Salem Media Group Inc (SALM) 2006 Q4 法說會逐字稿

Good afternoon. My name is Matt, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Salem Communications fourth quarter 2006 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' 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, Eric Jones, with Investor Relations. Sir, you may begin your conference.

Great. Welcome, and thank you for joining us today for Salem Communications fourth quarter 2006 earnings call. As a reminder, if you get disconnected at any time, you can dial in to 973-935-8511 or listen from our website, www.salem.cc. We'll 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, our 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 of Salem's radio formats, competition in the 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 & Exchange Commission. Listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as of 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 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 measure prepared in accordance with Generally Accepted Accounting Principles, is available on the Investor Relations portion of the Company's website, 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 for joining us for today's conference call. During the fourth quarter, we continued our focus on delivering upon our stated mission to serve the audience interested in Christian family-themed content and conservative values through our radio, Internet and publishing businesses. We achieved an 11% increase in total revenue for the fourth quarter, which was comprised of a 6% increase in net broadcasting revenue, and a 103% increase in non-broadcast revenue. We had a 1.5 -- we had $1.5 million of political advertising during the quarter, which had a positive impact on our revenue growth. Increased investment in marketing, promotion and local programming talent at certain of our News Talk stations, on the other hand, reduced our station operating income. Let me provide specifics on our fourth quarter results by focusing on the specific performance of first, each of our strategic radio formats, secondly, our national and network sales efforts, and then finally, on our Internet and publishing businesses.

Our fastest growing station segment for the quarter were our 31 News Talk stations that serve eight of the top 10 and 19 of the top 25 markets. Stations in this format contributed 15% of our total revenue for the quarter and achieved a 20% increase in net broadcasting revenue compared to the same quarter last year. On a same-station basis, net broadcasting revenue increased 17%. Significant contributors to these results were our News Talk stations in Chicago, Louisville and Phoenix, each of which also achieved higher ratings. Our News Talk platform is the least developed of our radio businesses, with 28 of our 31 News Talk stations achieving an SOI margin of less than 30% in Q4. We continue to invest in this platform, and we believe that there is a substantial revenue and profit upside as we move these stations toward maturity. We're investing in this platform by adding local programming talent in selected markets where appropriate, as well as increasing marketing expenditures, particularly in Chicago, Dallas, Los Angeles, Louisville and Phoenix. This combination of investment in local programming talent and additional marketing and promotional expense is a crucial step in driving our News Talk stations to the next level of maturity.

We have 13 stations programmed in our Contemporary Christian Music format which grew revenue 6% for the quarter and contributed 20% of our total revenue. KLTY in Dallas, our flagship CCM station, contributed the most to this revenue growth by increasing revenue by 10%. One noteworthy rating highlight is that KLTY achieved the number one ranking in its target demographic of females 25-54 in the fall 2006 Arbitron, and did it with a substantial lead over number two. One of the ongoing key goals of our Companies with this particular format is to replicate KLTY's success at our other CCM stations, specifically those with full market signals. We said before that we expect the FISH station in Atlanta to be the first of this group to achieve similar ratings and power ratio success, and we've been focused on accomplishing that. In the fall 2006 Arbitron, we saw progress toward this goal in its target demographic, females 25-54, WFSH tied for the number seven ranking based upon average quarter hour share compared to a rank of 11 in the spring Arbitron. Our goal at WFSH, like the other major market stations like KLTY, is to be consistently ranked in the top five in our target demographic. If we can continue the ratings improvement of the last two Arbitron books in Atlanta, we will -- this will be very positive for 2007 and beyond.

Our foundational format is Christian Teaching Talk. We have 45 stations programmed in this format, which contributed 45% of our total revenue for the quarter, and achieved revenue growth of 1%. We attribute this low revenue growth to weakness in local advertising sales, which were down 10% on our Christian Teaching Talk stations. This decline was principally due to sales leadership and sales turnover in several of our clusters including New York, which we've taken steps to remedy, and to some softness in the mortgage category, which is an important category for this particular format. Our Christian Teaching Talk stations are unique because they do not only sell advertising, but they also sell block programming time. Offsetting the decline in local advertising revenue, our revenue from block programming on our Christian Teaching Talk stations grew 9% for the quarter. Block programming contributed 58% of of the revenue on our Christian Teaching Talk stations or 26% of our total revenue. At the end of each year we negotiate renewal rates with national block programmers that purchase time on our Christian Teaching Talk stations. The new rates are effective for the upcoming calendar year. As announced earlier today, the average increase in rates for 2007 is 5%, and more than 90% of our block programming contracts were successfully renewed. Our block programming business remains solid, and is an important underlying factor in the stability of our performance.

