Salem Media Group Inc (SALM) 2003 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Salem Communications 2003 first quarter teleconference.

Copies of the earnings release have been sent to you for your information and reference during this call.

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This conference is being recorded today.

At this time I would like to turn the conference over to Amanda Strungmarson (ph) manager of Investor Relations.

Please go ahead

Thank you, operator and welcome everyone.

I'd like to thank you for joining us for our first quarter 2003 conference call.

Before I turn the call over to Ed Atsinger, I would like to advise you this conference call contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Statements made in this conference call that address results or developments, the Salem expects or anticipation that will or 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 filing made with the SEC and to the company's press release issued May 5th, 2003 for important risk factors you should consider evaluating this information.

The forward-looking statements made on this call speak only as to the date hereof and the company under takes no obligation to update such statements to reflect future results or circumstances.

This conference call also contains non-GAAP financial measures within the meaning of regulation G, specifically Station Operating Income and EBITA.

And in conformity with regulation G, information reconciling the non-GAAP financial measures included in this conference call to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles is available on our Investor Relations portion of our company website at www.salemcommunications.com as part of the current report on the form 8-K and earnings release issued today by Salem.

I would like to point out in accordance what is becoming industry practice we're now referring to broadcast cash flow as station operating income, defined net broadcasting revenue minus broadcasting operating expenses.

I would now like to turn the call over to Mr. Edward Atsinger, President and Chief Executive Officer for Salem.

Good afternoon everyone.

Thank you for joining us.

As usual I have David Evans with zero me, our CFO.

I'm pleased to report that despite a rather challenging quarter for the radio industry as a whole, Salem had a successful first quarter.

Slightly exceeding the guidance we provided on March 5th.

I think it reflects our solid resiliency of the business model we have and fundamental strategy.

Let me start by briefed briefly discussing the acquisition we announced earlier today of WAMG-A.M. in Boston for $8.6 million.

As I'm sure most of you know it is increasingly difficult to find quality radio properties at appropriate prices in large markets, particularly in the top ten markets.

WAMG-AM has a good quality day and night signal and will allow us to launch our conservative news talk format in the Boston market.

This station is expected to deliver a strong return on investment.

Now on to our first quarter results.

For the first quarter, 2003, we achieved net broad broadcasting revenue of $38.7 million, an increase of 8.4% from the same period last year.

Station operating income was $12.4 million, up from -- up 12.7% from $11 million last year.

Station operating income margins increased from 31.9% -- to 31.9% from 30.9% last year.

These results were driven by the success of our music stations, improvements at our start-up and developing properties and the consistency and reliability of our block programming revenue in what I think we would all consider a challenging and uncertain advertising environment.

Let me take you through some of the key operational highlights.

First, looking at our network operations as we reported last quarter in 2002, we lost approximately 90 of our 1600 affiliates due to the rollout of the Hannity and O'Reilly programs.

I'm pleased to report that we are making good progress on rebuilding our affiliate base, and we've achieved a net gain of 34 new affiliates since January 1st, 2003.

Equally encouraging is the increase listenership (ph) for all of our national talk shows.

We have increased overall cumulative listenership to 8% to 1,752,000 in the fall of 2002 book.

We are continuing this rebuilding process and it will likely -- we estimate take a further six to 12 months to fully restore our affiliate base.

In terms of the financial performance of the network, we have seen steady progress during the first quarter and even though the general market weakened throughout the quarter, we are cautiously optimistic that this progress will continue.

On a same-station basis, net broadcasting revenue for the quarter grew 7.8% to $38.5 million with same-station operating income growing 11.8% to $3.3 (inaudible) dollars.

For our music stations acquired since 2000, same-station revenue for the first quarter grew 21.2%.

Q1 station operating income for our music stations grew from break-even to a profit in excess of $1.5 million.

Our developing music stations are expected to continue to show improved ratings and revenue and income growth.

Some examples of this continued improvement were clear in the first quarter of 2003.

For the first quarter of 2003, revenues for KLTY in Dallas were 18.5% ahead of first quarter, 2002.

And revenue for our Fish (ph) station in Atlanta were 21.7% ahead of 2002.

We're also seeing signs of improvement in Chicago, our Fish (ph) station in Chicago reached break-even for first quarter of 2003 compared to a loss of 400,000 last year.

Our strong same-station results demonstrate how well Salem is positioned to continue to deliver industry leading growth for the next several years.

