Salem Media Group Inc (SALM) 2006 Q2 法說會逐字稿

Good morning.

My name is Estia and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Salem Communications second quarter 2006 earnings release conference call.

All lines have been placed to prevent any background noise.

After the speaker's remarks there will be a question-and-answer period. [OPERATOR INSTRUCTIONS] Thank you.

It is now my pleasure to turn the floor over to your host, Mr. Eric Jones, with Investor Relations.

Sir, you may begin your conference.

Thank you.

Welcome and thank you for joining us today for Salem Communications second quarter 2006 earnings call.

As a reminder if you get disconnected at any time you can dial into 973-935-8511 or listen from our Web site www.salem.cc.

We will begin in just a moment with opening comments from our President and CEO, Edward Atsinger III and Vice President of Accounting and Finance, Evan Masyr.

After their opening comments our conference call operator will come back on the line to instruct you on how to submit questions.

David Evans, Executive Vice President Business Development and CFO will participate in the question-and-answer portion of our call.

Please be advised that statements made on this call that relate to future plans, events, financial results, prospects, or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those anticipated as a result of certain risks and uncertainties including but not limited to market acceptance on Salem's radio Form F, competition of radio broadcast, Internet and publishing industries and new technologies, adverse economic conditions and other risks and uncertainties detailed from time to time in Salem's reports on Forms 10-K, 10-Q, 8-K and other filings filed with or furnished to the Securities and Exchange Commission.

Listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as the date hereof.

Salem undertakes no obligation to update or revise any forward-looking statements to reflect new information, changed circumstances, or unanticipated events.

This conference call also contains non-GAAP financial measures within the meaning of Regulation G, specifically station operating income, EBITDA and adjusted EBITDA.

In conformity with Regulation G, information required to accompany the disclosure of non-GAAP financial measures, including a reconciliation of such non-GAAP financial measures included in this conference call to the most directly comparable financial results prepared in accordance with Generally Accepted Accounting Principles, is available on the Investor Relations portion of the Company's Web site at salem.cc as part of the current report on Form 8-K and earnings release issued by Salem earlier today.

I will now turn the call over to Ed Atsinger.

Thank you, Eric.

And thank all of you for joining today's conference call.

As is our normal practice, we will begin with some prepared comments and then we will take your questions.

During the second quarter we continued to focus on the challenge of serving the large and growing audience interested in Christian and family themes content and conservative values through our radio, Internet and publishing platforms.

We achieved a 9% increase in total revenue for the second quarter and while our business was negatively impacted by the same weak radio advertising market affecting other radio broadcasters, we did manage to grow same station net broadcasting revenue by 3%, an improvement over our first quarter but still slower than in previous quarters.

To put it in perspective, however, the radio industry as a whole in terms of revenue declined 1% as reported by Radio Advertising Bureau.

Let me provide specifics on our second quarter results in the context of activities and progress related to the performance of our principle radio formats, our national business and our non-broadcast media businesses.

Focusing on our radio formats, the best performing stations for the quarter were our 32 News Talk stations that serve eight of the top ten in 19 of the top 25 U.S. markets.

These News Talk stations contributed 14% of our total revenue for the quarter and achieved a 19% increase in net broadcasting revenue compared to the same quarter last year.

On a same station basis net broadcasting revenue for this format increased 14%.

Significant contributors to these results were our stations in Chicago, Dallas, Miami and Phoenix.

Our News Talk platform is the least developed element of our radio business with 29 of our 32 News Talk stations achieving SOI margins less than 30% in Q2.

We've invested heavily in the last couple of years to build this platform and there is substantial revenue profit upside, in our opinion, as we take these stations toward their full potential.

We have 13 stations programmed in our contemporary Christian music format and they contributed 21% of our total revenue for the quarter.

Same station CCM revenue increased 3% for Q2 2006 compared to Q2 2005, and same station profitability decreased by 9% to $4 million due primarily to revenue softness at our stations in Los Angeles, Atlanta and Cleveland.

The softness was due to the weak advertising environment and sales staff turnover at a number of these stations.

