | (2,047      | )     |              |   | 133,398 |        |  |   | (385,478 | )    |       |   |       
|Other assets                                 |                                           |   |                         |     |              |   |        |       |        |   | 581         |       |              |   | 6,065   |        |  |   |         |      |       |   | 6,646   |       
|                                             |                                           |   |                          |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |      |       |   |         |       
|Total assets                                 |                                           | $ | 255,167                  |     |              | $ | 101,817 |       |        | $ | 7,600       |       |              | $ | 599,010 |        |  | $ | (385,715 | )    |       | $ | 577,879 |       
|                                             |                                           |   |                          |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |      |       |   |        
|Current liabilities:                         |                                           |   |                          |     |             
|                                             | Accounts payable and accrued expenses     |   | $                        |    |              |   | $       | 345   |        |   | $           | 2,714 |              |   | $       | 4,158  |  |   | $        |     |       |   | $       | 7,217  | 
|                                             | Accrued compensation and related expenses |   |                          | 2   |              |   |         | 230   |        |   |             | 343   |              |   |         | 4,956  |  |   |          |     |       |   |         | 5,531  | 
|                                             | Accrued interest                          |   |                          |    |              |   |         |      |        |   |             |      |              |   |         | 8,924  |  |   |          |     |       |   |         | 8,924  | 
|                                             | Deferred subscription revenue             |   |                          |    |              |   |         |      |        |   |             | 1,404 |              |   |         | 8      |  |   |          |     |       |   |         | 1,412  | 
|                                             | Income taxes payable                      |   |                          | (4  | )            |   |         |      |        |   |             |      |              |   |         | 139    |  |   |          |     |       |   |         | 135    | 
|                                             | Current maturities of long-term debt      |   |                          |    |              |   |         |      |        |   |             | 3     |              |   |         | 648    |  |   |          |     |       |   |         | 651    | 
|                                             |                                           |   |                          |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |      |       |   |         |       
|Total current liabilities                    |                                           |   | (2                       | )   |              |   | 575     |       |        |   | 4,464       |       |              |   | 18,833  |        |  |   |         |      |       |   | 23,870  |       
|Intercompany payables                        |                                           |   | 116,396                  |     |              |   | 1,041   |       |        |   | 32,842      |       |              |   | 32,198  |        |  |   | (182,477 | )    |       |   |        |       
|Long-term debt                               |                                           |   |                         |     |              |   |        |       |        |   |            |       |              |   | 354,673 |        |  |   |         |      |       |   | 354,673 |       
|Deferred income taxes                        |                                           |   | 1,572                    |     |              |   | 419     |       |        |   | (194        | )     |              |   | 27,244  |        |  |   | (3,834   | )    |       |   | 25,207  |       
|Other liabilities                            |                                           |   |                         |     |              |   |        |       |        |   |            |       |              |   | 1,535   |        |  |   |         |      |       |   | 1,535   |       
|Stockholders equity                         |                                           |   | 137,201                  |     |              |   | 99,782  |       |        |   | (29,512     | )     |              |   | 164,527 |        |  |   | (199,404 | )    |       |   | 172,594 |       
|                                             |                                           |   |                          |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |      |       |   |         |       
|Total liabilities and stockholders equity   |                                           | $ | 255,167                  |     |              | $ | 101,817 |       |        | $ | 7,600       |       |              | $ | 599,010 |        |  | $ | (385,715 | )    |       | $ | 577,879 |       
|                                             |                                           |   |                          |     |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |      |       |   |         |       

14



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SALEM COMMUNICATIONS CORPORATION
CONSOLIDATING INCOME STATEMENT
(IN THOUSANDS)
(UNAUDITED)