We have a high percentage of stick, start-up and developing station.

Of our 91 stations we currently have six pending acquisitions, 12 in the start-up stage, 34 in an early development stage, 25 in a developed with upside stage and 14 that we consider to be fully mature.

Our station group is one of the most attractive in the industry, especially in terms of a large market presence.

In 2002, we had $6.1 million in start-up losses which we expect will turn positive in 2003.

As a further elaboration in Q1, 2003, we had $600,000 of start-up losses compared with $2 million of start-up losses in the first quarter of 2002 and $1.2 million in the fourth quarter of 2002.

In summary, this is a strong start for 2003.

Salem is well-positioned to continue to deliver on its commitment to shareholders in achieving industry leading growth for the next several years.

Our long-term goals are to develop clusters in large markets and drive our start-up and developing stations to maturity.

We intend to build on the successes we're having in our music stations and, exploit the upside potential of our developing station portfolio.

With signs of recovery in the advertising environment I believe this is a basis for cautious optimism about the remainder of 2003.

With that I will turn the call over to David Evans for a more detailed discussion of our Q1 results, and Q2, 2003 guidance.

Thank you, Ed.

All of you should have received our results for the first quarter of 2003 in the press release issued earlier today.

I will briefly review these results on an actual and same-station basis and I will provide guidance for the second quarter of 2003.

As Ed stated, net broadcast revenue for the first quarter increased 8.4% to 38.7 million.

Our station operating income increased 12.7% to 12.4 million.

In terms of operating leverage, this 8.4% revenue increase was achieved with a 6.5% increase in broadcast operating expenses.

In other words, revenue increased by 3 million and station operating income increased by 1.4 million year-over-year, a 47% incremental operating margin.

We have focused on continuing to achieve strong operating leverage performance.

On a same-station basis, net broadcast revenue and station operating income increased 7.8% and 11.8% respectively.

As Ed mentioned our music stations continue to grow at an impressive rate and contributed 21% to same-station revenue increase.

Our remaining station portfolio contributed a 5% same-station revenue increase.

Within the same-station increases, there was a 7% increase in programming revenue and a 6% increase in spot revenue with a slight decline in infomercial revenue.

Network revenue decreased by 7%.

Eighty-two of our radio stations and 99.6% of our net broadcast revenue are included in our same-station numbers.

EBITA decreased 11.4% to 6.2 million in the first quarter of 2003 compared to 7 million last year.

First quarter 03 EBITA included two once-time write-offs, 1.3 million resulting from the denial of the company's request to relocate one of our San Diego radio towers and a write-off of .9 million resulting from the FCC denial of a motion to upgrade nighttime coverage of WGKA-AM in Atlanta, Georgia.

Excluding these write-offs taken for San Diego and Atlanta, EBITA increased 20% to 8.4 million.

Turning to our second quarter outlook, we achieved same-station revenue growth of 9% for April and expect to achieve high-single digit revenue growth for May and for the second quarter as a whole.

For the second quarter of 2003, we are projecting net broadcast revenue of between 43.2 and 43.7 million.

Net income after-tax for the second quarter is projected to be between 1 million and 1.4 million.

We are expecting station operating income of between 14.9 and 15.4 million, and EBITA is projected to be between 10.7 and 11.2 million.

The second quarter outlook incorporates the successful renewal of our national block programming contracts, continued growth from our contemporary Christian music radio stations, the increased competition faced by our Salem Radio Network business and the impact of refinancing 100 million of senior subordinated notes from a 9.5% interest rate down to 7.75%.

Finally, just to look at our balance sheet, during the first quarter of 2003, we amended our credit facility to redefine various debt convenance (ph) and the financial ratio tests to provide us with additional borrowing flexibility.

As of March 31, we had total debt of 316 million and we're in compliance with all of our convenance.

We currently have a last 12-month financial leverage ratio of 7.9.

This debt total debt of 316 includes 140 million of Financing for stick acquisitions that are currently losing money or break-even.

We expect these stations to produce strong EBITA growth in 2003 and steadily reduce our future leverage.

If these stick acquisitions were exclude from our leverage ratio, the leverage ratio would be only 4.4.

In terms of our bank convenance, our bank leverage ratio was 6.7 as of March 31, less is a compliance convenance of seven and our bond leverage ratio was 6.4, thus is an encurrance (ph) convenance of seven.