Also, our CCM station in Atlanta faced heavy marketing by competitor which hurt our ratings and others that target the female 25-54 demographic.

Revenue at KLTY in Dallas, our largest CCM station, was up 9% for the quarter and in the just released spring Arbitron KLTY achieved outstanding results.

It ranked number two overall in Dallas in listenership for its target audience of females 25-54 and achieved the highest cume in the station's history.

As you know, one of our key goals is to replicate KLTY's success at our other CCM stations.

A key element contributing to KLTY's performance has been an unrelenting focus on providing listeners as much music and as little clutter as we can and when we refer to clutter, we mean not just commercial clutter but also promotional clutter and other non-musical elements.

We are currently focused on achieving that same discipline in Atlanta, Portland, Cleveland and Sacramento, although in the short-term performance may be impacted negatively, we believe this is the best path forward and the success at KLTY supports continuing this particular approach.

Christian Teaching Talk is our foundational format.

We have 44 stations programmed in this format which contributed 47% of our total revenue for the quarter.

These stations achieved same station revenue growth of 2%.

This low growth is primarily attributable to weakness in local spot sales which were down 3% for the quarter on a same station basis primarily because of staff turnover at our stations in New York and Portland.

Revenue from block programming on our Christian Teaching and Talk stations grew 7% for the quarter on a same station basis and contributed 56% of the revenue on these stations, or 26% of our total revenue.

Now that we have focused on these three radio formats let's spend a moment or two on our national business.

In Q2 '06 we grew national advertising revenue by 6% to $8 million on a same station basis.

This compares to a decline of 2% for a national advertising for the industry as reported by the Radio Advertising Bureau.

Our strong national growth is the result of adding five sales persons targeting general market business primarily.

We had a conversation on our last call in which we explained how we intend to address certain underperforming radio stations.

Our preference remains to develop these stations to maturity.

When we decide that this is not possible, at least not possible in a reasonable time frame, we will look at other alternatives and we will determine the best alternative to monetize these assets.

Accordingly, during the quarter, we entered into agreements to sell WBGB FM in Jacksonville for approximately $8 million and WITH AM in Baltimore for approximately $3 million.

There are additional stations that we intend to sell and we will keep you updated as these situations progress.

Let me finish my prepared remarks by discussing our non- broadcast media businesses.

During the quarter, we completed the acquisition of Xulon Press, on-demand digital publisher of books targeting the Christian audience, Preaching Magazine, a popular publication for ministers and Townhall.Com, a leading online source for conservative news and opinion.

The recent acquisition of Townhall.Com is a good example of what we are trying to achieve through these Internet and publishing acquisitions.

We acquired Townhall.Com at the end of April when the site was generating approximately 12 million page views per month.

We enhanced Townhall.Com with new features such as blogging, tools for activism and channels dedicated to our well-known radio talk show hosts.

On July 4th we relaunched the site with significant promotion across our News Talk and Christian Teaching and Talk radio platforms.

The site generated approximately 20 million page views in July, a 66% increase in two months up from the two months earlier.

This strong performance confirms our conviction of the benefits of integrating our traditional radio platform with appropriate new media assets.

Our Christian content Web site increased average monthly page views by 44% compared to Q2 '05 to an average of 59 million.

We were able to translate the overall growth in page views into Internet revenue growth of 41%.

This growth resulted in revenue from our Internet businesses of $2.2 million and a profit of $500,000, an increase of 64% compared to Q2 '05.

Our book and magazine publishing business, which we expanded with our recent acquisitions of the Singing News, Xulon Press and Preaching Magazine grew revenue 115% to $2.2 million and generated a profit of $400,000.

As a targeted niche broadcaster, the integration of our proven traditional media platform with new media offers substantial growth opportunities in our opinion and in our experience, and gives us the ability to become a leading multimedia creator, aggregator and distributor of faith, family and values content.

With that, let me turn the call over to Evan Masyr for a more detailed discussion of our second quarter 2006 results and our third quarter 2006 guidance.

Evan?

Thank you, Ed.

Our results for the second quarter of 2006 were issued in a press release earlier today and are available on the Investor Relations portion of our Web site.

I will briefly review these results.