|                                                              |                                 |   |                                      |        |              |   |       |       |        |   |             |        |              |   |         |         |   |   |      |        |       |   |         |         |  
|------------------------------------------------------------- | ------------------------------- | - | ------------------------------------ | ------ | ------------ | - | ----- | ----- | ------ | - | ----------- | ------ | ------------ | - | ------- | ------- | - | - | ---- | ------ | ----- | - | ------- | ------- | -
|                                                              |                                 |   | Nine Months Ended September 30, 2002
|                                                              |                                 |   |                                     
|                                                              |                                 |   |                                      |        | Issuer and  
|                                                              |                                 |   |                                      |        | Guarantor   
|                                                              |                                 |   | Guarantors                           |        | Subsidiaries
|                                                              |                                 |   |                                      |        |             
|                                                              |                                 |   |                                      |        |              |   |       |       |        |   | Other       |        |              |   |         |         |   |   |      |        | Salem |  
|                                                              |                                 |   | Parent                               |        | AcqCo        |   | Media |       | HoldCo |   | Adjustments |        | Consolidated |  
|                                                              |                                 |   |                                      |        |              |   |       |       |        |   |             |        |             
|Gross broadcasting revenue                                    |                                 | $ |                                     |        |              | $ | 7,993 |       |        | $ |            |        |              | $ | 115,143 |         |   | $ | (582 | )      |       | $ | 122,554 |        
|Less agency commissions                                       |                                 |   |                                     |        |              |   | 599   |       |        |   |            |        |              |   | 9,777   |         |   |   |     |        |       |   | 10,376  |        
|                                                              |                                 |   |                                      |        |              |   |       |       |        |   |             |        |              |   |         |         |   |   |      |        |       |   |         |        
|Net broadcasting revenue                                      |                                 |   |                                     |        |              |   | 7,394 |       |        |   |            |        |              |   | 105,366 |         |   |   | (582 | )      |       |   | 112,178 |        
|Other media revenue                                           |                                 |   |                                     |        |              |   |      |       |        |   | 5,733       |        |              |   |        |         |   |   | (147 | )      |       |   | 5,586   |        
|                                                              |                                 |   |                                      |        |              |   |       |       |        |   |             |        |              |   |         |         |   |   |      |        |       |   |         |        
|Total revenue                                                 |                                 |   |                                     |        |              |   | 7,394 |       |        |   | 5,733       |        |              |   | 105,366 |         |   |   | (729 | )      |       |   | 117,764 |        
|Operating expenses:                                          
|                                                              | Broadcasting operating expenses |   |                                      |       |              |   |       | 5,757 |        |   |             |       |              |   |         | 68,816  |   |   |      | (590   | )     |   |         | 73,983  |  
|                                                              | Other media operating expenses  |   |                                      |       |              |   |       |      |        |   |             | 5,802  |              |   |         |        |   |   |      | (189   | )     |   |         | 5,613   |  
|                                                              | Corporate expenses              |   |                                      |       |              |   |       | 6     |        |   |             |       |              |   |         | 11,294  |   |   |      |       |       |   |         | 11,300  |  
|                                                              | Legal settlement                |   |                                      |       |              |   |       |      |        |   |             | 2,300  |              |   |         |        |   |   |      |       |       |   |         | 2,300   |  
|                                                              | Depreciation and amortization   |   |                                      |       |              |   |       | 292   |        |   |             | 508    |              |   |         | 7,800   |   |   |      |       |       |   |         | 8,600   |  
|                                                              |                                 |   |                                      |        |              |   |       |       |        |   |             |        |              |   |         |         |   |   |      |        |       |   |         |        
|Total operating expenses                                      |                                 |   |                                     |        |              |   | 6,055 |       |        |   | 8,610       |        |              |   | 87,910  |         |   |   | (779 | )      |       |   | 101,796 |        
|                                                              |                                 |   |                                      |        |              |   |       |       |        |   |             |        |              |   |         |         |   |   |      |        |       |   |         |        
|Net operating income (loss)                                   |                                 |   |                                     |        |              |   | 1,339 |       |        |   | (2,877      | )      |              |   | 17,456  |         |   |   | 50   |        |       |   | 15,968  |        
|Other income (expense):                                       |                                 |   |                                      |       
|                                                              | Interest income                 |   |                                      |       |              |   |       | 10    |        |   |             | 37     |              |   |         | 9,033   |   |   |      | (8,966 | )     |   |         | 114     |  
|                                                              | Interest expense                |   |                                      | (7,151 | )            |   |       |      |        |   |             | (1,294 | )            |   |         | (20,814 | ) |   |      | 8,966  |       |   |         | (20,293 | )
|                                                              | Gain (loss) on sale of assets   |   |                                      |       |              |   |       | (212  | )      |   |             | (29    | )            |   |         | (307    | ) |   |      |       |       |   |         | (548    | )
|                                                              | Other expense                   |   |                                      |       |              |   |       |      |        |   |             |       |              |   |         | (398    | ) |   |      |       |       |   |         | (398    | )
|                                                              |                                 |   |                                      |        |              |   |       |       |        |   |             |        |              |   |         |         |   |   |      |        |       |   |         |        
|Income (loss) before income taxes and discontinued operations |                                 |   | (7,151                               | )      |              |   | 1,137 |       |        |   | (4,163      | )      |              |   | 4,970   |         |   |   | 50   |        |       |   | (5,157  | )       |  
|Provision (benefit) for income taxes                          |                                 |   | (2,860                               | )      |              |   | 409   |       |        |   | (1,665      | )      |              |   | 2,314   |         |   |   | (163 | )      |       |   | (1,965  | )      
|                                                              |                                 |   |                                      |        |              |   |       |       |        |   |             |        |              |   |         |         |   |   |      |        |       |   |         |        
|Income (loss) before discontinued operations                  |                                 |   | (4,291                               | )      |              |   | 728   |       |        |   | (2,498      | )      |              |   | 2,656   |         |   |   | 213  |        |       |   | (3,192  | )       |  
|Income (loss) from discontinued operations, net of tax        |                                 |   |                                     |        |              |   |      |       |        |   |            |        |              |   | 17,871  |         |   |   |     |        |       |   | 17,871  |        
|                                                              |                                 |   |                                      |        |              |   |       |       |        |   |             |        |              |   |         |         |   |   |      |        |       |   |         |        
|Net income (loss)                                             |                                 | $ | (4,291                               | )      |              | $ | 728   |       |        | $ | (2,498      | )      |              | $ | 20,527  |         |   | $ | 213  |        |       | $ | 14,679  |        
|                                                              |                                 |   |                                      |        |              |   |       |       |        |   |             |        |              |   |         |         |   |   |      |        |       |   |         |        

15



---



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 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. After completing our pending
transactions, we will own and operate 85 radio stations, including 55 stations
in 22 of the top 25 markets. 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 networks ability to produce results
for their 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 networks 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.

16



---



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
the 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.

NON-GAAP FINANCIAL MEASURES

The performance of a radio
broadcasting company is customarily measured by the ability of its stations to
generate broadcast cash flow, EBITDA and free cash flow. We define broadcast
cash flow as operating income, excluding other media revenue and other media
operating expenses, before depreciation and amortization and corporate expenses.
We define EBITDA as operating income before depreciation and amortization.
We define free 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, less maintenance capital expenditures and excluding
one-time items. We define maintenance capital expenditures as capital
expenditures that are not acquisition related or revenue producing
expenditures.

Although broadcast cash
flow, EBITDA and free cash flow are not measures of performance calculated in
accordance with GAAP, each measure should be
viewed as a supplement to and not a substitute for our results of operations
presented on the basis of GAAP. We use these financial measures because management
believes they are useful for all investors and users of our financial statements
in understanding our cash flows. Management believes
that broadcast cash flow, EBITDA and free cash flow are useful because they are
generally recognized by the radio broadcasting industry as measures of
performance and are used by investors and by analysts who report on the
performance of broadcast companies. Broadcast cash flow, EBITDA, and free cash
flow are generally recognized as tools in measuring performance and in applying
valuation methodologies for companies in the
media, entertainment and communications industries. Broadcast cash flow, EBITDA
and free cash flow do not purport to represent cash provided by operating
activities. Our statement of cash flows presents our
cash flow activity and our income statement presents our historical performance
prepared in accordance with generally accepted accounting principles. Our broadcast cash
flow, EBITDA and free cash flow are not necessarily comparable to similarly
titled measures employed by other companies.

SAME STATION DEFINITION

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
and networks 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.

17



---



RESULTS OF OPERATIONS

Quarter ended September 30, 2002 compared to quarter ended
September 30, 2001

NET BROADCASTING
REVENUE.      Net broadcasting revenue
increased $5.3 million or 15.9% to $38.7 million for the quarter ended September
30, 2002 from $33.3 million for the same quarter of the prior year. The growth
is attributable to the increase in net revenue at radio stations we acquired in
2000 and 2001 that previously operated with formats other than their current
format, an increase in program rates and the acquisitions of
radio stations and a network during 2001 and 2002, partially offset by the sales
of radio stations during 2001 and 2002. On a same station basis, net revenue
improved $4.4 million or 15.0% to $33.7 million for the quarter ended September
30, 2002 from $29.3 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 and 2001 that were launched as music stations, an increase in
network revenue due to increased network affiliations and quality programming
and a slight increase in net revenue from our talk stations. Revenue from advertising as a
percentage of our gross broadcasting revenue increased to 49.6% for the quarter
ended September 30, 2002 from 44.9% for the same quarter of the prior year.
Revenue from block program time as a percentage of our gross broadcasting
revenue decreased to 36.8% for the quarter ended September 30, 2002 from 41.4%
for the same quarter of the prior year. This change in our revenue mix is
primarily due to the launch of our contemporary Christian music format as well
as our continued efforts to develop more advertising revenue in all of our markets.

