Audacy Inc (AUD) 2008 Q2 法說會逐字稿

Good morning and welcome to Entercom's second quarter earnings release conference call. All participants will be able to listen only until the question-and-answer session of the call. This conference is being recorded.

I would like to introduce your first speaker for today's call, Mr. Steve Fisher, CFO and Executive Vice President. Sir, you may begin.

Thank you, operator and good morning everybody. Thank you for joining us on this summer Monday morning, as we give you our second quarter results.

Before we go to the call, I would like to make this note, that today's call will contain certain forward-looking statements that are based upon current expectations,and involve risks and uncertainties. The Company's actual results could differ materially from those projected. Additional information concerning factors that could cause actual results to differ materially is described in the Company's SEC filings on Forms 10-Q, 10-K and 8-K filings.

The Company assumes no obligation to update any forward-looking statements. During this call we may reference certain non-GAAP financial measures, and we would refer you to our website at Entercom.com for a reconciliation of such measures, and other pro forma financial information.

So with that, I will turn it over to David Field, President and Chief Executive Officer.

Thank you Steve, and good morning to each of you who have joined us for today's call. I am pleased to report Entercom's second quarter results, and provide you with an update on recent developments. We achieved strong growth in both free cash flow per share and adjusted net income per share during the quarter. Free cash flow per share jumped 31% from $0.67 to $0.88, while adjusted net income per share increased 16% from $0.38 to $0.44. Year-to-date our free cash flow per share is up 40% from $0.83 to $1.16. Adjusted net income for the year is up 20% from $0.46 to $0.55 per share. In addition, our EBITDA was down 2% for the quarter, and is flat for the year-to-date.

Same station revenues for the second quarter declined 2%. Same station expenses also declined 2%, resulting in a 3% decline in same station operating income. Our 2% revenue decline substantially outperformed our markets, which were down 5% during the quarter.

In the context of the economic and competitive environment we have been facing, I am very pleased by Entercom's second quarter performance. Difficult and deteriorating economic conditions have significantly impacted a very broad range of consumer facing businesses, and our sales and earnings results compare quite favorably to the reports that we have seen from a wide range of media companies, as well as other consumer-driven companies.

Here are a few operating highlights for the quarter. We achieved excellent operating results in a number of our markets, led by Norfolk, Milwaukee, Boston, Austin, Indianapolis, and Madison. In fact, nine of our markets achieved double-digit growth in station operating income during the quarter. Local revenues were significantly stronger than national for the quarter. Digital revenues roughly doubled to $3 million, and now represent approximately 2.5% of our revenues on a run rate basis. We held margins essentially flat at 40.4%, versus 40.6% on a same station basis.

Our strongest growing categories were grocery, digital/online, insurance, travel and hotels, television cable, and lottery and casinos. Weaker categories were home furnishings and improvements, financial, automotive, and telecom.

We are also feeling very good about the recently released spring Arbitron results. We have had particularly strong results in Boston, Seattle, Denver, Sacramento, and Portland. In Denver, our stations KOSI and Alice now rank first and second with women 25 to 54, and second and third with adults 25 to 54. In Sacramento, 98 Rock and The Eagle are first and second with both adults and men 25 to 54, while The End #1 with 18 to 34 adults, and 18 to 49-year-old women. Finally, in Portland, KGON and The Wolf are first and third with adults 25-54. While ratings have not been released yet in a few of our markets, so far this is shaping up to be a very successful ratings book for us.

We also made a number of moves during the quarter that capitalize on compelling financial market opportunities. We bought back over 1 million shares of our common stock,and repurchased roughly $10 million of our publicly traded senior subnotes at a discount. We also increased to 70% the amount of our senior bank debt that is hedged at attractive rates. In addition, this morning we announced that our Board has declared of a dividend of $0.10 per share for the quarter.

Unfortunately, conditions in the third quarter are very challenging. August is far and away the worst month of the quarter, leading us to believe that there may be a number of advertisers, who are avoiding the month due to the Olympics. We are forecasting that our revenues will decline in the high single-digits for the quarter.

Before I turn it over to Steve, I would like to make a couple comments on the radio industry. There is no question that right now the radio industry is suffering from the combined impact of weak general economic conditions, and the secular challenges faced by virtually all forms of traditional media, as advertisers shift a portion of their spending to new media. Those are the facts. But it is also the fact that radio listening remains extremely healthy, in sharp contrast with certain other traditional media that are suffering significant audience erosion, and business model deterioration.

Unfortunately, this critical fact and critical distinction is rarely reported. Moreover, there is a growing tendency among some analysts and reporters to adopt the increasingly common negative narrative on radio broadcasting, repeating a number of erroneous assumptions and conclusions, and ignoring the impressively strong listening level. Let's examine the facts.

First and foremost, radio listening is enormous, and it is growing. 235 million Americans 12 and over listen to radio weekly. This is an all-time record. In fact, in the past three years alone, radio has added 6 million additional listeners. Radio reaches 93% of Americans weekly, essentially the same percentage of Americans it has for decades. With the exception of television, no other medium comes even close to this number. 36% more Americans tune into radio daily than go on the Internet. In fact, 92 million more Americans listen to radio each week than use Google in an entire month.