Total revenue for the second quarter increased 9% to $58.1 million and adjusted EBITDA increased 2% to $15.6 million.

Net broadcasting revenue grew 5% to $53.4 million and SOI decreased 1% to $20 million.

On a same station basis net broadcasting revenue grew 3% and SOI was flat.

Let me provide some detail by revenue type on a same station basis comparing the second quarter of '06 to the second quarter of '05.

Beginning with our block programming, same station revenue grew 8% to $17.3 million.

Same station local advertising revenue declined 1% to $23 million.

This decline is principally due to the overall weakness in the radio advertising industry as previously mentioned by Ed.

Same station national advertising revenue, including spot and network revenue, increased by 6% to $8 million.

Finally, other revenue, which includes infomercials, declined by 1% to $3.2 million.

This decline was offset by our 8% increase in program revenue as we shifted programming from infomercials to block programming.

Included in our same station numbers is broadcasting revenue from 89 of our radio stations and our network, representing approximately 96% of our net broadcasting revenue.

Within our portfolio of stations, our start-up and early development stage stations, which were originally purchased for a total of approximately $244 million, generated a profit of $900,000 for the 12 months ended June 30, 2006.

Obviously, there is a substantial upside if we can take these stations to maturity.

Regarding our balance sheet, as of June 30th we had net debt of $357 million and we're in compliance with all of our covenants.

Our bank leverage ratio was 5.66 versus a compliance covenant of 6.75 and our bond leverage ratio was 5.78 versus a compliance covenant of 7.

On June 9th we amended our senior credit facility to increase our loan commitments and to allow for dividend payments and stock repurchases with fewer restrictions.

On July 6th, we completed the redemption of our outstanding 9% senior subordinated notes due July 2011.

We financed this redemption with our bank facility as we had been preparing to do so since mid June of 2005 when we obtained commitments for a delayed draw term loan to lock in low spreads, and then we entered into a $90 million of floating to fixed interest rate swaps.

These swaps had a market value of $3.7 million as of June 30, 2006.

Before discussing our third quarter guidance, I wanted to mention the dividend we recently paid.

With the transition of the radio broadcasting industry to a more mature stage of its life cycle, a number of our peers have introduced dividends.

After a careful review we determined it was in the interest of the Company and our shareholders to grant a special dividend of $0.60 per share which we paid on July 28th.

This was our first dividend as a public Company.

For the third quarter of 2006 we are projecting total revenue to be between 57.9 and $58.4 million compared to third quarter 2005 revenue of $53 million.

Adjusted EBITDA to be between $14.8 million and $15.3 million compared to third quarter of 2005 adjusted EBITDA of $15.4 million and net income per diluted share to be between $0.01 and $0.02 per share.

Third quarter 2006 outlook includes non-cash compensation expense related to the adoption of FAS 123R based on stock options currently outstanding of $800,000.

Third quarter 2006 outlook reflects the following: Same station net broadcasting revenue growth in the low single-digits from a base of $49.7 million in the third quarter of 2005, non-broadcast revenue increasing approximately two-fold from a base of $2.7 million in the prior year, same station SOI approximately the same as third quarter 2005 of $19.9 million, a loss on the early redemption of long-term debt of approximately $3.6 million from the July 6, 2006 redemption of our 9% notes, continued growth from our core block programming business and our undeveloped radio stations, particularly our News Talk stations, fixed costs associated with the recently acquired stations in the Detroit, Honolulu, Miami, Omaha, Sacramento and Tampa markets and the impact of recent acquisition exchange and divestiture transactions.

This concludes our prepared remarks and we will now open the floor up for some questions.

Operator?

Thank you. [OPERATOR INSTRUCTIONS] We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Victor Miller from Bear Stearns.

Please go ahead.

Your first question comes from Victor Miller from Bear Stearns.

Mr. Miller?

Please go ahead.

Okay.

Your next question comes from Lee Westerfield from BMO Capital Markets.

Okay.

I guess good morning out of the West Coast, gentlemen.

A couple of questions.

First on your Dallas operations and then secondly related to the Salem Web Network.