Now that we've talked about the three radio formats, let me spend a moment on our national business. During the quarter, we grew national advertising revenue, including spot and network revenue, by 15% to $9.8 million. This compares to a 12% increase for national advertising for the industry as reported by the Radio Advertising Bureau. Our strong national growth is a result of adding additional sales people targeting general market business, and new advertisers recognizing the value of reaching our audience. During the quarter, we completed the sale of our three remaining stations in Jacksonville, Florida, for $2.8 million, and the sale of our station in Baltimore for $3 million. In February 2007, we closed on the sale of our Cleveland Sports Talk station for $7 million. As we mentioned earlier, there are additional stations that we are contemplating selling. This process takes time as we seek to maximize both sales prices and shareholder value, and we'll keep you updated as this situation progresses.

Let me finish my prepared remarks with a discussion of our Internet and publishing businesses. For the quarter, non-broadcast revenue grew 102.7%, or $6 million, to 10% of our total revenue, and non-broadcast operating income increased 3.6% to $400,000. Revenue growth was the result of recent acquisitions of an on-demand book publisher, Xulon Press, two magazines, "The Singing News" and "Preaching Magazine," and the Internet sites CrossDaily.com and Townhall.com, as well as organic growth from our Christian content Internet businesses. The modest growth in profitability of our non-broadcast media division is attributable to the continued investment in further developing our Internet platform and some revenue softness at "CCM Magazine."

Our Internet business continues to see substantial growth. Our Christian content websites increased average monthly page views by 37% compared to Q4 '05, to an average of 65 million page views. Our conservative opinion website Townhall.com, which was generating 12 million page views per month when we acquired it in May of 2006, grew monthly page views to an average of 29 million page views for the quarter. In total, page views increased 99% to 93 million across our entire network. We expect this page view growth to translate into future revenue and profit growth. For the quarter, our Internet business increased revenue 79% to $2.6 million and increased profit by 25% to, as I said, $400,000. We are bullish on our prospects for the Internet. We're confident we have established a solid foundation for continued growth in 2007.

As a targeted niche broadcaster, the integration of our proven traditional media platform with new media offers substantial growth opportunities and gives us the ability to become a leading multi-media creator, aggregator, and distributor of faith, family and values content. Let me turn the call over to Evan Masyr for a more detailed discussion, at this time, of our fourth quarter 2006 results and our first quarter 2007 guidance. Evan?

Thank you, Ed. Our results for the fourth quarter of 2006 were issued in a press release earlier today and are available on the Investor Relations portion of our website. I will briefly review these results. Total revenue for the fourth quarter increased 11% to $59.8 million and adjusted EBITDA was flat at $15.2 million. Net broadcasting revenue grew 6% to $53.7 million and SOI decreased 1% to $19.6 million. On a same-station basis, net broadcasting revenue grew 5% and SOI decreased 3%.

Let me provide some detail by revenue type on a same-station basis comparing Q4 '06 to Q4 '05. Beginning with our block programming, same-station revenue grew 8% to $18.3 million. Same-station local advertising revenue increased 1% to $22 million. Same-station national advertising revenue including spot and network revenue increased 15% to $9.8 million. Finally, other revenue, which includes infomercials, decreased by 12% to $2.5 million. Included in our same-station numbers is broadcasting revenue from 91 of our radio stations and our network, representing 98% 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 $229 million, generated a loss of $0.2 million for the twelve-month period ended December 31st, 2006. There is substantial upside if we can take these stations to maturity and long-term profitability.

Turning to our balance sheet, as of December 31st, 2006, the Company had net debt of $360.3 million and was in compliance with the covenants of its credit facilities and bond indenture. The Company's bank leverage ratio was 5.88 versus a compliance covenant of 6.75, and its bond leverage ratio was 5.46 versus a compliance covenant of 7. We had $19.1 million outstanding on our $75 million revolver as of the end of the year. For the first quarter of 2007, Salem is projecting total revenue to be between $55.5 million and $56 million compared to first quarter 2006 total revenue of $52 million, adjusted EBITDA to be between $10.8 million and $11.3 million compared to first quarter 2006 adjusted EBITDA of $11.8 million, and net income per diluted share to be approximately zero.