That concludes our prepared remarks and we would like to open the floor for questions, please, operator.

Thank you, sir.

The floor is now open for questions.

Once again if you do have a question, please press the numbers one followed by four on your Bush button phone.

We ask if a speakerphone to utilize your handset to provide optimum sound quality.

Once again that is one followed by four on your touch-tone telephone to ask a question.

Our first question is coming from James Dix of Deutsche Bank Securities.

Hi, good afternoon, gentlemen.

Good results actually James Dix stepping in for Drew.

Just a couple of questions.

First if you could give any sense as to how much, you know, conversion of ratings to revenue you're getting on your music stations, whether you could give, you know, a power ratio range or just some assessment of like where your music stations stand, you know, in revenue share versus rating share, you know for mature versus non-mature stations just so we could get some sense of the upside there that is remaining.

Also, if you could give any further color as to, you know, ratings improvements for the music stations in particular that you've seen for the winter book in particular and finally, I guess, I don't know, David, whether you have the same-station base for each one of the quarters of 2002 just for modeling purposes, you know, just in terms of revenue and station operating income as you have defined it.

James, with regard to your question about the power ratio status of the stations, it's very difficult to be very specific because most of these stations have rolled out since the fall of 2000 and they have been paced throughout that remaining period some coming on-board as recently as a year ago, others being with us almost three years, so it varies from some have been with us quite a while to some that have not been with us very long.

I think if you start with Dallas as a station that has been in the format for a long time and has a degree of maturity, I think if you take a look at it as a target or a goal for our group, that power ratio is typically a one-plus, typically 1.1 would be the average power ratio for Dallas.

A number of the other stations are approaching that level.

I would say Atlanta, certainly Los Angeles certainly accedes that, they always outperform their arbitron (ph) number but that is a class A, so that is a bit of an anomaly.

The other stations are making solid progress towards that.

Most of them have been in the format for a shorter period of time.

I think the best way that I can answer it is that the Dallas model represents the goal that we expect all of them to achieve.

We have no reason to believe that we can't achieve it.

The progress that we're making with the station seems to be progressing pretty well in that regard.

I can't remember the second question maybe David remembers it.

Yeah, I think you had two other questions, James.

One was the recent ratings --

Yes.

For the music stations and the other was the same-station base?

Correct.

In terms of the same-station base, I could not have the numbers for '02, but what I can say is, you know, at this point almost every radio station is in the same-station.

The only exceptions are two stations in Nashville that are quite small and one AM in Hawaii that is very small.

So 99.6% of our revenues and probably around about the same percentage of station operating income is both same-station and in total revenue.

So in terms of trying to project the rivet rest of '03, you know, you can basically assume that everything is in there.

So you'll start seeing barring further acquisitions kind of a convergence between your -- you know, your revenue growth rate on a reported and on same-station basis?

You see that very clearly in Q1 and that will continue further acquisitions.

Okay.

In terms of recent ratings, the ratings levels I think for all of our music stations are pretty steady.

I think in the most recent book we got either slight improvements to those ratings or the same ratings.

I don't think there is anything that slipped backwards.

You know, I think for Dallas, the most recent ratings book was a 3.7.

That compares to a 3.1 in the fall book, so obviously a nice improvement.

Cleveland went from a 2.6 to a 2.8.

Atlanta from a 2.5 to a 2.6.

A slight decline in Milwaukee, 1.7 down to a 1.5, a slight decline in Chicago a .8 to a .7.

L.A. which is Orange County is steady which is .7.

In Orange County itself we were up from 1.3 to a 2.2.

But I think overall we're pretty satisfied with those ratings and very pleased with Dallas and Cleveland and Atlanta which are obviously big markets.

These all, by the way, James, represent 12 plus markets in demographic and most cases there was additional progress made even in some that were flat in 12 plus and the key demographic for this format is female 25-54.

Okay.

Thank you.

Our next question is coming from Paul Sweeney (ph) of Credit Suise First Boston.

Thank you very much and good afternoon.

Three questions, please.

First on the network I think you mentioned that the network revenue is down I believe 7% in the first quarter and as you add affiliates back, can we assume that that type of performance will be the low point for the network and the network will begin to improve and perhaps contribute to growth going forward and, if so, when during the year?

Second, just to -- I guess talk a little bit about your advertisers.

I know you have a unique set of advertisers even on your FM Fish (ph) stations.