In Dallas, I've been tracking commercial time for some time and you've already anniversaried the, if you will, many less is more that you undertook a little over a year ago.

Your revenues are up but my analysis here, actually your commercial time is down.

I'm wondering how you're accomplishing that pricing must be substantially upwards.

What are the listenership trends that you're seeing there as well.

And then secondly, in terms of the Salem Web Network, recognizing that that is still in a very early stage with regard to revenue development, you were pointing to doubling of revenue into the third quarter.

I wonder if you could elaborate where the revenue base is coming from, advertising, which sites, what your traffic trends look like?

David Evans is here with us.

David, why don't you discuss Dallas?

In terms of Dallas, if you compare inventory levels, April, May, June '06 compared to April, May, June '05, the inventory levels from our reckoning are essentially even, so the 9% revenue increase is a function of rate, that station is typically 100% sold out, so the sellout percentage really has little or no bearing on revenue growth, so our success, or our increase in revenue there I'd say is almost entirely driven by rate.

That's definitely a function of improved ratings at that station.

We have seen some solid improvement on a full book average basis last 12 months compared to the previous 12 months and as I've mentioned in the most recent spring book, we finished second in the market, females 25-54, obviously very good results and one that I think bodes quite well for how we see that station performing over the balance of the year.

In terms of Salem Web Network, I think when you look at those numbers some of that growth is organic, some of that growth is acquisition oriented.

If you examine the Web sites that we've owned for more than a year you're going to see page view growth and revenue growth in the teens.

The acquisition of Christianity.Com, CrossDaily.Com and Townhall.Com have layered additional page views on top of that and additional revenues on top of that and it's the acquisitions that are really driving the substantial growth from Q3 '05 to Q3 '06.

Similar story in terms of our publishing business.

Over the course of the last 12 months, we've acquired Singing News, we've acquired Xulon Press and we've acquired Preaching Magazine.

Our same station magazine business excluding those acquisitions is probably up on a revenue basis single-digits, and again, it's the acquisitions that are driving the growth in the magazine business.

We do, Lee, observe a couple of things as we've commented in the past.

There's a pretty direct correlation between page view growth and revenue growth and it's held really rock-solid so to the extent that the page view growth is increased, you find the revenue growth following.

We also, just in terms of evaluating where we go with Salem Web Network, the fact that we were able, and the rollout of this relaunching of Townhall.Com were able to use our platform, our platform almost exclusively, there were some press releases but no outside advertising to speak of, was all using our platform and we were able to increase page views by 64% as I think I commented in my prepared remarks.

This sort of indicates again our strategy.

We know there's a cross promotional opportunity when you target the same audience and it's easy to demonstrate it with the News Talk format because of the close relationship between our News Talk programming content and what you'll find on sites like Townhall.

Gentlemen, thank you very much.

Thank you.

Next question?

Your next question comes from Victor Miller from Bear Stearns.

Sir, go ahead.

Can you hear me this time?

We can hear you!

Victory!

It's Chris Ensley.

I'm not sure what happened there the first time.

I wanted to ask about KLTY.

I think that we had known that in the past you'd sort of taken a short-term hit and I was wondering whether or not that was going to translate into a longer term hit.

It seems as though plus nine, that was a great move you made and when you commented that you wanted your Atlanta, Cleveland, Sacramento stations to kind of follow the path of KLTY, I wasn't sure if you were implying that they might also do sort of a inventory reduction plan or what you meant by sort of following the blueprint of KLTY.

Well, we've commented in the past that they didn't have the inventory pressure that KLTY has so we're really never faced with a dramatic reduction of inventory per se.

There was some minor changes in that regard in Atlanta primarily.

What we really were focusing on there is other clutter that is not necessarily related to commercial advertising but internal promotions and the imaging and things that can sort of accretions that can build up if you're not disciplined and that's really what we were referring to.

We see, when we compare the sound of those stations with KLTY, they were lacking in that regard and there needed to be a bit more discipline-imposed.

One of the advantages of KLTY is that it's been in this format for so many years.

It was in it for a dozen years when we acquired it in the fall of 2000.

None of these other stations have been in the format any period of time, even close to that.