Do we live in a competitive world? Yes. Are there more distribution technologies than ever before for audio, and for that matter video and text? Yes. Is there some degree of listener fragmentation impacting time spent listening? Of course. Our entire lives are becoming far more fragmented as new technologies and opportunities have required us to cram more and more into our insanely time-starved lives.

What is important is that in the context of so much change in our rapidly evolving world, radio has demonstrated extraordinary resilience, and has continued to thrive with record breaking audience levels each year. From an advertiser's perspective, not only does radio offer near universal audience reach, but it is also the most cost effective major medium in the United States. Radio has a very strong relative value proposition compared to other media, and ultimately in an increasingly ROI conscious marketing world, radio ad revenues should grow to reflect the medium's underlying fundamental strength.

With that I will turn it over to Steve.

Thanks, David. First let me cover our guidance for the third quarter with a few additional notes for your models, and then a few highlights for the second quarter, then we will be happy to go to you for your questions. As David said, we expect third quarter same station revenues to decline in the high single-digit range.

Also, we would expect station cash operating expenses to be down approximately 1%, which continues our strong record of expense management over the recent years. For comparison purposes, our prior year third quarter same station information is 124.4 million in net revenues, and $72.5 million in expenses. I would note this base excludes non-cash compensation expense. Reconciliation of this information and other non-GAAP measures is on our website.

A few other notes for the third quarter to assist you in your modeling. We would expect our corporate expenses in the third quarter to be approximately $5.4 million, our non-cash compensation expense for the third quarter should be approximately $2.2 million, we would expect third quarter depreciation and amortization to be approximately $4.6 million, and our net interest for the third quarter should approximate $10.6 million. I would note that third quarter interest projection does not assume any further debt for share buybacks, as a reference point.

Our GAAP tax rate for the year should be approximately 42 to 43%, excluding one-time adjustments and there are quarterly fluctuations to this target rate throughout the quarter. Now a few notes on the second quarter, following up on what David indicated. As you saw in previous quarters, and as you saw particularly in this quarter, we achieved a significant increase in our free cash flow. Indeed, in the second quarter we achieved a record free cash flow for not only the second quarter, but for any quarter in our history as a public company and free cash flow per share pair, reflecting the share buybacks, the change in interest, and the management of the top line and expenses.

We previously indicated to you that for this year our free cash flow for the year would increase, as a result of lowered financing costs, that being the combination of interest and TBA fees. TBA fees that we had throughout last year which have stopped this year. An update on our bank leverage as we look at the balance sheet. We ended the second quarter with leverage as defined in our bank facility agreement of 5.4 times, and that is total debt, both senior and high yield. We took advantage of the discounted price of our senior sub notes in the quarter and repurchased approximately 10 million of our bonds at a discount, and the Company also repurchased approximately 1.3 million shares of Company stock in the quarter. And as David indicated, we took advantage of the favorable interest rates and have now hedged approximately 70% of our variable interest rate exposure.

Accounting guidance has all companies to periodically evaluate the carrying value of intangible assets. In our case, broadcast licenses and goodwill. In the second quarter, we performed this test again, and took a non-cash write-down in several of our markets of approximately $185 million, and that is a pretax number. We will continue to evaluate that intangibles on a periodic basis going forward.

Also in the second quarter, we recognized the gain of $3.3 million, this was a result of an insurance recovery related to damages sustained in our New Orleans market, due to Hurricane Katrina in 2005. We would expect no further insurance recoveries going forward from that very traumatic event in 2005. I would also like to point out as we noted in the release that we did complete the divestiture of our three stations in Rochester, which we had been required to divest to meet regulatory requirements.

So that is the summary of the third quarter guidance, our second quarter highlights. Operator we will now go to you to open the phone lines for any questions that might be out there.

Thank you. We are now ready to begin the question-and-answer session. (OPERATOR INSTRUCTIONS). Our first question comes from Lee Westerfield of BMO Capital.

Thanks, gentlemen. Good morning. Two questions, if I may. First, Steve, it may be a nitty one, and you are helpful on a lot of the financial here, but the taxes in the second quarter, if you can help me understand if I was to net out the non-cash impairment charge, what the tax expense would have been in the second quarter, did drill down to basic EPS number.

And then secondly, if I can better understand what you guys are seeing in candor about the month of August. This is a tricky month of course because of the Olympics, but if there is any way to elaborate on either the categories, or national versus local, or agency versus non-agency placed business, what the symptoms here in the Olympics month are, national, local, agency and otherwise.

Lee, let me grab the second part of your question and then Steve will cover the first. As we mentioned, August is materially worse than July and September. July ended up for us with a mid single-digit decline, and we are seeing August again substantially worse than that, and considerably worse in September as well, and again, our sense is that certain advertisers are staying on the sidelines and choosing not to compete in that context.

I would say that proportionately it is no more local than national. They are sort of around the same proportionate numbers as they are in the other months.