Just talk to us how they reacted kind of going into the war and coming out.

They seemed actually more stable than the general market.

Then thirdly, just on the expense line, is there anything unusual for the remainder of the year and any unusual promotional expenses that we didn't think about for the remainder of the year.

Thank you.

With regard to the network, I do think that what we have seen in the last two quarters represents a bit of a low point for the network.

We see some light at the end of the tunnel.

Even in addition to the -- in addition to the net growth and affiliates and as we say, we have estimated it will take maybe particulars to nine months to get back to the 1600 level of affiliates.

We regained about a third of those, as I said, in the call on my part of the call.

The network will continue to go forward simply because we have so many newly acquired stations and we have a program where we contribute a certain amount of inventory from all of the newly acquired stations to the network and in some cases it is not a huge amount of inventory, maybe eight or ten spots a day.

In others it is a little bit more, 18.

But as the start-up stations begin to get traction, develop audience, they will more than compensate for the loss of affiliates because typically the stations that we bring to the network represent larger markets and a larger opportunity for audience growth.

So there is an inherent factor in the network that is working in our favor and I think what we've seen in the last two quarters was the immediate impact of the Hannity and O'Reilly role-out, the loss of the 90 affiliates and a very soft national environment and it remains softer first quarter.

It's beginning to firm-up and we think we are probably at a low point and these other factors should drive national network growth in the remainder of '03.

I -- as to our advertisers, we did see a good bit of stability this time relative to the war both before and after.

Certainly it was a much -- it was much less of a blip on growth and revenue than we saw during the 9/11 episode.

Our advertisers continued to hang in rather well but and we had a little disruption but we considered it minor and I think our experience is very accurate.

I'm not aware of any extraordinary expenses that we should face.

David might want to comment on that.

We have a few projects that are capital improvements that are beyond maintenance but I don't think there is anything extraordinary.

I agree with that.

You know, I think specifically asked about marketing and promotion, I think we've got that to -- you know, to a pretty much kind of steady state level so unless there is, you know, unusual new competition in the market or a downward blip in ratings that we need to address, you know, I don't think you should expect anything unusual.

Great I thanks very much.

Thank you.

Our next question is coming from Hooper Stevens of SunTrust Robinson Humphrey.

High, this is Hooper Stevens.

Where do you expect your leverage to go after the current acquisitions close and also when do you do you expect those transactions to close and the last question, it looks like the KKCS in Colorado has pretty high ratings in the country format.

When do you expect or how long do you expect it would take to get to ratings parity and the conservative news talks format?

Thank you.

Let me answer Let me answer the second question first.

I think there is a little confusion about KKCS.

The Walton group of stations has two stations with those call letters.

They have an AM and FM.

We're by the AM.

The FM has the high ratings and the FM sold to Marathon Media and I believe that was announced so this particular station doesn't have extraordinary ratings, anything approaching --

I apologize for that.

Thank you for the clarification.

In terms of leverage, the three acquisitions that we have out there pending are Boston, Jacksonville and Colorado Springs for a total of 18, $19 million worth of acquisitions.

That is about .35, .4 of a turn of leverage.

We do get a favorable way of addressing that within our bank convenance in that we're allowed to exclude start-up losses for the first 18 months.

We're also allowed to exclude half of the purchase price of any reformatted radio stations, also for the first 18 months.

So when you take that adjustment into account, the leverage impact is probably about half of that .3 or .4 so probably about .2 of a turn of leverage.

In terms of timing, I would say we're about three to four months away from closing on those transactions obviously dependent upon the timing of the SEC so I would say we're talking Q3 would be the most reasonable estimate at this point.

Thank you very much.

Thank you.

Our next question is coming from James Marsh of SG Cowen.

Hi, gentlemen.

Two quick questions.

First you mention pacings (ph) in the second quarter.

They seem extremely strong for what we're hearing for the industry.

Can you give us a sense for what those markets are pacing or just an estimate of that and then secondly, that $7 million for investment acquisition CAPEX, is there anything in particular in in there that is material or that is just general spending?

Okay, in terms of the same-station -- the -- in terms of the revenue guidance of high-single digits for 2002, Q2, terms of key markets that are really driving that number, we're seeing some strong growth in Chicago, Milwaukee, Denver, Boston, Los Angeles, Cleveland, Minneapolis, Sacramento so, you know, as you can tell, it's a number of markets.