OTHER MEDIA REVENUE.      Other media revenue was
$2.0 million for the quarters ended September 30, 2002 and September 30, 2001.

BROADCASTING OPERATING
EXPENSES.       Broadcasting operating
expenses increased $3.7 million or 17.6% to $24.7 million for the quarter ended
September 30, 2002 from $21.0 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 and 2002, partially
offset by a decrease in operating expenses associated with stations sold during
2001 and 2002. On a same station basis, broadcasting operating expenses
increased $1.8 million or 9.4% to $20.9 million for the quarter ended September
30, 2002 from $19.1 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 $0.4 million or 17.4% to $1.9 million for the quarter ended September
30, 2002 from $2.3 million for the same quarter in the prior year. The decrease
is attributable primarily to the reduction of selling expenses associated with
our publishing business, reduced audio streaming costs for our Internet business
due to reduced rates and the streaming of fewer affiliates and reduced
overhead costs.

BROADCAST CASH FLOW.      Broadcast cash flow increased $1.6
million or 12.8% to $14.0 million for the quarter ended September 30, 2002 from
$12.4 million for the same quarter of the prior year. As a percentage of net
broadcasting revenue, broadcast cash flow decreased to 36.2% for the quarter
ended September 30, 2002 from 37.1% for the same quarter of the prior year. The
percentage decrease is primarily attributable to the effect of radio stations
acquired during 2001 and 2002 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 $2.6 million or 25.5% to $12.8 million for
the quarter ended September 30, 2002 from $10.2 million for the same quarter of
the prior year. As a percentage of same station net broadcast revenue, same
station broadcast cash flow increased to 38.0% for the quarter ended September
30, 2002 from 34.8% for the same quarter of the prior year.

18



---



The following table provides
a reconciliation of broadcast cash flow (a non-GAAP financial measure) to
operating income (a GAAP financial measure) for the three months ended
September 30, 2001 and 2002:

|                    |                                     |   |                                  |        |      |   |        |        |  
|------------------- | ----------------------------------- | - | -------------------------------- | ------ | ---- | - | ------ | ------ | -
|                    |                                     |   |                                 
|                    |                                     |   | Three Months Ended September 30,
|                    |                                     |   |                                 
|                    |                                     |   | 2001                             |        | 2002
|                    |                                     |   |                                  |        |     
|                    |                                     |   | (Dollars in thousands)          
|                    |                                     |   |                                 
|Broadcast cash flow |                                     | $ | 12,357                           |        |      | $ | 13,982 |       
|                    | Plus other media revenue            |   |                                  | 1,973  |      |   |        | 2,035  |  
|                    | Less other media operating expenses |   |                                  | (2,274 | )    |   |        | (1,878 | )
|                    | Less depreciation and amortization  |   |                                  | (7,545 | )    |   |        | (2,843 | )
|                    | Less corporate expenses             |   |                                  | (3,249 | )    |   |        | (3,882 | )
|                    |                                     |   |                                  |        |      |   |       
|Operating income    |                                     | $ | 1,262                            |        |      | $ | 7,414  |       
|                    |                                     |   |                                  |        |      |   |        |       

CORPORATE EXPENSES.      Corporate expenses increased $0.7
million or 21.9% to $3.9 million in the quarter ended September 30, 2002 from
$3.2 million in the same quarter of the prior year, primarily due to an increase
in additional overhead costs associated with the acquisitions of radio stations
and a network during 2001 and 2002.

EBITDA.      EBITDA increased $1.5 million or 17.0%
to $10.3 million for the quarter ended September 30, 2002 from $8.8 million for
the same quarter of the prior year. As a percentage of total revenue, EBITDA
increased to 25.2% for the quarter ended September 30, 2002 from 24.9% for the
same quarter of the prior year. The increase is primarily due to strong growth
in same station revenues and broadcast cash flow.

The following table provides
a reconciliation of EBITDA (a non-GAAP financial measure) to operating income
(a GAAP financial measure) for the three months ended September 30, 2001 and 2002:

|                 |                                    |   |                                  |        |      |   |        |        |  
|---------------- | ---------------------------------- | - | -------------------------------- | ------ | ---- | - | ------ | ------ | -
|                 |                                    |   |                                 
|                 |                                    |   | Three Months Ended September 30,
|                 |                                    |   |                                 
|                 |                                    |   | 2001                             |        | 2002
|                 |                                    |   |                                  |        |     
|                 |                                    |   | (Dollars in thousands)          
|                 |                                    |   |                                 
|EBITDA           |                                    | $ | 8,807                            |        |      | $ | 10,257 |       
|                 | Less depreciation and amortization |   |                                  | (7,545 | )    |   |        | (2,843 | )
|                 |                                    |   |                                  |        |      |   |       
|Operating income |                                    | $ | 1,262                            |        |      | $ | 7,414  |       
|                 |                                    |   |                                  |        |      |   |        |       

19



---



DEPRECIATION AND
AMORTIZATION.      Depreciation and
amortization expense decreased $4.7 million or 62.7% to $2.8 million for the
quarter ended September 30, 2002 from $7.5 million for the same quarter of the
prior year. The decrease is due principally to the adoption of SFAS No. 142 on
January 1, 2002, which requires the company to discontinue amortizing broadcast
licenses and goodwill.

OTHER INCOME (EXPENSE).      Loss on sale of assets of $0.1 million
for the quarter ended September 30, 2002 is primarily due to disposition costs
related to the sale of radio station assets in prior periods. Gain on sale
of assets of $20.6 million for
the quarter ended September 30, 2001 is primarily due to gain recognized on
the sale of the assets of radio stations WHKKAM, Cleveland, Ohio, and WHKFM,
Akron, Ohio. Interest expense decreased $0.1 million or 1.4% to $6.9 million
for the quarter ended September 30, 2002 from $7.0 million for the same quarter
of the prior year. The decrease is primarily due to savings of $0.6 million in interest
related to our interest rate swap agreement entered into in April 2002
(see ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Derivative Instruments,
below), partially offset by increased long-term debt related to our radio station
acquisitions in 2002. Other expense, net was $0.1 million for the quarters ended
September 30, 2002 and 2001 and was related primarily to bank committment fees
associated with our credit facility.