Most of them were flipped after we acquired them either at the time we acquired some of the other stations in the fall of 2000 or subsequent to that, in the case of Cleveland and Portland.

So they have a shorter life and the further development is necessary.

We're very confident that these markets will respond.

Cleveland's had a few other challenges.

You know the total market revenue's been down consistently in that market and that's impacted it a little bit more than some of the others.

But that was the thrust of my comment, Chris, was the fact that there needed to be more disciplined, not so much for commercial reduction as in other non- musical clutter.

Great.

Thanks for the clarification.

Next question?

Thank you.

Your next question comes from James Dix from Deutsche Bank.

Hi, good morning, gentlemen.

Good morning.

A couple of questions.

I guess following up a little bit on Chris's question, just what's your revenue outlook now for KLTY now that you've lapped the inventory reductions, obviously have very impressive revenue growth of 9% in second quarter, just what should we be looking for for that station for the balance of the year?

And then secondly, on your guidance, what are you assuming in terms of same station operating expense growth?

Given that you're looking for SOI looks like to be around flat and when would you expect positive operating leverage at the radio group?

And then finally, I guess this might be more for you, Ed.

What trends are you seeing in private market multiples?

Obviously you've been a buyer and a seller in the past.

Some operators have commented that they are seeing private market multiples decline, they've given some ranges, wondering what color you could give on that and are you seeing differences in trends between AM and FM stations?

David, why don't you take question one and two and I'll deal with question three.

Okay.

I think we'll answer the questions in the order of one, three and two.

[This is] with KLTY and what we expect to see in terms of revenue growth for the balance of the year.

In our internal numbers we're looking at mid single-digit growth for that station.

You want to talk about private market values, Ed and how you see the M&A environment?

I think it's probably an accurate observation, James, that the private equity multiples are coming down a bit as they are, as are public equity multiples.

Difficult for me to quantify it as we have spun off a few stations here recently.

One was an FM, one was an AM.

The FM really sold in terms of a stick value, not really a multiple because it didn't have any cash flow.

It didn't have any trailing cash flow, it was beginning to get a little bit of forward cash flow, so it was really more of a stick value, difficult to make a decision on that other than the buyer, which was Cox, made some judgment I'm sure about what they thought they could do with it and so I suppose one would have to ask them what kind of a multiple they applied.

But I get the sense that the multiples for private valuation have come down and they're going to be a little lower for AM than FM, but I think that's an accurate observation and I may have a great ever sense of it as we go forward.

There are a few others that we are exploring and as we get a little more experience with it, we'd be happy to share that experience with you.

Okay.

And your question regarding expense growth.

As you've noted, we had slightly negative operating leverage in Q2 and we've guided that direction in Q3.

The principal cause of that is we're seeing some large market softness in terms of advertising revenues which has impacted us somewhat in Los Angeles and New York, so the key to returning the positive operating leverage is to see some bounce-back in the New York and Los Angeles market.

We're not currently seeing that in our numbers.

We do expect to see that but it's probably going to take a quarter or two, so Q4 or possibly into 2007 but I think the key is we need to see a little bit more underlying advertising business strength in New York and L.A.

Okay.

That's helpful.

Thank you.

Next question?

Thank you.

Your next question is from Bishop Cheen from Wachovia.

Hi, guys.

Thanks for taking my question.

Ed, you've been a very opportunistic buyer and opportunistic seller and I guess in the last year we've seen your leverage creep up to 5.9.

As you reshape your portfolio and develop your stations more along the [basket of goals] do you think you're going to break through the six time level or do you think it's kind of plateaued at this point?

Bishop, we don't have any plans to do that.

We are comfortable with this leverage ratio and we'd like to sort of stay here.

Having said that, if some extraordinary situation developed, we would go to our board and discuss that as a possible exception to that, but there is a sense of, not just among management here but also among our board, that the leverage ratios that we have are about where we'd like to be, we'd like to kind of hold the line there and begin to move them down a little bit, and so I don't really anticipate going higher and if we did, it would be sort of a -- it would be a change in direction from the momentum and the status quo of what we really established both at the board level and at management level.

Okay.