Our first quarter 2007 outlook reflects the following: Same-station net broadcasting revenue increasing to $49 million to $49.5 million from a base of $47.8 million in the first quarter of 2006; non-broadcast revenue increasing to approximately $5.5 million from a base of $3.3 million in the first quarter of 2006; same-station SOI declining to $15.9 million to $16.4 million from a base of $17.4 million in the first quarter of 2006; non-cash compensation expense of $0.7 million compared to the first quarter 2006 non-cash compensation expense of $1.3 million; increased marketing and programming costs of $1.2 million primarily on News Talk stations in Chicago, Dallas, Denver, Los Angeles, Louisville, and Phoenix, and on Contemporary Christian Music stations in Atlanta, Dallas, Los Angeles, and Portland; continued growth from our core block programming business and our under-developed radio stations, particularly our News Talk stations; ongoing softness in the radio advertising market; and the impact of recent acquisition, exchange and divestiture transactions. That concludes our prepared remarks. I'd like to turn it back over for questions. Operator?

Victor Miller, Bear Stearns.

Thanks for taking the question. Evan, maybe you could help us, and Ed. 100% growth in non-broadcast, 15% in national. You did give some hints on what was going on with local with your Teaching Talk. But maybe talk about how much local must have been down to make the math what it was for the quarter. And then, Evan, maybe you can remind us, what is your local/national mix up to now in terms of revenue? And then, Ed, maybe you can give a little bit more insight. There seems to be persistence right now, that you're in a period of the Company's growth where expenses are outstripping the growth of revenue pretty consistently. I am wondering when you think that might actually revert back to what we were used to maybe in the three year stretch between '03 and '05 maybe? Thanks.

In terms of the numbers, local spot revenue total for the quarter ended December 31, 2005 was $22.8 million. For the quarter ended December 31, 2006, it was $22.9 million, so basically flat in total. And if you drill within that by format, we had mid single-digit growth in local spot revenues on our Contemporary Christian Music stations. We had double-digit growth in local spot revenues on our News Talk stations. The weak piece was the Christian Teaching Talk stations. A local spot in those stations was down 10% in the quarter. Two primary reasons for that. The first is we suffered from the sales staff and sales leadership turnover in a few markets, but most notably New York, which is obviously a very important market for us. We think we've -- but we've mainly filled those holes and remedied those gaps. The other area of softness was the mortgage category which was down quite a lot from a year ago, reflecting the changing market for homes and mortgages. I think that's the specifics of the numbers, Victor.

Victor, to answer your question about the local/national mix, overall we're about 80% local.

Okay.

And with regard to your question about the expenses sort of out of sync with what they've been in the past, we have simply recognized we have to bite the bullet and spend more marketing on our particularly News Talk stations. We've worked for a year or two trying to really get the product right. And it is important now that we feel good about the product, that we begin to put some marketing muscle behind them. I think what we hope will happen is that we can continue to sustain the marketing budget, but that the revenues will grow so that the relationship between expenses and revenue will return to something approaching the historical ratio that we've had in the past. But I think we probably are committed to additional marketing throughout '07. We haven't worked on '08 budgets yet. But we would hope that revenues would begin to catch up. We are seeing some good growth in audience. And so we're going to move forward with that, and hopefully by '08, the ratio will begin to balance back a little bit more as it was in the past.

Thank you.

Bishop Cheen, Wachovia.

I think Victor pretty much covered that. And I think what you're saying is if we're going to have some heavy marketing in '07, then best case, it sounds like with contribution of Internet and publishing, that the SOI and the EBITDA at best might move sideways, which seemed to have under your leverage cap and your carve-outs. Could you remind me, David, what is the carve-out under your bond indenture that gives it actually definitional lower leverage than your bank?

Our bond were issued by Salem Communications Holding Co., which is a subsidiary of Salem Communications . Salem Communications Holding Corporation consists of most of our assets, but the exception being our Internet and publishing businesses are separate direct subsidiaries of Salem Communications Co., as are eleven of our radio stations. So Salem Communications Hold Co. as a result has a different operating cash flow number than our bank debt and our bank leverage ratios. In addition, for our bank ratios, we are allowed to exclude half the purchase price of any acquisitions where we change the format for the first eighteen months of ownership.