PROVISION FOR INCOME
TAXES.       Provision for income taxes as a
percentage of income before income taxes (that is, the effective tax rate) was
34.6% for the quarter ended September 30, 2002 and 36.1% for the same quarter of
the prior year. For the quarters ended September 30, 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.

INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF TAX.      Income from
discontinued operations was $17.9 million net of income tax expense of
$10.1 million, and ($0.2) million net of a tax benefit of $0.1 million for the quarters
ended September 30, 2002 and September 30, 2001, respectively. Discontinued
operations relate to the operations of WYGYFM, Cincinnati, Ohio, which we
discontinued operating and sold the assets of on September 30, 2002 for $45.0 million. The
increase is due to the gain on the sale of the assets of the radio station of
$17.9 million net of income tax expense of $10.1 million on September 30, 2002.

NET INCOME.      We recognized net income of $18.1
million for the quarter ended September 30, 2002 as compared to net income of
$9.4 million for the same quarter of the prior year, an increase of 92.6%. Assuming the company had
adopted the provisions of SFAS No. 142 on January 1, 2001, the net income for
the quarter ended September 30, 2001 would have been $12.7 million, reducing the increase
in net income for the quarter ended September 30, 2002 to 42.2% from the same
quarter of the prior year.

FREE CASH FLOW.      Free cash flow increased $1.8 million or
48.6% to $5.5 million for the quarter September 30, 2002 from
$3.7 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
maintenance capital expenditures.

The following table provides
a reconciliation of free cash flow (a non-GAAP financial measure) to net income
(a GAAP financial measure) for the three months ended September 30, 2001 and 2002:

|               |                                                                   |   |                                  |        |      |   |        |        |  
|-------------- | ----------------------------------------------------------------- | - | -------------------------------- | ------ | ---- | - | ------ | ------ | -
|               |                                                                   |   |                                 
|               |                                                                   |   | Three Months Ended September 30,
|               |                                                                   |   |                                 
|               |                                                                   |   | 2001                             |        | 2002
|               |                                                                   |   |                                  |        |     
|               |                                                                   |   | (Dollars in thousands)          
|               |                                                                   |   |                                 
|Free cash flow |                                                                   | $ | 3,680                            |        |      | $ | 5,458  |       
|               | Plus gain (loss) on sale of assets, net of tax                    |   |                                  | 12,332 |      |   |        | (58    | )
|               | Plus income (loss) from
      discontinued operations, net of tax |   |                                  | (240   | )    |   |        | 17,858 |  
|               | Less depreciation and amortization                                |   |                                  | (7,545 | )    |   |        | (2,843 | )
|               | Less bank and bond fee amortization                               |   |                                  | (345   | )    |   |        | (416   | )
|               | Less tax benefit of non-book amortization                         |   |                                  |       |      |   |        | (2,985 | )
|               | Plus maintenance capital expenditures                             |   |                                  | 1,478  |      |   |        | 1,092  |  
|               |                                                                   |   |                                  |        |      |   |       
|Net income     |                                                                   | $ | 9,360                            |        |      | $ | 18,106 |       
|               |                                                                   |   |                                  |        |      |   |        |       

20



---



Nine months ended September 30, 2002 compared to nine months
ended September 30, 2001

NET BROADCASTING
REVENUE.      Net broadcasting revenue
increased $15.6 million or 16.1% to $112.2 million for the nine months ended
September 30, 2002 from $96.6 million for the same period of the prior year. The
growth is attributable primarily to the increase in same station revenue and the
acquisitions of radio stations and a network during 2001 and 2002, partially
offset by the sales of radio stations during 2001 and 2002. On a same station
basis, net revenue improved $10.7 million or 13.8% to $88.2 million for the nine
months ended September 30, 2002 from $77.5 million for the same period of the
prior year. The improvement was primarily due to an increase in network revenue
due to increased network affiliations and quality programming, an increase in
net revenue at radio stations we acquired in 2000 and 2001 that previously
operated with formats other than their current format, an increase in program
rates and increases in advertising time available on our recently launched music stations,
and improved selling efforts at both the
national and local level. Revenue from advertising as a percentage of our gross
broadcasting revenue increased to 48.4% for the nine months ended September 30,
2002 from 43.0% for the same period of the prior year. Revenue from block
program time as a percentage of our gross broadcasting revenue decreased to
37.4% for the nine months ended September 30, 2002 from 41.8% for the same
period of the prior year. This change in our revenue mix is primarily due to
the launch of our contemporary Christian music format in several markets and our
continued efforts to develop more advertising revenue in all of our markets.

OTHER MEDIA
REVENUE.      Other media revenue decreased
$0.4 million or 6.7% to $5.6 million for the nine months ended September 30,
2002 from $6.0 million for the same period of 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 $13.1 million or 21.5% to $74.0 million for the nine months
ended September 30, 2002 from $60.9 million for the same period of the prior
year. The increase is attributable primarily to operating expenses associated with the
acquisitions of radio stations and a network during 2001 and 2002, promotional expenses
associated with the launch of the contemporary Christian music format in several
markets, and an increase in music license fees, partially offset by the
operating expenses associated with three radio stations sold during 2001 and
2002. On a same station basis, broadcasting operating expenses increased $4.9
million or 10.0% to $54.1 million for the nine months ended September 30, 2002
from $49.2 million for the same period of the prior year. The increase is
primarily due to incremental selling and production expenses incurred to produce
the increased revenue in the period.

OTHER MEDIA OPERATING
EXPENSES.       Other media operating
expenses decreased $1.7 million or 23.3% to $5.6 million for the nine months
ended September 30, 2002 from $7.3 million for the same period in the prior
year. The decrease is attributable primarily to the reduction of selling
expenses associated with our publishing business, lower legal fees associated
with the Gospel
Communications International (GCI) litigation, reduced audio
streaming costs for our Internet business due to reduced rates and the
streaming of fewer affiliates.

