Salem Media Group Inc (SALM) 2002 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Salem Communications third quarter 2002 teleconference call. Copies of the earnings release have been sent to you for your information and reference during this call. If you have not received the earnings release, please call Brainard communicators at 212-986-6667. If you do become disconnected during the teleconference, please hang up and dial 973-582-2741 to be reconnected. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session later on in the conference. At that time, if you have a question, you will need to express the 1 followed by the 4 on your push but ton phone. The conference is being recorded today. At this time I would like to turn the conference to Amanda Larsen, Manager of Investor Relations for Salem Communications. Please go ahead.

Thank you, operator. We're pleased you could join us for our third quarter earnings call. Be before I turn the call over to Ed Atsinger, I would like to warn you this could call contain forward-looking provisions of the Private Securities Reform Act. Statements made in this call that address results or settlements that Salem Communications expects or anticipates that will or may occur in the future are forward-looking statements. These statements regarding the future plans, events, financial results, prospects or performance of Salem Communications are predictions that involve risks and uncertainties and actual results may vary materially. We refer you to Salem's public filings made to the SEC and to the company's press release issued November 7, 2002. For important risk factors You should consider this in evaluating the information of the forward-looking statement nets made on this call speak only to the date here of and the company undertakes no obligation to update such statements to reflect such future events or circumstances. I would now like to turn the call over to Edward Atsinger, President and Chief Executive Officer for Salem Communications

Good morning, everyone. As usual I'm joined by David Evans, our CFO. Let me begin with a brief overview of our results and also discuss the initiatives that we have in place to drive growth and evaluate. David will then discuss our financial results in more detail will and will give you a cue forQ4 guidance and then we can take questions. We're pleased to report that the fundamentals of the radio industry are improving and we're continuing to successfully execute our growth strategy.

Our third quarter same-station results represent some of the strongest revenue in broadcast cash-flow growth rates from the industry, specifically the same station revenue through the quarter with 15% with same-station broadcast cash flow growing 25.5%. These impressive results reflect the combination of focused operations, our strong, stable block performing revenue, the continued growth of our music stations and the continued maturity of our under developed stations. These strong same station results represent how well Salem is ready to deliver the industry leading growth in the next several years.

I would like to elaborate on that just a little bit. Of our 85 stations, we currently have two pending acquisitions, nine in start up stage, 24 in an early development stage, 36 in a developed and with upside stage, and only 14 that we consider to be fully mature. This quarter, I am pleased to say that seven additional stations have turned profitable for the first time, and we are on plan for reducing startup losses for our recently launched properties. In the first quarter of 2002, we experienced $2.3 million of start up losses. That had dropped to $1.4 million in the second quarter and $1.1 million in the third quarter and we're projecting $800,000 in the fourth quarter. The elimination of these startup losses will substantially improve our EBITDA for 2003.

The proportion of startup and early development stage stations to fully mature stations is higher, I believe, than any other radio group that we are aware of and will serve as an important growth catalyst for the company for the next several years. In addition to our financial results, we have also executed some transactions which have improved our transaction sheet and enhanced our strategic position.

On September 30, we completed the sale of WYGY for $40 million generating a book profit of over $27 million. We believe the sale of this station, which was in a non-strategic format for us and was not operated as part of a cluster represented the best means to maximize results for our shareholders. As a result of this sale, we have strengthened our balance sheet, which is of importance in these times of economic uncertainty. We have also completed the acquisition of cross walk.com and as a result we have tripled our number of page views and unique visitors to our page sites. The integration of crosswalk, which was a modest investment with our current one place Internet business provides economy of scale and allows us to super serve our audience and is further complimenting our radio operations. This acquisition, by the way, was immediately profitable and earnings secreted as a result of the cost synergies of providing one place in crosswalk.

Let me conclude my prepared remarks by giving you an updated on our fish-formatted radio stations. Several seven of our ten big market fish-formatted radio stations showed great improvements in the summer book versus the spring book. The only stations below our expectations is WZFF-FMGX in Chicago which is impacting our performance. We recently made changes to get back on track and expect to see strong improvement in 2003.