Right.

So the net impact of those two differences explains why the two ratios are a little different.

Yes, that's very good. Just point of clarification, I think the last table of your 8-K in your press release has got a typo in it. I believe that you want to compare your projections March '07 to your three months March '06, and that last column is marked March '07.

You are correct. Thank you.

Thank you, David.

Lee Westerfield, BMO Capital Markets

Two questions, if I may. The first relates specifically to KLTY, where as you pointed out, the recovery in revenue has been underway. But I wanted to get into a little more color as to the ratings you've been seeing and monetization of those ratings here in the first quarter, and to the best you can make expectations -- qualified expectations, anyway, for the remainder of Q2, I guess I would say going into Q2. The second question, actually more specific. You, over the years, have always provided nicely the buckets of revenue in margin, and in this case, the great increase was the movement of stations from the middle tier to the 50% plus SOI margin group, but essentially unchanged with the subzero group. So I wonder if you can walk through a little more color here? What are the components of the subzero stick and turnaround properties and what we might expect in terms of the station counts moving up out of the zero, minus range into profitability in 2007?

Want to talk about KLTY first, Ed?

KLTY, as we commented in my prepared statement, had a great fall book, and it achieved a 7.2 share for female 25-54, which led the market by a good half a point, which is the biggest margin we've ever achieved. We just got the trends a couple days ago for the first phase of the winter book, and those numbers look equally as good, maybe even a little bit better. Of course, they're incomplete. So it is just a phase, and you don't know. But they're -- everything we could see in them was very encouraging. So we're -- we feel very good about the quality of the product. The staff there has been pretty good at monetizing ratings. They've been very disciplined. And I suspect that we will continue to see a -- that we will see ratings growth -- revenue growth in '07 commensurate with the ratings stature that we've achieved.

In terms of the buckets, the movement in terms of the 30% plus margin stations and the 50% plus, we have a number of markets that were hovering just south of the 50% number that have just moved north. So it is actually underneath it, that movement is pretty minor. On the less than 0% stations, the 17 that you see on the table in the press release, nine of those are News Talk stations that are in a development phase. A further six are stations within our Honolulu cluster. The remaining two consist of the Sports Talk station that we just sold in Cleveland, and one of our CCM stations, the station in Omaha. So the principle components, nine News Talk stations and our Honolulu cluster.

And the nine News Talk stations, of course, are the ones that have gotten most of the marketing money. There was an increase -- a significant increase in marketing expenditures in Q4, and there is also in the '07 budgets. So that will tend to keep them in that category for awhile, even though their revenue performance may be coming along nicely.

That is exactly the color I was looking for. Thank you.

James Dix, Deutsche Bank.

Just a couple questions. First, I think Bishop suggested that perhaps for 2007 you might not be expecting much EBITDA growth overall. Just wanted to know what your actual reaction was to that, whether you actually think that's the case. And then secondly on the News Talk format side, are you seeing more competition from general market News Talk stations? Is that one of the reasons why it is taking longer and more marketing dollars to get them where you expected? And then finally, if you looked at the News Talks and the CCM, the Christian Music stations as a group, I mean, what type of revenue and SOI upside do you see at them?

I will let you, either Evan or David, take the first question, sort of asking for 2007 guidance, which we may not be in a position to provide.

I think we certainly expect, once these marketing expenditures have hopefully grown the audience, we expect to see revenue growth flow from that, and the revenue percentage growth to once again exceed the expense growth. Of course, the challenging question is when do we expect to see that. I think we certainly expect to see it in 2008, and it is definitely the internal goal to see that in 2007, most likely in the second half. But I think to get the kind of revenue growth we're looking for, we need to see the ratings growth move from being a one-quarter or two-quarter thing to being something reflected in full book averages. So there is a lag from ratings success to monetization that we just have to accept. That's just the reality of it. So I guess bottom line, 2008, but hopefully we'll see something second half 2007.

With regard to your second question, James, there has been a little additional competition in a couple markets. But it is only a couple that I am aware of. Minneapolis, there has been some increased competition that has impacted our News Talk operation somewhat negatively there. That was one that we've had in format a little longer than most of the others. And then to some extent, Colorado Springs. However that's -- it's a fairly minor market for us. And those are the only two where I am aware of competition coming in directly on that format. We do -- look, in terms of the potential and I don't know if your question related to the News Talk format and the Christian Teaching Talk format, or just the News Talk format.