You know, what do those markets have in common in the?

In the main it is music stations or developing stations that are still working their way to maturity that's really driving the number.

In terms of improvement related CAPEX, the most significant item is we just received FCC approval to increase the height of our FM tower in Atlanta by increasing the height, we will be able to nicely improve our market coverage, our tower is located to the east of Atlanta, and by having more highlight, we'll do a better job of reaching into the west side suburbs and into office buildings in the center of Atlanta.

That project will cost 3.5 to $4 million to complete so that's the largest item that is in that.

The other improvement project, smaller and, you know, nothing -- nothing material really stands out from them other than the Atlanta tower upgrade on the FM that I just mentioned.

I might add, James, that this is an -- I think a little bit more than 700 feet of an increase.

It is very significant in terms of enhancing the regional coverage of that station and we expect that that will help us improve audience response and we'll be able to translate into very meaningful revenue increases.

Excellent.

David, could you just clarify the markets that you have stations in, where do you think those markets are pacing right now?

It sounds like you're pacing, you know, 500 to 800 basis points ahead of the market.

Is that --

Yeah, I don't have in front of me the individual market data but, obviously everyone has heard the various conference calls from clear channel and Cox, et cetera, and we certainly seem to be out pacing those companies that are also in large markets.

Great, thanks very much.

Thank you.

Our next question is coming from Victor Miller of Bear Stearns.

Good afternoon, a couple of questions.

First of all, it looks like your advertising is actually accelerating in second quarter versus first quarter you say April is up nine in the first quarter and revenue was up about 6%, I believe.

That is correct for the advertising/block time on your radio stations an could you talk about what dynamics you're seeing in the marketplace that might be leading to that?

Is that just the rating trends?

Secondly can you talk about what happened in San Diego what happened for your expectations you had a 2.2 write-off for the quarter.

Are there any other monies we should know about that you have dedicated to try to move your signal or your stations and what is the prognosis on those.

Thanks.

Victor, let me take the second question first then I'll let David deal with the first one.

With regard to San Diego and Atlanta, both of those were significant projects for us.

In San Diego, we have a lease that will expire on a current transmitter sight in September and we have been working for four years to relocate that tower.

It's very difficult in -- it's very difficult in San Diego County, very environmentally sensitive, not a lot of developable land that makes ideal AM sights, so it has been a rather significant challenge.

We had incurred about a million three in legal engineering, other consultant fees.

In pursuing this relocation and -- and that was over three-and a half year process before the San Diego County various planning boards and ultimately the board of supervisors.

The good news about it is that the board of supervisors in rejecting this request unanimously approved a request to put us on a fast-tract and directed the planning director to use his best efforts to help us find a site that will be suitable and we have a number of alternatives that we are working on that we think may be better.

We may have a period of time where we will operate temporarily on an STA which is a special temporary authority.

We have located sites that are appropriate for that and been in consolidation with the FCC and we believe with our attorney -- FCC attorneys and engineers and we believe we'll be fine and we'll end up with a good site and this investment was not lost because we do now have the active cooperation of San Diego County, both the planning department and the board of supervisors unanimously on record to help us and they are helping us and we're making progress.

So we had to take the write-off in light of the decision but it was not money wasted in vane.

We have turned up a number of good options and we will report those at an appropriate time.

In terms of Atlanta, we had -- we're pursuing a very complicated strategy that would have allowed us to upgrade our 1190 AM frequency operation Atlanta, WGKA, they substantially at night.

It currently has a very good daytime signal.

We're operating with 25 kilowatts.

I think we have a construction permit to take that to 50 but it's virtually on -- unavailable at night so we wanted to get the nighttime authority.

We got a negative decision -- we were actually three years ago our application was dismissed.

We filed a motion for review and it was this motion for review that was recently denied.

Now, we intend to appeal that.

We still believe that we have a reasonable chance of prevailing.

There are other parties involved and if we can put together a global settlement of three or four other parties and we have reason to believe that we can, we think there is a reasonable chance the commission will reconsider that decision, particularly if we can demonstrate to them that the public interest will be served and more people will receive coverage as a result of our motion for reconsideration and we do intend to file that within the next few weeks.

But we had to take the write-off in light of the bad decision our -- our auditors felt the appropriate decision was to take a reserve for that because of that negative decision but we remain optimistic that we still have a good opportunity to improve that facility.