BROADCAST CASH
FLOW.      Broadcast cash flow increased $2.5
million or 7.0% to $38.2 million for the nine months ended September 30, 2002
from $35.7 million for the same period of the prior year. As a percentage of net
broadcasting revenue, broadcast cash flow decreased to 34.0% for the nine months
ended September 30, 2002 from 37.0% for the same period of the prior year. The
decrease is primarily attributable to the effect of stations acquired during
2001 and 2002 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 few 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 $5.8 million or 20.5% to $34.1 million for the nine months ended
September 30, 2002 from $28.3 million for the same period of the prior year. On
a same station basis, broadcast cash flow margin improved to 38.7% for the
nine months ended September 30, 2002 from 36.5% for the same period of the prior
year.

The following table provides
a reconciliation of broadcast cash flow (a non-GAAP financial measure) to
operating income (a GAAP financial measure) for the nine months ended
September 30, 2001 and 2002:

|                    |                                     |   |                                 |         |      |   |        |         |  
|------------------- | ----------------------------------- | - | ------------------------------- | ------- | ---- | - | ------ | ------- | -
|                    |                                     |   |                                
|                    |                                     |   | Nine Months Ended September 30,
|                    |                                     |   |                                
|                    |                                     |   | 2001                            |         | 2002
|                    |                                     |   |                                 |         |     
|                    |                                     |   | (Dollars in thousands)         
|                    |                                     |   |                                
|Broadcast cash flow |                                     | $ | 35,699                          |         |      | $ | 38,195 |        
|                    | Plus other media revenue            |   |                                 | 6,041   |      |   |        | 5,586   |  
|                    | Less other media operating expenses |   |                                 | (7,290  | )    |   |        | (5,613  | )
|                    | Less depreciation and amortization  |   |                                 | (22,145 | )    |   |        | (8,600  | )
|                    | Less corporate expenses             |   |                                 | (10,484 | )    |   |        | (11,300 | )
|                    | Less legal settlement               |   |                                 |        |      |   |        | (2,300  | )
|                    |                                     |   |                                 |         |      |   |       
|Operating income    |                                     | $ | 1,821                           |         |      | $ | 15,968 |        
|                    |                                     |   |                                 |         |      |   |        |        

CORPORATE EXPENSES.       Corporate expenses increased $0.8
million or 7.6% to $11.3 million for the nine months ended September 30, 2002
from $10.5 million for the same period in the prior year, primarily due to
additional overhead costs associated with the acquisitions of radio stations and
a network during 2001 and 2002.

21



---



EBITDA.      EBITDA increased $0.6 million or 2.4% to
$24.6 million for the nine months ended September 30, 2002 from $24.0 million
for the same period of the prior year. As a percentage of total revenue, EBITDA
decreased to 20.9% for the nine months ended September 30, 2002 from 23.4% for
the same period of the prior year. The decrease is primarily due to the one-time
legal settlement. Excluding the effect of the one-time legal settlement, EBITDA
increased $2.9 million or 12.0% to $26.9 million, representing 22.8% of total
revenue for the nine months ended September 30, 2002.

The following table provides
a reconciliation of EBITDA (a non-GAAP financial measure) to operating income
(a GAAP financial measure) for the nine months ended September 30, 2001 and 2002:

|                 |                                    |   |                                 |         |      |   |        |        |  
|---------------- | ---------------------------------- | - | ------------------------------- | ------- | ---- | - | ------ | ------ | -
|                 |                                    |   |                                
|                 |                                    |   | Nine Months Ended September 30,
|                 |                                    |   |                                
|                 |                                    |   | 2001                            |         | 2002
|                 |                                    |   |                                 |         |     
|                 |                                    |   | (Dollars in thousands)         
|                 |                                    |   |                                
|EBITDA           |                                    | $ | 23,966                          |         |      | $ | 26,868 |       
|                 | Less depreciation and amortization |   |                                 | (22,145 | )    |   |        | (8,600 | )
|                 | Less legal settlement              |   |                                 |        |      |   |        | (2,300 | )
|                 |                                    |   |                                 |         |      |   |       
|Operating income |                                    | $ | 1,821                           |         |      | $ | 15,968 |       
|                 |                                    |   |                                 |         |      |   |        |       

DEPRECIATION AND
AMORTIZATION.       Depreciation and
amortization expense decreased $13.5 million or 61.1% to $8.6 million for the
nine months ended September 30, 2002 from $22.1 million for the same period of
the prior year. The decrease is due principally to the adoption of SFAS No. 142
on January 1, 2002, which requires the company to discontinue amortizing
broadcast licenses and goodwill.

OTHER INCOME (EXPENSE).       Interest income decreased $1.7 million
to $0.1 million for the nine months ended September 30, 2002 from $1.8 million
for the same period of the prior year, primarily due to interest earned on the
investments of the proceeds from the sales of radio stations KALCFM, Denver,
Colorado for $100 million in January 2001 and WHKKAM, Cleveland, Ohio, and
WHKFM, Akron, Ohio for $30.0 million in July 2001, which were used to fund
acquisitions in the fourth quarter of 2001 and the first quarter of 2002.
Loss on sale of assets of $0.5 million for the nine months ended September 30,
2002 is primarily due to disposition costs related to asset sales in prior
periods. Gain on sale of assets of $23.1 million for the nine months
ended September 30, 2001 is primarily due to a gain recognized on the
condemnation of certain real property in Seattle, Washington and on the sale of
radio stations WHKKAM, Cleveland, Ohio, and WHKFM, Akron, Ohio for
$30.0 million in July 2001. Interest expense
increased $0.6 million or 3.0% to $20.3 million for the nine months ending
September 30, 2002 from $19.7 million for the same period of the prior year. The
increase is primarily due to increased long-term debt related to our radio
station and network acquisitions in 2001 and 2002, partially offset by savings
of $1.2 million in interest related to our interest rate swap
agreement entered into in April 2002 (see ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Derivative Instruments,
below). Other expense, net increased
$0.2 million to $0.4 million for the nine months ended September 30, 2002 from
$0.2 million for the same period of the prior year, primarily due to increased
bank commitment fees.

PROVISION FOR INCOME
TAXES.       Provision for income taxes as a
percentage of income before income taxes (that is, the effective tax rate) was
38.5% for the nine months ended September 30, 2002 and 37.1% for the same period
of the prior year. For the nine months ended September 30, 2002 and 2001 the
effective tax rate differs 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.

INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF TAX.      Income from
discontinued operations was $17.9 million net of income tax expense of
$10.1 million, and ($0.9) million net of a tax benefit of $0.4 million for the nine months
ended September 30, 2002 and September 30, 2001, respectively. Discontinued
operations relate to the operations of WYGYFM, Cincinnati, Ohio, which we
discontinued and sold the assets of on September 30, 2002 for $45.0 million. The
increase is due to the gain on the sale of the assets of the radio station of
$17.9 million net of tax expense of $10.1 million on September 30, 2002.