The most significant audience and ratings improvement was at KLTY-FM in Dallas. KLTY-FM is really our flagship fish station and serves as the model for the rollout of our other CCM stations. KLTY achieved a $3.9,-12-plus ratings in the summer book compared to 3.2 in the spring book, ranking at number 6 overall in the market. Our key target demographic of women 25-54 we ranked number two in the market with a 6.7 ratings share. This market share success is due we believe to the broad family of stations particularly with the family audience and excellent execution by our local staff. The continued growth of KLTY this station is the positive indicator of our fish stations into other markets and it demonstrates the viability of this format in a broad-based market like Dallas. Now I will turn the call over to David for more detailed discussion of our Q3 results and for Q4 guidance. David?

You should have received our results of 2002 in the press releases earlier today. I will briefly review these results on an actual review same station basis. In addition I will provide guidance for the fourth quarter of 2002. For our operating results, net world cost revenue for the third quarter increased 16% to $38.7 million and our broad point cash flow increased 13% to $14 million. World class cash flow margin increased to 36.2% in the third quarter, 37.1% a year ago. I would also note our BCS margin improved from 34.1% in the second quarter of this year, and we expect both BCS and BCS margins to continue to improve as our station portfolio matures.

I will now give you a more detailed break down of our Q3 revenue and BCF. For our 11startup stations we had $1.5 million of revenue and a BCS loss of $1.1 million. For our 24 early development stations, we have $7.4 million of revenue and $1.6 million of BCS. For our 36 stations that have developed from outside we have $15.8 revenue and $6.3 million of BCS. For our 14 mature stations we had $10.6 million of revenue and $6.7 million in BCS for the third quarter.

On a same-station basis, net broadcast revenue in BCS increased 15% and 25.5% respectively. The total increase includes our recently launched music stations, which contributed a 61% same-station revenue increase. Our core talk stations contributed 7%, same station revenue increase. And looking a little deeper into the core talk same-station increases, we saw a 5% increase in our same station national block programming revenue, a 23.5% increase in national advertising revenue, and a 10% increase in local stock revenue.

With our infomercial and other local revenue flat. That's a deliberate move to cutback on the number of infomercials. 66 of our radio stations and 87.1% of our net broadcasting revenues are included in our same-station numbers. EBITDA increased 17% to $10.3 million in the third quarter of 2002 compared to $8.8 million last year. Net income was $18.1 million for the third quarter, or 77 cents per daily share, with a net income of $9.4 million, or .40 cent income were per share for the same period last year. Finally, free cash flow increased 49% to $5.5 million, or 23 cents were per diluted share for third quarter of 2002, compared to $3.7 million or 16 cent per diluted share for the comparable period a year ago.

Turning to our fourth quarter outlook, we achieved same station revenue growth of 14% for October, 2002, and based on most recent pacings information, we expect fourth quarter same station revenue growth in the mid teens. We are projecting net broadcast revenues of between $40 million and $40.5 million and broadcast cash flow between $15 million and $15.5 million. EBITDA is projected to be between $11.5 million and $12 million. After-tax cash flow per share is expected to be between .30-cent and .32 cents. Free cash flow is projected it would to be between 25 cent and 27 cent per share. Earnings per share is expected to be between 5 cents and 6 cents.

Our fourth-quarter out look reflecting continued improvements in our startup and developing properties, especially our CCM fish music stations particularly in Dallas, Atlanta, and Orange County. In addition, guidance reflects startup costs associated with the recent launch of stations in Nashville and Hawaii.

Finally, as noted on our press release, we are experiencing some soft ratings and listener share at the station in WZFF-FM in Chicago, which is impacting revenue and cash flow projections for the fourth quarter. We have already taken steps to get Chicago back on track with some changes to our programming strategy and we expect to see strong revenue and cash flow growth from Chicago in 2003 as a result of these changes.

Turning to our balance sheet, the sale of WYZY-FM in Cincinnati netted us $45 million in proceeds and of this $30 million is being placed in a like-kind account to be available on a tax sufficient basis for any future acquisitions that we might identify. To date, $4.1 million of this has been used to complete our acquisition of crosswalk.com. As of September 30, we had net debt of $296.7 million.

We projected 2002 EBITDA of approximately $38.5 million. This results in a leverage ratio of 7.7. In evaluating this ratio, it's important to note that all of our acquisitions in the last 12 months, except one, sticks with no cash flow. As a result the debt includes $135 million of financing the stations currently lost making startups and therefore make no contribution to EBITDA. In fact, they have startup losses. We therefore believe EBITDA will increase substantially as a result of these maturing acquisitions which, in turn, will reduce its leverage.