That is helpful.

Just one quick follow-up.

Sort of a post-analysis of the one-time special dividend.

Now that you've had a little distance from it and maybe you still have enough time has passed, did you get all of the bang for the buck you were looking for?

Well, I think that it was determined that it was in the interest of the shareholders to declare a dividend.

We thought it was, was while it was larger than you would have done as a recurring dividend position, it was a modest dividend as they go and we thought it was about the right amount.

The board committee that looked at it decided it was about the right amount and we think we're satisfied with it as the right thing to do in the interest of the Company at the time.

We have indicated in the past that as circumstances dictate, our view would really be to move toward a recurrent dividend that would depend upon improvements and progress in other areas and we don't, as you just mentioned, we have an eye on the leverage ratio, we want to maintain that on a conservative basis, but our goal, I think, over the long-term would be to move toward a dividend as a regular part of our corporate life.

Okay.

Thank you, Edward.

Next question?

Thank you.

Your next question comes from John Klim from Credit Suisse.

Sir, go ahead.

Good afternoon or good morning.

What do you attribute the softness in the radio business generally to?

And then secondly, if you could just remind us or revisit your priorities of your free cash flow that would be very helpful.

Thanks.

I think the biggest factor that's impacting the overall advertising business is that advertisers and ad agencies are seeing a significant growth, have seen, continue to see significant growth in terms of Internet activity, Internet page views, and advertisers are changing their preferred mix of the advertising media that they've purchase and they're moving more dollars towards the Internet and therefore they're taking some dollars away from traditional media and that's probably the biggest macro element that's going on.

In our opinion, it's not satellite radio or anything like that, it's the broader advertising landscape and the fact that there's some media fragmentation taking place.

I would concur with that.

A little bit of both of those, but the continued growth of the Internet sector in every respect, not just the search engine phenomenon, but as we've mentioned as our page views grow, our revenue grows and that seems to be a fact of life that is here to stay.

In terms of free cash flow priorities, I think that high on the list is returning capital to shareholders either through share buybacks or through dividends, obviously dividends at this point we're restricting to special one-time dividends.

We're not at this point prepared to look at annual recurring dividends.

I think our leverage level would need to be somewhat lower for us to consider that, but number one use of free cash flow would be returning money to shareholders.

We are earmarking free cash flow for appropriate Internet acquisitions.

The early results of the acquisitions we've made in that area over the last year are very encouraging.

All of those acquisitions are proving to be accretive, so those are the two things that we put at the top of our list.

And then if I may, what percent of your revenue currently comes from the Internet?

Just under 10% of our revenue.

That includes Internet and magazines.

Yeah, our non-broadcast media segment is about 10% of our revenue and about half of that non-broadcast element is the Internet.

Okay.

Thanks.

Thank you.

Your next question comes from Jim Goss from Barrington Research.

Please go ahead.

Thank you.

Several items.

A little more elaboration on the dividend issue.

Your modifications to the credit facility would permit additional dividends in the magnitude, rough magnitude of your recent special dividend and I was wondering if that will be the guiding, one of the guiding factors in addition to the other issues you mentioned, and what is the perceived life of that current credit facility?

And why don't you take that and I've got a couple of other smaller ones.

In terms of the credit facility, we added a $30 million one-time dividend basket to be used whenever we determine over the life of the credit facility.

We've used $14.6 million of that in the special dividend that we've just completed.

We also have the ability to do $5 million of dividends per year for the duration of the credit facility.

I think we've got about four years to run on the credit facility.

We also negotiated language that allows us to take a percentage of any asset fails and apply those proceeds to either our share buyback basket or a dividend basket.

So, we have three mechanisms that we can utilize for our dividend and our share buyback needs.

Okay.

That's a good clarification.

A couple of other issues.

Your second quarter, or third quarter, rather, guidance pointed to EPS of around $0.01 to $0.02 per share, and does that include the $3.6 million charge which would suggest the adjusted EPS would be more like $0.16 or $0.17 without that or is there some tax effect?

There would be a tax effect on that but it does include the $3.6 million charge in our guidance.

Okay.