22



---



NET INCOME.       We recognized a net income of $14.7
million for the nine months ended September 30, 2002 as compared to net income
of $3.4 million for the same period of the prior year, an increase of 335.3%.
Assuming the company had adopted the provisions of SFAS No. 142 on January 1, 2001,
the net income for the nine months ended September 30, 2001 would have been $13.3 million,
reducing the increase in net income for the nine months ended September 30, 2002
to 10.7% over the same period of the prior year.

FREE CASH FLOW.       Free cash flow increased $5.2 million
or 64.2% to $13.3 million for the nine months ended September 30, 2002 from $8.1
million for the same period of the prior year. The increase is primarily due to
an increase in broadcast cash flow, a decrease in other media operating
expenses and a decrease in maintenance capital expenditures.

The following table provides
a reconciliation of free cash flow (a non-GAAP financial measure) to net income (a
GAAP financial measure) for the nine months ended September 30, 2001 and 2002:

|               |                                                                   |   |                                 |         |      |   |        |        |  
|-------------- | ----------------------------------------------------------------- | - | ------------------------------- | ------- | ---- | - | ------ | ------ | -
|               |                                                                   |   |                                
|               |                                                                   |   | Nine Months Ended September 30,
|               |                                                                   |   |                                
|               |                                                                   |   | 2001                            |         | 2002
|               |                                                                   |   |                                 |         |     
|               |                                                                   |   | (Dollars in thousands)         
|               |                                                                   |   |                                
|Free cash flow |                                                                   | $ | 8,141                           |         |      | $ | 13,275 |       
|               | Plus
      gain (loss) on sale of assets, net of tax              |   |                                 | 13,843  |      |   |        | (329   | )
|               | Plus income (loss) from
      discontinued operations, net of tax |   |                                 | (895    | )    |   |        | 17,871 |  
|               | Less
      depreciation and amortization                          |   |                                 | (22,145 | )    |   |        | (8,600 | )
|               | Less bank
      and bond fee amortization                         |   |                                 | (714    | )    |   |        | (1,197 | )
|               | Less tax
      benefit of non-book amortization                   |   |                                 |        |      |   |        | (8,632 | )
|               | Plus maintenance capital expenditures                             |   |                                 | 5,121   |      |   |        | 3,671  |  
|               | Less legal settlement, net of tax                                 |   |                                 |        |      |   |        | (1,380 | )
|               |                                                                   |   |                                 |         |      |   |       
|Net income     |                                                                   | $ | 3,351                           |         |      | $ | 14,679 |       
|               |                                                                   |   |                                 |         |      |   |        |       

LIQUIDITY AND CAPITAL RESOURCES

We have historically
financed acquisitions 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 $52.1 million at September 30, 2002. Working capital was $64.9
million at September 30, 2002. Cash and cash equivalents was $23.9 million at
December 31, 2001. The increase in cash and cash equivalents is due primarily to the
proceeds of $45.0 million from the sale of the assets of radio station WYGY-FM,
Cincinnati, Ohio in September 2002, $40.6 of additional borrowings under
our credit facility, partially offset by the use of $45.7 million to acquire
four radio stations, $11.2 million for capital expenditures and $4.0 million to
repay borrowings under our credit facility.

We paid $0.3 million of the
legal settlement during the quarter ended September 30, 2002. The remaining
$2.0 million was paid in October 2002. The payment of this settlement is not
expected to have a material impact on our future liquidity.

23



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Net cash provided by
operating activities decreased to $5.6 million for the nine months ended
September 30, 2002 compared to $10.4 million in the same period of the prior
year, primarily due to a decrease in EBITDA and an increase in accounts
receivable.

Net cash used in investing
activities was $13.5 million for the nine months ended September 30, 2002,
compared to net cash provided by investing activities of $4.0 million for the
same period 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 ($45.2 million cash used to purchase
the assets of four radio stations during the nine months ended September 30,
2002 as compared to $110.0 million cash used to purchase the assets of nine radio
stations and a network for the same period of the prior year) and a decrease in
capital expenditures of $11.4 million.

Net cash provided by
financing activities was $36.1 million for the nine months ended September 30,
2002, compared to net cash provided by financing activities of $15.5 million for
the same period of the prior year. The difference is due to increased net
borrowings under our credit facility and reduced bond issue costs during the
nine months ended September 30, 2002.

Credit Facility. Our
wholly-owned subsidiary, HoldCo, is
the borrower under our credit facility. At September 30, 2002, $98.2 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 $123.8 million at September 30, 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 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
September 30, 2002 was 6.49 to 1, resulting in a borrowing availability of
approximately $24.9 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 financial tests, including ratios for maximum leverage (as described
above) 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 September 30, 2002, management believes we were in compliance with all such covenants.
We and all of 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.

As of September 30, 2002,
we were in compliance with all of the covenants under the terms of the credit
facility.

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.

As of September 30, 2002,
we were in compliance with all of the covenants under the indenture for
the 91⁄2% notes.

24



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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
placed HoldCo and its subsidiaries close to the maximum indebtedness allowed
under the indentures, thus limiting future indebtedness including additional
borrowings under the credit facility.

As of September 30, 2002,
we were in compliance with all of the covenants under the indenture for
the 9% notes.

At September 30, 2002, an
interest rate swap agreement with a notional principal amount of $66.0 million
was outstanding. The agreement expires in 2011 when the 9% notes mature, and
effectively swaps the 9.0% fixed interest rate on $66.0 million of our debt
for a floating rate equal to the LIBOR rate plus 3.09%. The estimated fair
value of this swap agreement and the change in fair value of the debt that is
hedged with the swap, based on current market rates, was $6.5 million
at September 30, 2002. Accordingly, there is no hedge ineffectiveness and no
income statement impact on interest paid. The fair value of the swap agreement
is presented with long-term assets, and the change in fair value of the debt
that is hedged by the swap agreement is reflected in long-term debt
consistent with the maturity date of the swap. Our interest expense
for the quarter ended September 30, 2002 was reduced by $0.6 million as a result
of the differential between the 9.0% fixed interest rate on our debt and the
floating interest rate under the swap agreement, which was 5.04% for the
quarter ended September 30, 2002.

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 Federal Communications Commission
(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.