Our bank leverage ratio was 6.5 as of September 30 versus a compliance covenant of 7.25. Our bond leverage ratio was 7.39 as of September 30, therefore operating within the $75 million in incurrence basket on top of the Incurrence covenant of 7.0. Our bond ratio does not allow us to include cash balances of $82 million in calculating debt. If we were to use this cash to pay down debt, our bond ratio would be 6.3. That concludes our prepared remarks. At this time we would like to open the floor for questions. Dante?

thank you very much, sir. The floor is now open for questions. If have you a question or a comment at this time, you may press one followed by 4 on your touchtone phone. First question is coming from Fred Mirand (ph.) of Jefferies and Company

Thank you very. Given the steady margin improvement we're now seeing as the developing properties are kicking in, could we see meaningful margin improvement in 2003? Currently my estimates don't really show margin improvement, and is the process expect of a BCF margin as high as 40% realistic? If not, when would margins get to that area and what do you think represents a fair Mature large margin level a couple of years out? And then separately can you talk about where your debt level is relative to credit availability and your goal for debt to cash flow and relative to your appetite for acquisitions?

Okay. In terms of margins, we would certainly expect to see continued margin improvement throughout 2003. There would be some seasonality attached to that, Q2 and Q4, the strongest quarters. Q1 is typically, for radio, the weakest quarter. But if you were to look at the quarters year on year, we would expect to see margin improvement over 2002 in every quarter.

In terms of where we see our BCF margin when the stations are mature, i.e., two or three years out, I think we would be targeting somewhere in the 45% range as a good average margin level, possibly a little higher. But I think 45% would be a realistic/conservative target

That implies you could have several hundred basis points of margin improvement next year?

I don't think we'll get all the way to 45 next year. I see it happening steadily and consistently over a two- to three-year time frame

So maybe high 30's type of margins in 2003?

Fred, given the status of our portfolio, as I described it, with four different categories, those margins are going to obviously move according to the category. If they're sticks and very young, we're not going get those margins up next year. If they're developing upside, those are the ones that we would hope to see in the range of 40-45 and some a little higher. And as you know, margins are very margin specific. The larger markets, it's easier to get the higher margins

Right.

Thank you. Next question is coming from Victor Miller of Bear Stearns

Good afternoon. Just a little different angle in breaking out your BCF margins in your developing. If you first of all, what percentage of your revenues is represented by your AM stations and what percentage is represented by your FM stations?

I'm not sure can I answer that question off the top of my head. I certainly know that two-thirds of the portfolio are AM stations. A third FM. Of the FM's, I think we say that KKLA in Los Angeles is certainly Mature. Washington is certainly mature. I would say that the bulk of the other big assets are FM's, the music stations., Dallas is certainly approaching maturity. I'm not sure I can give you some numbers off the top of my head

Maybe we can follow up with that afterwards

Okay.

Is there a theoretical margin that you look at in the disparity between the AM group and the FM group? In other words, can AM's do 70% and FM's do 40%, you're blended at 45%? How do you look at that?

I think it's driven by the format of the radio station. If it's a Christian teaching talk station, we really have very little cost of programming, because our block program is buying that time from us. So we don't have -- or we will have a very small programming costs. We also don't need to advertise that format particularly heavily, and we have two revenue streams for our Christian talk stations. So I think that's the format that we would expect and get the highest broadcast margins.

With the music stations, there are much higher programming costs, because of the cost of the on-air talent. Most of that talent is local. We also advertise and promote that format more heavily, therefore, you would expect to see a lower -- margin of maturity for the music stations. The The Conservative Teaching talk stations would be somewhere in between.