If we can achieve what we're trying to do in Atlanta without -- with that nighttime signal, this station, WGKA will be perhaps the second best AM facility in that market and we think that will be a very valuable improvement if we can achieve it.

We don't have any other major upgrade initiatives that have a big cost associated with them so I don't anticipate any other announcements of write-offs if we're successful.

I don't think there is anything else out there that would be material and significant.

I'll let David take a shot at your -- the first part of your question related to --

In terms of your first question, victor, just make sure I understand it properly, you're asking for -- you're kind of comparing Q1 actual revenue to Q2 guidance revenue.

So Q1, 8.4%, Q2, high single digits and just asking for a little analysis in interpretation and evaluation on what is difference between Q1 and Q2?

Yeah, just the fact that it is actually accelerating slightly is a bit of a surprise given the lack of tone in the marketplace in general.

So I'm just -- I'm curious to see why you're seeing that.

Yeah, I think that is probably two factors that come to mind.

The first is March.

March is not in the second quarter.

If I look at Q1 both January and February were stronger than March.

April, May, June seem to be back at least for us where January and February were.

So with the -- you know, I guess .1 is the war uncertainty seems to be gone and out of the way.

The second factor thank you see in our numbers is on our network business where we are beginning to make progress in terms of rebuilding the affiliate base and growing revenues back where they were a year ago.

So I think those are the two factors that -- that you see in Q1 and Q2 that are a little different.

Thanks very much.

Thank you.

Our next question is coming from Vincent Vickers (ph) from J.P. Morgan.

Good afternoon.

A couple of questions, please.

I don't know if you said it but how much was your network revenues down in the quarter and then your expectations for the second quarter.

And then could you talk a little bit about how much visibility you have right now, how much of May's advertising inventory did you enter a month selling out and is visibility improving or are you seeing late bookings like you are with some of you are peers?

Yes, I would confer that the network revenues were down in Q1 7%; 2002 we are pacing better than that but still down on last year so I guess what I'd say is low single digits for Q2 network pacings.

What was your other question?

Sorry, Vincent?

Sorry, the second question just had to do with the level of visibility that you have currently.

We're hearing pretty late bookings occurring with some of your peers and just wondering if you guys have better visibility than some of the other operators?

Thanks.

Well, we certainly have visibility in terms of the block programming side of our business.

In terms of the pacing numbers, I don't split out the block from the advertising but, you know, May at this point is around about 80% done in terms of booked with about 20% to go in terms of projections.

That is not a lot different than the last few months so I guess what I'd say is visibility continues to be a challenge and people continue to be toe continue to book light.

Thank you.

Our next question is coming from Andy VanHallen of Deutsche Bank.

Good afternoon.

David, I was wondering if you could spend at least a second going through some of the highlights of the covenant changes you might have changed quite a few and some of them may not be that critical but if you could go over what you believe to be sort of the most important covenant changes.

There are two changes.

The first is the bank leverage ratio.

The covenant for March and June is now set at seven.

September, 6.75, and December, 6.5.

I think the original convenance before the amendment had us going from a seven leverage ratio December 31, '02, to a six leverage ratio at '03 so we have slowed down the ratcheting down of the leverage ratio process.

That is the first change.

The second change is to the interest coverage ratio which was more of a definitional change.

When we did the refinancing of our high-yield notes in December from 9% to seven and three quarters, our interest coverage ratio, the interest expense is the last 12 months actual number so under the pre-amendment convenance, we had to show the 9% -- sorry -- the 9.5% interest rate.

The covenant change allow us to pro forma the impact of the refinancing so we're in effect pro forming in the impact of having seven and three quarter percent notes rather than 9.5% notes.

That is the only change and that works its way through in one year and then, you know, back to the old calculation.

Oh, so, in other words, the new calculation is really for a 12 month period?

Yeah, it's solely to pro forma the 9.5% interest rate down to seven and three quarters until it's worked its way through the income statement which it will in 12 months.

Right, great.

Thank you very much.

Once again as a reminder, please press the numbers one followed by four on your touch-tone phone to register to ask a question.

Our next question is coming from David Bank of RBC Capitol Markets.

Hi, guy.

I hate it when people say this but it was really an incredible April.

The first quarter was pretty good but that is an incredible April.

I was wondering if I could ask a couple of questions, I guess.

The first one was, David, you gave an incremental margin on the previous quarter.