25



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Intangible assets

Under the FASBs
new rules (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 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 basic earnings per share) per year based on the balance sheet as of December 31,
2001.

Valuation allowance (deferred taxes)

For financial reporting
purposes, we have recorded a valuation allowance of $2.6
million as of September 30, 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.

26



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

DERIVATIVE INSTRUMENTS

We are exposed to
fluctuations in interest rates. We actively monitor these fluctuations and use
derivative instruments from time to time to manage the related risk. In
accordance with our risk management strategy, we use derivative instruments
only for the purpose of managing risk associated with an asset, liability,
committed transaction, or probable forecasted transaction that is
identified by management. Our use of derivative instruments may result in
short-term gains or losses and may increase volatility in our earnings.

We had one interest rate
swap agreement outstanding as of September 30, 2002, which is used to manage our
exposure to changes in the fair value of a recognized asset or liability that
may result due to changes in interest rates. The counter party to this interest
rate swap agreement is a major financial institution. Although we are exposed
to credit loss in the event of nonperformance by the counter party, we do not
anticipate nonperformance by the counter party nor would we expect any such
loss to be material.

On January 1, 2001, we
adopted SFAS No. 133, as amended, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS
No. 137, Accounting for Derivative Instruments and Hedging
ActivitiesDeferral of the Effective Date of SFAS No. 133,
and SFAS No. 138, Accounting for Certain Derivative Instruments
and Certain Hedging Activities. SFAS No. 133, as amended,
requires all derivative instruments to be measured at fair value and recognized
as either assets or liabilities. In addition, all derivative instruments used
in hedging transactions must be designated, reassessed and documented
pursuant to the provisions of SFAS No. 133, as amended.

Under Statement No. 133, as
amended, the accounting for changes in the fair value of a derivative instrument
at each new measurement date is dependent upon its intended use. The change in
the fair value of a derivative instrument designated as a hedge of the exposure
to changes in the fair value of a recognized asset or liability or a firm
commitment, referred to as a fair value hedge, is recognized as gain or loss in
earnings in the period of the change together with an offsetting gain or loss
on the hedged item attributable to the risk being hedged. The differential paid
or received on the interest rate swap is recognized in earnings as an adjustment
to interest expense.

At September 30, 2002, an
interest rate swap agreement with a notional principal amount of $66.0 million
was outstanding. This agreement expires in 2011 when the 9% notes mature, and
effectively swaps the 9.0% fixed interest rate on $66.0 million of our debt
for a floating rate equal to the LIBOR rate plus 3.09%. The estimated fair
value of this swap agreement and the change in fair value of the debt hedged by
the swap, based on current market rates, was $6.5 million
at September 30, 2002. The fair value of the swap agreement is included with
long-term assets, and the change in fair value of the debt hedged by the swap is
recorded in long-term debt consistent with
the maturity date of the swap. Because this fair value hedge is 100% effective
(that is, the change in the fair value of the hedge instrument is designed to be equal to the
change in the fair value of the item being hedged), there was no income statement
effect relative to the change in the fair value of the swap agreement. Interest expense
for the quarter ended September 30, 2002 was reduced by $0.6 million as a result
of the 9.0% fixed interest rate on our debt and the floating interest rate under
the swap agreement, which was 5.04% for the quarter ended September 30, 2002.

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 September 30, 2002, we could
borrow up to an additional $24.9 million under the
credit facility. At September 30, 2002, we had borrowed $98.2 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 September 30, 2002, the blended interest rate on amounts
outstanding under our credit facility was 5.09%. At September 30, 2002, a
hypothetical 100 basis point increase in the prime rate would result in
additional interest expense of $1.0 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% notes and the 9% notes) as of September 30,
2002, with an aggregate fair value of $257.5 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 100 basis point increase in
market interest rates would result in a decrease in the aggregate fair value of
the notes to approximately $244.8 million and a hypothetical 100
basis point decrease in market interest rates would result in the increase
of the fair value of the notes to approximately $271.2 million.

27



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ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to
the filing date of this report, the company carried out an evaluation, under the
supervision and with the participation of the companys management,
including the companys Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the companys disclosure
controls and procedures pursuant to Rules 13a-14 and 13a-15 promulgated under
the Securities Exchange Act.  Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the companys
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in the companys periodic
SEC filings.

There were no significant
changes in the companys internal controls or in other factors that could
significantly affect these internal controls subsequent to the date of the most
recent evaluation.  Since there were no significant deficiencies or material
weaknesses in the companys internal controls, the company did not take any
corrective actions.

PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Incident to our business
activities, we are party to legal proceedings, lawsuits and other claims. 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, as
disclosed in our annual report on Form 10-K for the year ended December 31, 2001
and our quarterly reports on Form 10-Q for the quarters ended March 31, 2002 and
June 30, 2002. On
July 15, 2002, we reached a confidential settlement with GCI for $2.3 million.
Separately, we also recently settled two other litigation matters. As a result
of these settlements, we recorded a one-time charge of approximately $2.5
million and a charge against broadcast operating expenses of approximately $0.2
million in the second quarter of 2002.

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.

28



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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                                                          
|        |  |                                                                                  
|99.1    |  | Certification of Edward G. Atsinger
      III Pursuant to 18 U.S.C. Section 1350.
|99.2    |  | Certification of David A.R. Evans
      Pursuant to 18 U.S.C. Section 1350.      
|        |  |                                                                                  

(b) REPORTS ON FORM 8-K

On July 22, 2002, Salem
filed a report on Form 8-K relating to the sale of the assets of radio station
WYGY-FM, Cincinatti, Ohio for $45.0 million in cash. The press release issued July 9, 2002 was
reported in an amended current report on Form 8-K/A filed July 24, 2002.

29



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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                  | 
| | ----------------- | ------------------------------------------------- | 
| | November 14, 2002 |                                                   | 
| |                   | By: /s/ EDWARD G. ATSINGER III                    | 
| |                   |                                                   | 
| |                   | Edward G. Atsinger III                            | 
| |                   | (Principal Executive Officer)                     | 
| | November 14, 2002 |                                                   | 
| |                   | By: /s/ DAVID A. R. EVANS                         | 
| |                   |                                                   | 
| |                   | David A. R. Evans                                 | 
| |                   | Senior Vice President and Chief Financial Officer | 
| |                   | (Principal Financial Officer)                     | 

30



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CERTIFICATIONS

Each of the undersigned,
in his capacity as the Chief Executive Officer and Chief Financial Officer of
Salem Communications Corporation, as the case may be, provides the following
certifications required by 18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of The Sarbanes-Oxley Act of 2002, and 17 C.F.R. §240.13a-14.