We do incur programming costs on those stations, but a lot of that programming talent is provided by our network, and therefore already under contract. So the incremental programming costs are probably quite modest. Since the conservative music talk show format is 100% advertising revenue driven, it doesn't have the two revenue streams with Christian teaching talk. I’m not sure its margins will never be as high as the Christian talk teaching music format. I think for us it’s probably the key driver is the format as to opposed whether it's an AM or FM station

I would qualify that by saying market size is a big factor in margins

If you look at your 50% or greater margins stations, you're generating $10.6 million in revenue. Your 30 - -- what you called developing upside stations develop 50% more revenue at $15.8 million but the BCF is very similar at this point. I guess what I'm trying to figure out; there a difference in the composition of, you know, that 50% or greater is it reflecting more AM stations at this point or is it reflecting some larger market stations at this time? And you know, 50% would generate the same income as cash flow generally

Why don't we drill down on some of those numbers for your Victor. We haven't taken a look at the FM versus FM. Format specific versus service specific

I appreciate that. We will just do that off

Thank you. Next question is Paul Sweeney of CSFB

Thank you very much. Ed, if you can talk about what happened in Chicago. Is there anything format related that gives you concern for some of the other rollouts in some of the other markets and I'm presuming if you have an update on when it will break even. Secondly, in terms of your block business, could you remind us kind of where you are? I suspect your negotiations it will be coming up with a block programmers, so if you can update on us where you are with those negotiations. Thank you

With regard to Chicago, it's primarily an execution and programming problem. Our station in Chicago is a reasonably good signal. It is not on the Sears tower and it is even a little north. So in terms of its coverage in the whole market, we think that the way it's technically positioned right now that it has the potential to do 1.5 to 2 share. That's what we had budgeted in terms of performance.

It's been languishing at a .8 -.9. I think summer book it made a 1 share. We did changes in the programming, in the personnel and also some of some of the outside consultants. There are some issues with music. And in all of these markets, you can't cookie-cutter the CCM format. You have to do local research. You have got to put together your play list based upon the research that you determine in the lower market. I think they just missed it in Chicago, the team that we had and the way we were executing it does not suggest to me any -- it certainly does not under mine my confidence in this format. This is specific to Chicago.

We have seen these roll out all over the country in very diverse markets and we have done very well with them and have been very pleased. Dallas we mentioned but we could mention Atlanta, the Orange County Southern California property, Colorado Springs, Cleveland, so the format works when it's executed right and we're on target with the overwhelming number of those stations.

In Chicago, they didn't execute very well and we paid a little bit of a price there and it will impact us fourth quarter. I think it will be, Paul, pretty much on track as we move into 2003. And we have been working very hard on that. The good news is that that's one of the few stations that has been disappointing in the rollout and therefore we don't have a lot of challenges like that in other markets.

With regard to the block program revenue we are in the midst of renegotiating. That normally is completed in November and December. Frankly, because of the number of stations, it's pretty much toward the end of December. Historically we have been able to maintain a 6 to 8% rate increase year over year. Last year, I think we did five because of the soft economy.

I don't know what it will be this year. I would probably estimate that it will be on the lower end of that range and we may have to settle for something between five5 and six6 %. It's a little premature to tell. When I get those and we get in there further on, one call will have specific guidance on that

Thank you

Next question is from Vinton (ph.) Vickers of J.P. Morgan

You guys do a pretty good job giving out the -- in terms of your BCF margin composition analysis. Is it possible to tell us what the growth is on revenue in a cash-flow, cost analysis basis for each of the buckets that you there?

Sorry. Don't have that information available. But we will develop.

Secondly, if I look at your guidance for the fourth quarter on the same station basis, what is your implied same station BCF growth?

With same station revenue growth projected, mid teens, I guess we would be projecting around about 20% same station BCF growth

And that would be on what kind of expense growth?

Probably 10%.

Great. And can you just let us know what your CapX expectations are for 2002 and 2003, please?

Yeah, CapX for the first nine months, we have broken out in some detail in the earnings release for the first nine months, we have spent a total of $16.7 million of which $13 million has been in relation to acquisitions or income-producing packs and about $3.7 million in maintenance CapX. For Q4, we're projecting a -- $3 million of CapX, $1.3 million of which is maintenance, $1.7 of which is acquisition related, income producing.

They would give us a total for the year of approximately -- just shy of $20 million. We are --you know, the acquisition related CapX is certainly slowing down. It relates to a number of acquisitions we did in 2001. It relates to a couple of tower site improvements where we purchased new towers. Those projects are now largely completed. I think next year we would be targeting CapX in the 8 to $10 million range

Great. Thanks very much.

Thank you. Next question is from Drew Marcus of Deutsch Banc.