Yes, both of them as a group, if you could just kind of breakout where you see the revenue and SOI upside for each group.

Well, the thing about the News Talk format, like the CCM format, once you can get it where you want it to go, it becomes a real franchise. Getting it there can be -- if it were easy, everybody would do it. It is a challenge that takes time. And as David said, you have to achieve more than a single book breakthrough. You need a three, four book average of higher ratings growth before you can begin to monetize it. But the interesting thing is when you do get the breakthrough, and you can get something that approaches a franchise, it is easier to keep it there, and it becomes a contributing factor. So I think there is very good upside, particularly in the News Talk area.

We're approaching developing those stations in two ways. First of all, most of them we are trying to do it with just a nationally syndicated product, which means we have a much lower overhead, but we probably don't have the ratings growth potential that you have when you develop particularly local morning shows. To develop a local morning show is a different challenge. It requires finding the talent, the talent is typically more expensive, and it does take time for them to get established. And so you just simply can't find when you want them in every market the kind of local talent that can take you to the next level. So we have very good nationally syndicated talent. There is new talent coming along that we're looking at that will enhance our opportunity there. With a syndicated approach, we still think there is good upside. Our target has been take them from where they are, an average of 1, 1.1, 1.2 and get them to a 2 share, and we're making good progress in a number of these markets doing that. They begin to be a mini franchise at that level. So that's a strategy with syndicated product. Where we invest in local product and local marketing, I think the upside is even greater.

As far as the Christian Teaching Talk format goes, we continue to be very bullish on the format. We've been able to push rates through difficult economic times in the last few years, and we've been able to average -- I don't think we've ever achieved less than a 5% average growth. As we said, most of that goes to the bottom line. We have developed new marketing techniques that really pay off for us, that seem to be growing that audience. We were in front of 14 -- 13,150 pastors in events all over the country, where we do these pastor appreciation events, and we've done -- we did a number of them. We have events scheduled where we think we'll be in front of about 17,000 in '07. That kind of marketing is very targeted, but it really does produce for us. And so we continue to be bullish on the potential for those stations.

We saw this softness in fourth quarter on local spot. We think some of that was related to the softness in the mortgage market. This format does very well with mortgage companies, primarily because the kind of folks that listen to these stations tend to be homeowners, or they either tend to be homeowners in higher percentage than the population at large, or they intend to be homeowners. So it is a very good market. And when that market gets soft, we do experience a little softness. That certainly was a factor in Q4. It may be a bit of a factor in '07, as the housing market is a little soft. But I continue to feel that there is good upside in both formats.

Okay. Thanks very much.

John Klim, Credit Suisse.

Two quick questions for you. How much, if any, of your Internet revenues are now coming from video? And then what percent of Teaching Talk revenue will come from block sales in 2007? And is that expected to be materially different from 2006? Thanks.

In terms of Internet revenues, I am going to say that 1% comes from video, next to nothing. That is a number that it's expanding, but it's at a very, very early stage. In terms of block programming on our Christian Teaching Talk stations, block programming is between 50% and 55% of the revenue on our Christian Teaching Talk stations, and that percentage has been on or around that number for a number of years. And if the mix is changing, it is moving slightly towards block programming and away from advertising sales because of -- essentially because of the rate increases that we've been able to get on block programming, plus the fact that we've been able to sell a few additional blocks of time over the last year or so.

Great. So is the vast majority of the Internet revenue, is that coming from traditional banner ads?

Banner ads or links, sponsored linked within the website. It isn't always banners. Sometimes it is embedded links, but it is all built around text, editorial-based content. We do have some revenue from the streaming of audio. That's probably 20% of our Internet revenue. Video is the smallest component.

Okay. Thanks.

Jim Goss, Barrington Research.

A couple of questions. First, I think you mentioned, Ed, about $1.5 million in political revenue. Is that in the conservative News Talk stations, or is it in some of the other formats? How did that that break out? And are you looking for that to be a more important category next year? And then separately, I was wondering how many of these stations, if you could remind me, have you tried to create in the conservative News Talk? Have you tried to create the local morning hosts? And how would you say that process is going in the various markets where you've done that, and following-up to what you were talking about a little bit earlier?