Certification of Chief Executive Officer

I, Edward G. Atsinger III, certify that:

|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|-- | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|1. |     | I have reviewed this quarterly report on Form
10-Q of Salem Communications Corporation;                                                                                                                                                                                                                                                                                                                                                                     | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|2. |     | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a
                      material fact necessary to make the statements made, in light of the circumstances under which such statements
                      were made, not misleading with respect to the period covered by this quarterly report;                                                                                  | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|3. |     | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly
                      present in all material respects the financial condition, results of operations and cash flows of the
                      registrant as of, and for, the periods presented in this quarterly report;                                                                                                     | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|4. |     | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and
                      procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                                                             | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   | (a) | designed such disclosure controls and procedures to ensure that material information relating to the
                         registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
                         particularly during the period in which this quarterly report is being prepared;                                                                                                           | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   | (b) | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90
                         days prior to the filing date of this quarterly report (the Evaluation Date); and                                                                                                                                                                                                                                      | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   | (c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and
                         procedures based on our evaluation as of the Evaluation Date;                                                                                                                                                                                                                                                            | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|5. |     | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants
                      auditors and the audit committee of registrants board of directors (or persons performing the equivalent
                      function):                                                                                                                                                                  | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   | (a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the
                         registrants ability to record, process, summarize and report financial data and have identified for the
                         registrants auditors any material weaknesses in internal controls; and                                                                                                            | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   | (b) | any fraud, whether or not material, that involves management or other employees who have a significant role
                         in the registrants internal controls; and                                                                                                                                                                                                                                                                             | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|6. |     | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were
                      significant changes in internal controls or in other factors that could significantly affect internal controls
                      subsequent to the date of our most recent evaluation, including any corrective actions with regard to
                      significant deficiencies and material weaknesses. | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   |     | Dated: November 14, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                    | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   |     | By: /s/ EDWARD G. ATSINGER III                                                                                                                                                                                                                                                                                                                                                                                                                              | 

| |  |                         | 
| |  | ----------------------- | 
| |  | Edward G. Atsinger III  | 
| |  | Chief Executive Officer | 
| |  |                         | 
| |  |                         | 

31



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Certification of Chief Financial Officer

I, David A.R. Evans, certify that:

|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|-- | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|1. |     | I have reviewed this quarterly report on Form
10-Q of Salem Communications Corporation;                                                                                                                                                                                                                                                                                                                                                                     | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|2. |     | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a
                      material fact necessary to make the statements made, in light of the circumstances under which such statements
                      were made, not misleading with respect to the period covered by this quarterly report;                                                                                  | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|3. |     | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly
                      present in all material respects the financial condition, results of operations and cash flows of the
                      registrant as of, and for, the periods presented in this quarterly report;                                                                                                     | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|4. |     | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and
                      procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                                                             | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   | (a) | designed such disclosure controls and procedures to ensure that material information relating to the
                         registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
                         particularly during the period in which this quarterly report is being prepared;                                                                                                           | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   | (b) | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90
                         days prior to the filing date of this quarterly report (the Evaluation Date); and                                                                                                                                                                                                                                      | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   | (c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and
                         procedures based on our evaluation as of the Evaluation Date;                                                                                                                                                                                                                                                            | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|5. |     | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants
                      auditors and the audit committee of registrants board of directors (or persons performing the equivalent
                      function):                                                                                                                                                                  | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   | (a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the
                         registrants ability to record, process, summarize and report financial data and have identified for the
                         registrants auditors any material weaknesses in internal controls; and                                                                                                            | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   | (b) | any fraud, whether or not material, that involves management or other employees who have a significant role
                         in the registrants internal controls; and                                                                                                                                                                                                                                                                             | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|6. |     | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were
                      significant changes in internal controls or in other factors that could significantly affect internal controls
                      subsequent to the date of our most recent evaluation, including any corrective actions with regard to
                      significant deficiencies and material weaknesses. | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   |     | Dated: November 14, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                    | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|   |     | By: /s/ DAVID A. R. EVANS                                                                                                                                                                                                                                                                                                                                                                                                                                   | 

| |  |                         | 
| |  | ----------------------- | 
| |  | David A. R. Evans       | 
| |  | Chief Financial Officer | 

32



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EXHIBIT INDEX

|        |  |                                                                                  
|------- |  | ---------------------------------------------------------------------------------
|Exhibit
|Number  |  | Description of Exhibits                                                          
|        |  |                                                                                  
|99.1    |  | Certification of Edward G. Atsinger
      III Pursuant to 18 U.S.C. Section 1350.
|99.2    |  | Certification of David A.R. Evans
      Pursuant to 18 U.S.C. Section 1350.      
|        |  |                                                                                  

33



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EXHIBIT 99.1

CERTIFICATION PURSUANT TO18 U.S.C. SECTION
1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in his capacity as President
and Chief Executive Officer of Salem Communications Corporation (the Company),
for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that based on his knowledge:

- the Quarterly Report of the Company on Form 10-Q for the
  period ended September 30, 2002 (the Report) fully complies with the
  requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act
  of 1934; and

- the information contained in the Report fairly presents, in
  all material respects, the financial condition and results of operations of
  the Company.

| | Dated: November 14, 2002 |                                       | 
| | ------------------------ | ------------------------------------- | 
| |                          | By: /s/ EDWARD G. ATSINGER III        | 
| |                          |                                       | 
| |                          | Edward G. Atsinger III                | 
| |                          | President and Chief Executive Officer | 

34



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EXHIBIT 99.2

CERTIFICATION PURSUANT TO18 U.S.C. SECTION
1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF
2002

The undersigned hereby certifies, in his capacity as Senior Vice
President and Chief Financial Officer of Salem Communications Corporation (the
Company), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that based on his
knowledge:

- the Quarterly Report of the Company on Form 10-Q for the
  period ended September 30, 2002 (the Report) fully complies with the
  requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act
  of 1934; and

- the information contained in the Report fairly presents, in
  all material respects, the financial condition and results of operations of
  the Company.

| | Dated: November 14, 2002 |                                                         | 
| | ------------------------ | ------------------------------------------------------- | 
| |                          | By: /s/ DAVID A. R. EVANS                               | 
| |                          |                                                         | 
| |                          | David A. R. Evans                                       | 
| |                          | Senior Vice President and Chief
      Financial Officer | 
| |                          |                                                         | 

35



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