Good afternoon. A few quick questions. One,% of revenue from auto basing it on percent of advertising from auto and total revenue from auto. Second, you give great disclosure on these different buckets. Can you give just the revenue and cash flow from just the CCM stations? And then, third, you have kind of -- another way to ask this question that has been asked her, kind of like a growth by format, like your growth by talk formats, for example?

I think the closest we've got to that, on the same station numbers, the music stations grew by 64%, compared to a year ago. And the talk stations, same station group by 7%. So I think that's 64% revenue growth is a pretty good number for what was the revenue growth from the CCM stations. I don't have a cash flow growth number in front of me.

Do you have the absolute revenue from CCM for this quarter or year to date maybe?

The absolute would be the music station, same station, grew 64%. The only thing that would be excluded from that are the CCM station that we lunched in the last year. They would have had no revenue a year ago. They clearly have revenue now. So that's -- that can only push them 64% higher. Probably takes that 64% up to perhaps 80%. Okay.

Okay.

Do you have another question, drew.

Auto percentage

When we looked at it during the course of the year, it was less than 10% of advertising revenue, 8.5 to 8% is probably a pretty number. Our Christian talk stations don't sell per point. We sell at premium rates so we don't typically get as much auto revenue as our general markets counterparts. That could be part of our advertising revenue. Block is probably 25% of our total revenue which would bring down that auto as a total percentage of revenue to something like 6%. And George TULLIS (ph.) is leaving the company.

We brought him in as vice president of special projects. He was to [indiscernible] the rollout of the [indiscernible] stations and to help with putting the infrastructure to do that. We also have George overseeing a few markets. In these projects, with the rollout complete, there was an agreement that George felt like he wanted to move on to new challenges at this stage in his career. So he made some solid contributions. But we pretty much tied the special projects up, I think we both felt that, without reassigning him to something else,, he was going to be under utilized and I think he made the decision to resign

Great. Thank you very much.

Thank you. Next question is coming from John (ph.) Coby(ph.) of SunTrust Robinson

Good afternoon. Hello? Hello?

Hello?

Okay. Didn't hear you there. Probably revisiting something other people have been asking. As we model for next year, and you give very good guidance in terms of fourth quarter having the startup stations with negative $800,000 cash flow. As we start turning towards 2003, how should we model our assumptions in terms of negative cash flow? When should we start receiving that inflection point for the stations to give a positive cash flow?

When I think about the stations that are currently losing money, by Q4 of 2003, we would hope that all of them are profitable. You know, the question as to when they turn, I would say they will gradual turn during the course of Q4 and then into next year. So we currently have got, I think, 11 stations losing money. Might expect that number to gradually decrease to zero over the next four to five quarters. And the dollars will probably decrease at a similar pace. And obviously as some of them will turn to profit, we will have profits to offset some of those losses.

Now, your $135 million that has been invested, that number now excludes, I guess, the Cincinnati station, just for housekeeping purposes?

Could you say that again, Jonathan

When you mention the $135 million, that's sort of where you're not getting any return, I'm assuming thank that number now excludes the sale of the Cincinnati station?

Absolutely it excludes Cincinnati.

Also if you can give us what you're seeing in November, December pacings, I would appreciate that, and that will be it for me.

I think our October number is pretty consistent with November and December at this point. You know, I think they will be pretty steady between the two quarters between the three months. You know, still obviously, we need to bring in, you know, certain revenues for November and December. So I think October would represent our best estimates. Then, drew, just following back on your question about the total growth, revenue growth of our music stations, that total number is 68%. Next question?

Thank you. Next question is coming from James Marsh (ph.) of S.G. Cowan.

Hi, guys. I missed the beginning of the call, so if anyone answered this, I apologize. I was wondering if David you could give us the ratings over the fish portfolio in the summer book, primarily for the women, 25-54 demos. Secondly, on the cost side I was hoping that you could decompose the expense growth in the fourth quarter, if Post Office possible strip out the expenses from the startups and one time like fall book promotion from run rate costs?