Let me just comment on the political question. I do think it will be -- I do think that we will see some revenue in '07 and particularly, obviously '08, which is an election year. But it seems like everything is going a bit earlier, and so we think we'll see some continued growth in both years. In terms of the breakdown between Christian Teaching Talk and the other formats, I think it was a little bit of everything. But Evan might be -- .

It is across the board.

And most of it is developed by our own rep firm. So I think we probably saw it in all three formats. Let's see. Your second question, I didn't right write it down.

Related to the morning hosts that you've tried to develop rather than syndicated [inaudible] -- .

We're doing that in -- right now there are four markets that we've invested in particularly, principally Chicago, Dallas, and Phoenix. They seem to be coming along well. The Chicago market we feel very good about. We developed a team, a local morning team, and if you're in that market -- I don't know if you're in that market.

Yes, I am.

You've had a chance to listen to them. They're coming along very well, better -- they're progressing at a faster pace than we had projected. The chemistry seems to work very well, and all of our folks -- all of our folks that are selling the thing are very bullish on it. Now we had some folks that liked Bill Bennett a lot, but that seems to be overridden by those that prefer the new show. So that one is coming along nicely. We've got Mike Gallagher doing a morning show for us. In addition to his syndicated show, he is doing a two hour morning show for us in Dallas that's working very well in terms of driving revenue. And the Phoenix station seems to be doing well. That show is an afternoon drive show as opposed to morning drive. So I mean, I think they're coming along nicely, and I think the Chicago one is leading the pack in terms of the progress we're making.

Okay. But with expense up front and hopefully making up for it later on?

Yes.

Okay. Thank you.

[OPERATOR INSTRUCTIONS] Ross Haberman, Haberman Fund.

David, could you -- could you address -- do you have any adjustments to your goodwill on the, I think what you called basically your stick stations, which you, I believe said cost -- your cost of around $220 million, were there any adjustments to that cost or I guess it would run adjustment to the goodwill? And is that done on a quarterly or annual basis?

No goodwill adjustments. It is a review that's done annually with Ernst and Young during the fourth quarter. They signed off on all of our carrying values. The rule says you have to review them annually unless you become aware of some impairment factor. In which case, you need to accelerate the review. But we just got Ernst and Young to sign off on their satisfaction with our carrying values.

And again, those carrying values, as you had thrown out, were about $220 million for those -- ?

Yes, that remains pretty accurate. We have about $70 million of properties that relate to the 17 stations that are in the start-up 0% or below category. That $70 million, those stations lost about $3 million in '06. The 0% to 30% category, that's about $160 million of asset value. They generated about $2.7 million of operating income in 2006. So combined, it is about $230 million of purchase price with minimal cash flow at this point.

And over time, do you have basically all of them laid out on some sort of time line scheme on your expectations of cash flow growth? And then basically if they don't hit that based on your expectations, is that one -- basically, how you determine whether you're going to sell it or not?

Yes, an example, in the below 0% category, when I was asking -- the question a little earlier from Lee Westerfield, I pointed out that our sports station in Cleveland, WKNR, was in that category. We announced the sale of that station in Q4, and we closed on it in Q1. So when we conclude that we're not able to get the ROI that we're looking for, we absolutely look for how to address that issue. Another example, earlier in the year we saw Jacksonville. That was another market that did not get to the cash flow level that we were looking for. We concluded that it wasn't likely to get there, and we sold out of that cluster for about $11 million of sales proceeds, and booked a modest gain on that sale.

So basically the ones you're getting out of at least so far, you've been able to get your costs out of and maybe a modest profit, as opposed to having to take a significant downward adjustment?

That's correct. Yes.

Any expectations along those lines going forward based on the market you're seeing today?

Well, the market is obviously softer today than it was two or three years ago. So it is nice to have gotten out of those markets and those stations without losses, vis-a-vis where the market goes from here, we would obviously hope that it would get a little stronger, but there are no insurances of that.

Okay. Thanks again, gentlemen.

Thank you. At this time, I would like to turn the floor back to Eric Jones for any closing remarks.

We, operator, have no further remarks. We appreciate everybody joining us. And we'll look forward to visiting with you again next quarter.

Thank you. This concludes today's Salem Communications conference call. You may now disconnect.