And then the operating expense on the other media are up quite a bit less than the revenue growth which is doubling partly with the expansion or with the acquisitions.

Are you -- why is that, is that a sustainable at least near-term sustainable element?

Yes.

There is some operating leverage that we acquire, some economies of scale that we benefit from on both the Internet and the magazine side from the acquisitions we've made, so we do believe that the margin improvement that we're seeing in on non-broadcast media is here to stay.

All right.

Thank you very much.

Thank you.

Your next question comes from Aaron Wass from Deutsche Bank.

Please go ahead.

Hi, guys.

Most of my questions have been asked already but just a couple follow-ons.

Did you mention what percentage of your revenues this quarter were derived from block programming overall?

Yes.

The number is for the second quarter programming national and local is 34.6%.

Okay.

And then David, a bit of housekeeping question here.

Would you mind just running through your balances on your different debt pieces, I guess the different term loans and the revolver outstanding?

As it stands today, I guess, pro forma for the 9% bonds coming out.

Yes.

We have as of June 30th, senior debt of 162, $163 million of bank debts, as of June 30th, we had $194 million of senior sub bonds, we called and redeemed $94 million of those bonds on July 6th leaving us with $100 million of bonds outstanding which would take the senior debt balance up to 256, $257 million.

We then also paid the special dividend at the end of July that would increase that senior debt by a further $14.6 million.

Okay.

So today, what do you have available to draw on your credit facility?

Your revolver.

I guess what was it at 6/30 and then I assume just take away $15 million or $14.5 million?

Just give me a second with that question.

Sure.

We have a $75 million revolver and let me get back to you with that answer a little later in the call.

I don't have it quite handy.

Sure.

And then one last one just for clarity I just want to make sure I understand what you were saying to a previous question.

In terms of what you're able to do going forward on share repurchases or dividends, with your new facility you have a general basket of $30 million in total for the life of this facility to do buybacks or dividends regardless of what your leverage is?

Okay.

We have a few different baskets.

Uh-huh.

First of all, we have a $30 million one-time dividend only basket.

Okay.

Of which we've used 14.6.

We have a $5 million per year dividend basket.

We have a $15 million share buyback basket if our total leverage ratio per the bank calculation is about 5.5, and we have a $50 million share buyback basket if our total leverage ratio is between 4 and 5.5.

We also have a basket whereby a percentage of the proceeds of asset sales is available either for dividends or share buybacks.

Okay.

Great.

Sorry about the complication but that's why these bank deals seem to work.

No, that's perfect.

Thank you very much.

Thank you. [OPERATOR INSTRUCTIONS] Your next question comes from Bobby Melnick from Terrier Partners.

Please go ahead.

Two questions of I may.

Could you give a broad assessment in terms of what you think the size of the divestitures might be going forward?

I mean should we still be looking for sort of small station sales, $1 million, $2 million, $7 million, $5 million or might you cumulatively either do a bigger, more stations representing larger nominal sales or even larger station sales?

Well, the circumstances always come in and dictate what you're actually going to do and opportunity can impact your plans, but look, we sold one of the stations in Jacksonville, we have three others so one logical conclusion we'll be focusing on that market and we expect to have something to announce there soon.

I can't give you, Bobby, a blanket answer.

I would say that I don't think anything is ruled out [inaudible], however, we would be less inclined, we would be more inclined, I think would be the better way to put it, to look at non-strategic assets.

Now, Jacksonville certainly had strategic assets.

It's just that we gave that market better than two years, three years and we just simply weren't satisfied with the progress and decided even though they were strategic assets that that would be a market that was in the best interest of the Company to take advantage of opportunities to exit.

So our focus is going to be first on non-strategic and you can do the math on that.

I mean you can do the analysis on that and pretty much figure them out.

Their formats are defined pretty specifically in the material that we put out and then as I say, if opportunity arises and progress is not or what we'd like it to be, I don't think anything is necessarily precluded, our priority I think we'll keep an open mind on what we think is in the best interest of the Company and the shareholders and act accordingly.

So it's difficult for me to get any more specific than that, but as soon as we have deals, we will certainly, obviously, make announcements and we'll be guided by first and foremost what assets are non-strategic.