I don't have the 25-54 rates in front of me. I have 12 plus rates in front of me. Atlanta, 2.4 in the summer book versus 2.1 in the spring. Chicago, 1.0. Versus a zero.9. Cleveland, a 1.8 versus a 2.9. Colorado springs, a 3.8 versus a 3.2. Dallas, a 3.9 Vass 3.2. Hawaii, 1.3 versus a 1.7. Orange County, .7 versus .6 Milwaukee, 1.4 versus 1.2. Portland, 2.5, and Sacramento 1.9 versus 2.3. That's some of the ratings information. In terms of Q4 costs, total stock losses, approximately 800,000. The new stations within that are Nashville, which we're currently operating under an LMA and that will probably lose between 50 and $100,000 in the fourth quarter. And the additional station we added in, Hawaii, that [indiscernible] closed in August. That station will probably have a 50 to $100,000 loss in Q4. [indiscernible] promotions -- unfortunately I don't have a total in front of me.

This is Ed. James, getting back to your question on the ARBITRON numbers, I have a few of the target demographic you asked about. Earlier in the call, we mentioned that in Dallas that it was female 25-54, we were at a -- we went from a 5.3 in the spring to a 6.7 which made it number 2 overall. In Cleveland, it was -- I don't have the females. Let's see. Women -- I don't have that for Cleveland. In Colorado Springs, women went from 5.6, which was 6th overall, to 6.8, which is fourth overall, women 25-54

That 6.7 is such a big number in Dallas. Is is that specific to that market or do you think you could get to those numbers in other markets? Is there anything market specific or station-specific that would limit you in other areas?

Only to the extent Dallas has been around longer than the others. It's been there and there's more of an opportunity to get established. But we have used Dallas as sort of our beta site to some extent. We have implement add number of strategies there that we're very excited about, that we think are very transferable to

other markets. They have to do with music mix, with proprietary approaches to execution that I don't -- I don't want to get too specific in. But can I say to you I am very confident that these kinds of numbers are doable in these other markets. There's nothing that is so unique to Dallas that we can't transfer it to Atlanta or Cleveland or Chicago or -- and we intend to. And we are implementing the moves to do that. Colorado springs is also -- the two markets that I mentioned, Dallas and Colorado springs, Colorado springs, the numbers are 6.8 share female, 25-54. This is also a station that has been around. It has been in this format much longer than the other stations. We brought this before we rolled out the first fish format, and it had been in the format under the prior ownership. So when they have a little bit of longevity and can get established, they get this traction. There's a lot of execution involved that we have to perform but I'm very confident, James, we can do that

Thanks a lot, Ed. Dave, one last housekeeping item, for fourth quart ever 2001, what are the base revenue and BCF numbers on a same-station basis? Do you have those handy?

Basis revenue for same-station Q4, yeah. Let me see. I do not have these here handy. But base revenue for same station purposes for Q4 2001 are $31 million, 442,000

Do you have an EBITDA or something like that?

I don't have an EBITDA. Our total revenues, net broadcast, Q4 last year, $35,090. So that will give you a percentage of what is in same station. Okay?

That's great. Thanks, guys

Next question from Jim Goss(ph.) of Barrington Research.

A couple of questions. One, just follow up on the discussion you were telling me about the Dallas station, is there any regional difference that might give it a bigger crossover appeal to traditional or contemporary that could explain the difference or do you think that is totally transferable to other markets? Then separately, within the break down of revenue in BCF by category, would it be safe to assume that the 14 most mature stations are all of the cyst Yen teaching and talk that you were talking about with the highest market potential and the 11 at the bottom were mostly music. Then finally, you mentioned 30 of the $45 million of proceeds from the station sales were placed in to a like kind exchange account. Does that only refer to the tax-favorable treatment element of it, or are there restrictions on what you can do with it, in terms of putting it in cash or paying down debt or whatever?

Let me handle this, Jim, the first part of your question. I think that the format is eminently transferable. Dallas is not unique in that respect in terms of any regional phenomena. We mentioned Atlanta. We have done very well there. There's some comet active elements there that we are -- that have to be addressed. But we've been very pleased with Atlanta and the audience share its achieved as [indiscernible] us to stay on plan and stay on plan. In Orange County in Los Angeles, the ratings that David gave you, I think, was .7 was for the whole Los Angeles market. This is a 6-kilowatt class A that is licensed to Anaheim and, therefore, really does Orange County. If will you look at the Orange County book, I think that the 12-plus share approaches something like 3, 3.2, and it's been growing and doing very nicely there. So it is, indeed, transferable to Orange County. It has been transferable to Cleveland. The first book out of the shoot when we acquired Portland was a 2.3 share, and it moved up to a 3.3 share. It dipped in the summer book. But the summer book is generally considered to be the most unreliable in terms of really reflecting what is going on simply because of people's patterns changing in the summertime. So Dallas is not unique. That format is very transferable to these other markets. And most of the markets that we have gone in -- indeed, all of the markets that we have gone in, we have done an analysis to see whether or not it was a market that would receive these formats. That was part of the due diligence as we approached the markets. With regard to your other questions, let me let David take a stab at it