Can you give an incremental margin based upon your second quarter of guidance and I guess what I'm really trying to get at is, what is expense growth look like in the second quarter guidance because you said that your same-station and actual portfolios are beginning to converge and during the second quarter -- first quarter on an actual basis your expense growth was a little -- a little over 6.5%.

So I'm sorry, that is a long way of asking.

What is same-station -- what is expense growth look like and as you're converging between same-station and actual, you should I guess be able to have a view now at least over the next kind of year, what are we looking at for fixed cost growth?

I'm sorry, that is a long question and I have two other quick ones.

The first is, do you see difficult comps in the second half of '03?

Is this sustainable?

You guys are growing incredibly in what has got to be the most challenging environment at least for everybody else that anybody has seen in a long time.

You guys went 9% in April.

Is this really sustainable in this quarter and I'll just kind of leave it at that?

Okay.

Your first question about second quarter expense growth, I think if you work -- if you take a look at the press release, we projected net broad broadcast revenue between 43.2 and 43.7.

We projected station operating income of between 14.9 and 15.4.

By doing the math on those two numbers, you basically get to a net broadcast expense guidance number of 28.3 under both the high and low scenarios.

That year ago number -

Right.

-- was 26.91.

Now, you won't pick that up directly off of our second quarter press release because we sold Cincinnati, which was discontinued.

We also at the request of the FCC changed our accounting for barter expenses so that 26.91 is the apples to apples comparison to 28.3.

That equates to a 5.2% growth in broadcast operating expenses.

Hopefully that answers your first question.

Is that -- you mean, is that -- that is definitely a good start to answering if I could push it a little further though.

Is that kind of 5 percentish (ph) number is that the appropriate number that we should think about for the total portfolio over the next couple of quarters?

Certainly I'd say it's in the ball park.

Okay.

You know, there is always, you know, little ups and downs, quarter and quarter depending upon particular initiatives, particular progress at certain stations.

But, you know, what you're seeing I think from '02 into '03 is a gradual moderation of our expense growth.

You know, also of our revenue growth as the portfolio moves beyond this start-up stage and, you know, gradually gets closer and closer to maturity and that is what, I think, you're gradually seeing take place quarter-over-quarter.

Okay.

And then I guess that is a great answer and then just on the sort of sustainability issue.

I certainly feel like, you know, we have a number of stations that are still in the start-up phase, still in the development stage and they will continue to feel our growth for another several years until they reach maturity.

So, you know, I'd expect to continue to have, you know, solid, strong revenue performance.

Obviously, you know, I don't know what is going to go on in the wider economic and political environment.

It would be nice if we saw some strong economic recovery.

That would be great for the second half but, you know, with or without that, we've got a lot going for us in terms of these developing stations.

And all else equal to the second -- do the second half comps, did they play a role in that or the second half comps kind of irrelevant, you know, in -- all else equal, you could do theoretically what you did in the second quarter even given the comps that we're looking at in the second half?

I think the comp. you're specifically referring to is Q4 02?

Yes, sir.

Q4 02 was a bounce back of Q4 01 where there was just a huge amount of lost business because of 9/11 so I think I see Q4 02 and the percentage there is a bounce back from '01 than being something to be overly correspond about for Q4 03.

So, you know, I -- you know, I think we can, you know, I'm not too concerned about that in terms of how it may impact Q4 percentages.

Okay, thanks very much, guys.

Thank you.

Our next question is coming from Jim Goss (ph) of Barrington Research.

Hi.

I had a couple of more questions about the -- a couple of your unusual events.

One with regard to the nighttime coverage issue in Atlanta, you mentioned there were other parties involved.

Is it one of those where you might have a clear channel station from out of market that is invading the air waves or something of that?

What sort of solution are you trying to look for there?

And to the extent that you've -- that you had that issue and the tower shift denial and then the observation that you were having difficulty in finding good quality acquisitions or just the notion that they're difficult to find, does it -- do you think any of these call-in-the questions, some of the growth paths that you've been outlining and hope to achieve over the next several years or do you think the acquisition framework will improve and that might solve itself a little bit?

With regard to the first question in Atlanta, it doesn't involve anything extraordinary like clear channel with a distant move.

The fact of the matter is, what we were trying to do there is all a matter of public record.

If you want -- somebody wanted to take the trouble and go to the FCC files you could turn it up.