If a great opportunity arises we're going to take advantage of it and then even with strategic assets, if we're dissatisfied with the progress, or there is not another strategic reason to remain there, those would certainly be taken a look at if circumstances and opportunities arise.

Okay.

And a question for David if I may.

David, the Company bought back about 1 million shares in the first quarter with the bulk of that, over half of that, at an average price of $16.55 and then 283,000 with an average price of $14.58, 151,000 shares with an average price of $13.25, that was in the first quarter.

In the most recent quarter and in the last month and a half particularly the stock has traded basically below $13 and obviously traded in the 11's for a while.

Could you elaborate a little bit?

By my calculations the Company, we're not getting much credit in the marketplace for quarter billion dollars of stick that we have.

By my calculations we traded an adjusted valuation of 5.5 times BCF and 7 times EBITDA.

How do you wrestle with the sort of 14% pickup you get on your EBITDA yield by buying back stock here versus the cash dividend distribution or even pay down of debt?

How do you go through that analysis?

As I mentioned, in terms of uses of free cash flow, the top of our list is returning capital to shareholders, obviously, dividends or share buyback.

You're correct.

We didn't buy back any further shares in the second quarter.

There were a couple reasons for that.

The first is we examined Q1, we realized it was pretty clear that the average price we bought back at was higher than the price in April and May so we had a concern that we were artificially propping up the stock price.

Now, it's always nice to say we want to protect our currency but for me, the more important reason to buyback stock is to create value for our shareholders and that's done by purchasing at the lowest price we can.

So we were concerned that the radio stock prices across-the-board were continuing to fall and we thought by waiting, we would actually be able to buy cheaper.

That was factor number one that went into our second quarter thinking.

Factor number two is prior to the most recent bank amendment.

We were running low in share buyback capacity and we wanted to make sure that we spent that money, invested that money as wisely as possible.

So that's really the rational in the second quarter with the bank amendment we've done, we've created new additional capacity for share buybacks, we feel good about that.

In terms of the rational as to how we think about share buybacks, it's essentially the model that you just described, of we look at our EBITDA multiple, we look at our EBITDA multiple adjusted for what we believe our hidden value assets to be worth, we compare that to other uses of capital and we believe that share buybacks is a very, very good use of our capital right now.

And Bobby, I might add that I think one of the factors in driving the decision to do the one-time dividend was the fact that it would allow shareholders to exercise their own prerogative if we return capital to them to buyback shares if they wanted to, rather than us making that decision for them unilaterally so dividend, a special dividend afforded shareholders the opportunity to go into the market themselves with that capital if they wanted to buyback shares.

Just going back to the earlier question that we didn't provide an answer to which is, how much capacity do we have?

Currently within our bank agreements, we have a revolver of $75 million and we have $37 million of unused capacity within our facility.

And I have to send the other set to [inaudible] Did she [inaudible]

Hello?

Your next question is coming from Ross Haberman from Haberman Fund.

How are you gentlemen?

Good.

Thank you.

David, just a quick follow-up regarding the last question, the $250 million worth of stick value.

Is that your book value or where was that number derived from?

It's the purchase price of radio station assets that are either in a loss making stage or at or below the 30% profit margin, so it's purchase prices.

Okay.

Have you sold many of those stations in the last two years and what kind of values, vis-a-vis your costs have you been able to garner?

The only sales that we've made, we've recently announced the sale of Jacksonville, the FM in Jacksonville, we also announced the sale of an AM in Baltimore, in the last couple of quarters we've announced and closed a sale in Cleveland or near Cleveland and a sale in Richmond.

All four of those sales were in excess of our purchase price.

Okay.

Thank you.

There appear to be no questions at this time.

I will now turn the floor over to you, Mr. Atsinger, CEO.

Thank you.

For any closing remarks.

Thank you, Operator.

While we appreciate you joining us again, and since there are no further questions we'll conclude the call at this time and invite you to join us again for our next call when we report on third quarter performance.

Thank you.

This concludes today's Salem Communications second quarter 2006 earnings release conference call.

You may now disconnect.

Have a good day.