On the mature stations, 14 of them, 13 are Christian teaching talk and one is ethic broken programming. On the stick stations, six are contemporary Christian music, one is teaching Christian talk, one is conservative news talk, and three others are in a variety of other formats, country, sports, et cetera. On the like-kind exchange, the $45 million in total proceeds, $30 million of that was specifically placed into a like-kind exchange account. We have -- from the dates we put the money in there, September 30, we have 45 days to specifically ivory placement properties. We have a total of six months to then close those acquisitions should we find them and should we choose to do so. The benefits of using that like-kind exchange account is that, on the sale in Cincinnati, we have a potential three- to four-million tax liability that is combined, federal and state. We can defer that potential tax liability over 15 years through the use of the like-kind exchange mechanism. And we decide it was worthwhile, at least having the option open to us in case any acquisitions came along. We didn't put the entire proceeds in there because we need to -- you know, you can get all of the tax advantages we need within that $30 million number. In any case, we had already made the decision that there was going to be a permanent reduction in debt as a result of certain of the Cincinnati sales proceeds. So that was the kind of decision-making process that we went through on that point.

With regard to one other aspect, Jim, we can kick the money out of the like for like exchange. We just simply then would destroy the ability to -- I mean, there's no rink. The only restriction is that we would then compromise the ability to use those funds for life or like exchange HUD we find something that made sense. But there's no restriction that would -- that would put those funds beyond our reach if we needed them for any other purpose.

And when does the 45 daytime expire and how close are you to determining properties and when you can't?

It expires November 15th. You're actually allowed to identify properties up to twice the sale proceeds. So there's a basket if you like. We have to accept that basket by November 15th. And then the acquisitions will either happen within the prime time or they won't

Okay. Thanks very much.

At this point, I would say we intend to identify certain things in that basket. They may or may not happen.

But we would like to keep the options open and maximize our ability to control expenses.

Again, ladies and gentlemen. If you do have any further questions or comments at this time, please press 1 followed by 4 on your touchtone phone. Our next question is coming from David Bank (ph.) of RBC Capitol Markets

Thanks, guys. A couple of questions. The first one is, if you wouldn't mind talking about how KLTY specifically did in October and what the pacings are for KLTY in November and December, and if you have any indication on how January is looking. And then two other questions. The next one would be the impact of political advertising for you? Can you guys sort of quantity tie it? And, you know, depending on its significance, what it means for -- you know, as we see political kind of going away in November and December, what it means for pacings. Then last, I guess a philosophical question for Ed, which is, as you think about what your primary focus would be right now, would you rather see the company deliver -- if the choice is leverage or growth, do you [indiscernible] or growth, you know, which one do you pick?

Generally speaking we have been more focused on delivering. There has not been a significant acquisition since a year ago last August when we announced Portland, even though we [indiscernible] and it closed on it, we announced that acquisition N. all of 2001. So we have deliberately backed down on some of the acquisition activity to, first of all, digest and consolidate what we have acquired, that we continue the dimension that we have. Already the most under developed portfolio, we think, in the radio industry. So there's been a lot of activity. We felt this last year was a time to absorb and focus on delivering. But there will be additional acquisitions. It's just part of the business. And we have to keep our hands on the pulse of the market and when unique opportunities come along that we think are -- and make sense for shareholders, we will have to look at those. So the activity as we're able to, as we see good opportunities that we think are drove and we focus more on trying to -- if possible, to stay away from [indiscernible] we can and try to find cash flow situations which will also help deliver, we will try to do that and continue to try to do that, but both activities will go on, David, but I would say clearly for the last year, delivering has been a focus and the sale of Cincinnati, much that motivation was an attempt to deliver. We thought that was a good way to motivate shareholders. We will try to deliver every quarter. We will have delivering activity without the sale of additional assets just simply by continuing to grow these under developed portfolio situations.

You had another question, David?