What we did is entered into an agreement about four years ago with Rollo (ph) , which is licensed to Ft. Wayne, Indiana, and WLIB (ph) which is licensed to New York City and they had entered into an interface reduction agreement which downgraded Rollo (ph) from a high class to a slightly lower class which allowed other stations to increase their nighttime coverage.

They were a protected class A clear channel status and they downgraded so that other people so that they could receive a higher -- interference from other stations.

This dramatically improved the area of WLIB in New York and brought service to far more people than were receiving it before.

The commission adopted this rule some years ago to encourage these kinds of thing.

We did a study and determined that there was a way to improve both Rollo's resulting coverage and WLIB's resulting coverage by amending that interference reduction agreement and pulling up our WGKA to provide for the first time a very substantial night service to Atlanta.

It got -- where it got complicated is that this RolloWIB agreement had been going on for a number of years and many stations jumped the gun in anticipation of this downgrade and filed applications to improve their night time that would not really under the rules be acceptable until the Rollo downgrade was actually licensed.

Before it was actually licensed, we amended the agreement and entered into an agreement with them that amended that agreement and pulled us up into it to get an improvement for Atlanta.

These other stations that had jumped the gun were -- some of them were unhappy and filed oppositions to it and I think specifically there are two or three parties -- don't hold me to that -- but there was not a high number.

We had been in communication with most of them and think that most of them will arrive at a settlement where they can end up getting everything they want and we can get what we want as well.

So if you want more information, you can go to the file.

Just -- the FCC public file would make that information available to you.

So it is a pretty straightforward thing.

As I say, we think the law is on our side on this but we took the write-off because of this negative decision.

We are continuing to pursue sort of a global settlement with all the other parties demonstrating that there is a way for everybody to get what they want and we believe that the commission will entertain -- we're hopeful that they will entertain a motion for reconsideration that will demonstrate the public interest benefits of responding, particularly if we can bring this new information together and present it.

With regard to the acquisitions and the fact that we commented they're difficult is that really -- does that really pose formative barriers to our long-term strategy?

I suppose in some sense it some sense it does.

We have been proceeding with acquisitions in a very careful and deliberate way.

We have been looking for a station in Boston that would meet our criteria probably for five years.

There have been a few stations that have come on the market.

None of them have really looked that good to us and we have past on them.

This particular station that we have entered into an agreement on has a very nice signal day and night and in that market it's important that you have a good nighttime signal because in the wintertime you don't go to our daytime pattern until 7:45 in the morning and you come off of it as early as 4:30 in the afternoon.

So you miss a good part of your morning drive and afternoon drive if you get a weak night signal in a market as far north as the Boston market.

So it is important that you have good around the clock coverage. 1150 the station that we contracted to buy does, indeed, give us a very good respectable day and night signal and it will work well for us and we believe it will prove to be an accretive acquisition.

Colorado Springs is somewhat a smaller market.

We have been looking in that market many years to find a good facility and the Walton station group has been in the market for a long time and they made a decision to exit.

We've been trying to get something for four or five years.

We think this is a very good buy for us.

We're quite pleased and we believe this will be immediately accretive because we have a strong presence in Colorado Springs with tow hundred thousand watt FMs a very good sales team and infrastructure.

This will role right into that group.

We will leverage our network product and operate very inexpensively and we can have an accretive operation very shortly.

I don't think our overall growth plans are going to be frustrated.

Clearly it is a challenge.

You have to know what you're doing if it was easy everybody would do it and we have been at it a long time.

We think we're pretty good at it.

We will be deliberate and prudent but when the opportunity strikes to get one, sometimes you go ahead and you make the move even when you might otherwise prefer to wait and bring leverage down a little bit and we think the Boston acquisition was one of those occasions.

Okay.

Thanks.

I appreciate that.

And one final follow-up.

Those two specific issues where you've taken write-offs, if it does appear that you get a happier resolution to each of them, does the write-off have to be reversed or accounted for in some different way?

I think once you have taken a write-off, it stays a write-off.

My corporate controller is nodding his head so I think we're in agreement with that.

All right, thanks.

Thank you.

Then we appear to have no further questions.

Are there any closing comments?

Well, we appreciate your joining us for the call.

We feel good about Q1 as we said.

We are optimistic -- cautiously optimistic with the guidance we have given for Q2 and we hope that you will join us when we give that report so thank you and this will conclude the call.

Thank you all for your participation.

That does conclude your teleconference.

You may disconnect your lines at this time.