Thank you. Our next question is coming from Jack Kretifus (ph.) of Shank Capital (ph.).

You had mentioned what your actual leverage was under the bank covenant and what it was. Could you repeat that, please?

The covenant is currently at 7.25 as of September 30, we were tracking at 6.5 in relation to that covenant. That covenant begins to ratchet down to a 7 and then a quarter turn reduction every quarter throughout 2003.

And are you at all concerned that you will be hitting any of those covenants?

I think we will be fine

How about interest coverage?

We will be fine. We have projected out where we are against all of our covenants by quarter for the coming year, and at this point, I see no issues.

Okay. And you may have already discussed this. What is your availability under revolver right now?

We have a theoretical availability as of today of somewhere between $40 and $45 million. That assumes the 7.25 leverage ratio since it ratchets down to 7, 7.31, that a more practical number which would give us between $20 and $25 million of capacity should we, you know, choose to make certain acquisitions within that time frame

And what level of debt will you feel you will be comfortable with?

As I look ahead, 12 to 15 months, I would like to be in a pure debt to EBITDA ratio of 6, perhaps a touch better.

Okay. Thank you.

Thank you. Our next question is coming from Bobby Melmake(ph.) of Terrier Partners (ph.).

Good afternoon. David, I'm trying to calculate, looking at your third- and fourth-quarter growth, before the release today, I would have expected your fourth quarter comp station growth should have been higher than the third quarter only because of the extraordinary events of last year, specific, you have said on previous conference calls that the terrorist attacks resulted in Salem losing a million dollars of revenues in the third quarter last year, because of timing and $4 million of revenue in the fourth quarter. And if you play with some of the numbers, using around $35 million revenue per quarter, it kind of gets you to -- if you're forecasting 14 or mid teens comp station growth, sort of adjusted if you will. This is obviously a hypothetical, a low to mid single digit growth versus low double digit growth for the quarter you just reported, if one assumes that you had had that revenue that you didn't have last year. I know there are lots of things you can do here to play with numbers, none of which is entir accurate or precise. I guess I'm asking for more color than for precision in terms of what the real core same-station growth of Salem's stations is, please.

I think there are there are two or three things that impact the comparison of Q4 a year ago, versus Q4 today. There are have been two or three stations sold that had revenue and cash flow a year ago. There was a station in San Bernardino that we sold. There was a station in Akron that we sold. And then, most significantly, we sold Cincinnati. So they need to be carved out of the year-ago numbers. That's a factor. The second factor is, you know, with all of the other radio companies, 100% of their revenues were impacted by 9-11. In our case, the block programming revenues, you know, were almost entirely intact following 9-11. Those revenues continued just fine. We did preempt a few programs around 9-11. But other than that, they continued as normal. Those programs are almost entirely on annual contracts, therefore our rates for Q4 get locked in at the beginning of the year. That's the second piece of color. And the third is Chicago. We had anticipated that we would have had some better ratings and listenership from that station. And I think you see some of the effects of that in our Q4 numbers this year. I think those are the three pieces of color that, you know, we have noticed when we have examined Q4.

Thank you. Ladies and gentlemen, we do have two final follow-up questions. Our first follow-up question is coming from Fred Mirand of Jeffries and Company

Actually my question was answered so I'm all set. Thank you.

Thank you. Our final question comes from David Bank of RBC Capital Markets.

Thanks, guys. I just wanted to see if I could get the answer to the KLTY pacings.

KLTY we are projecting 40% growth from Q4 last year to Q4 this year

And can you talk about how October was?

October was slightly above that 40 percent.

And the last question, the impact for you guys on political advertising? Can you talk about that during the quarter or during the third quarter and the fourth quarter?

Relatively small impact. We probably generated around $300,000 in political revenue in the fourth quarter.

Terrific. Thanks, guys.

Thank you. This does conclude the Q-and-A session. I would like to turn the floor back to management for any closing comments

Thank you Dante. We thank you for your participation. We will try to follow up with some of these requests to do some breakouts to provide you with additional information. And we're happy to try to do that as well on other issues that may not have come up. And we're happy to entertain calls and try to make available as much information as we can. Again, thank you for joining the call. With that, we will conclude

Thank you very much for your participation. This does conclude today's Salem Communications third quarter earnings conference call. You may disconnect your lines and have a wonderful day.