Lee, your question on taxes. It does get complicated going back and forth. You will see on the reconciliation tables that we provided in the release, that we show the amount of estimated tax benefit applied to the pretax write-off of our impairment. There are in this quarter and every quarter other minor adjustments in there that impact the tax rate, which is why I give a broad guidance, and there is this quarterly fluctuation. Did that answer your question?

Well, this one might carry offline, because it gets into literally the adds and subtracts, which might be a long conversation for what goes in and out and into the arithmetic. Suffice it to say, yes.

I will be glad to call you back, I will make this broad statement. Number one, given the high degree of intangible amortization we have got, we don't expect to pay taxes this year on our business model. I think I have said that before. Calculating that GAAP tax rate is somewhat confusing, because there are a lot of items that go in, not only for us, but for every public company reporting now that we are required to at just. So Lee, I will follow up with you offline.

Gentlemen, thank you.

Thanks, Lee.

Our next question comes from Bishop Sheen of Wachovia.

Hey, thank you for taking the question, David and Stephen. I am just trying to make sure that there are a lot less moving parts than there had been. Shoes still to fall from M&A divestitures or any closing acquisitions, Rochester and Portland, are we all done there?

Bishop, yes, we will be filing our 10-Q probably about Wednesday. But let me give you the highlights. We have closed on Rochester. That is closed and done and I think that was in early July. As you will see in our prior releases, we have a divestiture of a small AM station in Portland. That is a longer term close. We would not expect that I am not even sure in this year. There is some engineering stuff that has to be accomplished on that. But literally, that completes the moving pieces.

Okay. So it is a pretty stable balance sheet now, and you are managing it with opportunistic buyback of your stock and your bonds. And is there any reason to think that you would stray from that kind of strategy that you have used year-to-date? And I guess even starting in Q4 '07?

I think that is a fair summary, Bishop of our posture right now. You never say never, in terms of looking opportunistically at acquisition opportunities. But I can't imagine us doing cash acquisitions right now, because our primary focus is going to be to preserve the integrity of our balance sheet.

Okay. That is helpful. The last question is, the difficulty of getting through August and the one-offs. Do you think we will be hearing this recurrent theme from throughout radio and other companies reporting of this kind of Olympic disruption, to whatever is supposed to be the normal advertising flow to radio?

It is always hard to speak for other people, but I would imagine what we are seeing in August is representative of what others are seeing. Again, I can't paint a causal link, but I have heard others suggest that there may be a connection anecdotally, and I suspect that is the case.

Okay. Thank you, David. Thank you, Stephen.

Thanks, Bishop.

Our next question comes from Marci Ryvicker of Wachovia.

David, you said your stations were down mid single-digits in July. How did your markets do? And when do you expect to start seeing political?

We don't have the market data yet for July, Marci, so I can't give you feedback on that, but my hunch would be that we would see a similar outperformance for our stations, versus the markets during that month.

As far as political is concerned, it is still early, and normally we don't see political flowing in at this time. We would anticipate towards the end of the month starting to see those dollars flowing in for September, and more significantly October.

Let me give you a refresh. I think I have given more granular data in the past. We would expect between 4 and $5 million, that is an estimate based on past political year cycles for this year. That is primarily going to come in the fourth quarter. In the first quarter of this year, don't forget, political is beyond the primaries which get more visible, the Presidential, there are local and statewide races, local ballot races, mayors, what have you. First quarter we had approximately $600,000. Second quarter, approximately $800,000.

Are those net numbers?

Those are net numbers, Marci. I would expect, and this is a pure early speculation, that we would have less than $1 million in the third quarter, leaving the balance in the fourth quarter of somewhere between 4 and 5. And again, I can only look back to prior biannual Presidential cycles, but that gives you a little more data and a little more flavor.

Steve, I have one more question. I don't know if you give this information yet. For the Rochester station that were sold, do you have the cash flow that was associated with those stations?

It was de minimus. There will be some data in the Q, but basically de minimus.

Great. Thank you.

Next question comes from Mark Wienkes of Goldman Sachs.

Great. Thank you. Just wondering, how do you see the market for the sale of radio stations currently? What types of buyers are out there if they are out there, and where do you think the multiples are, and then do you have any interest in the CBS stations?

Mark, I guess just having been in the market with our Rochester spins, and keeping our ear to the ground, I think that there are still a handful of large group broadcasters who are looking at deals. There are a bunch of new players that are looking at deals. There is private equity money that remains very interested in the space and would like to play. So I think that there are a significant amount of players in the space, albeit a good number of the public broadcasters are somewhat limited in their capabilities right now, and therefore are less of a factor in the marketplace.

As far as multiples are concerned, I don't know. It is hard to say. We haven't had any comps to point to here over the last few months. I suspect they are off a little bit from their they were but still respectable, reflecting the enormous free cash flow capabilities of the station, and the fact that again, as I touched on earlier, if you look at the fundamentals of usage, which ultimately is the backbone of the industry, radio looks very, very healthy. It is just a story that doesn't get reported as much or as often as it should. Finally, as far as CBS is concerned, again, as I mentioned earlier, hard to see us having much interest in writing checks to do acquisitions now. We are more focused on preserving the integrity of our balance sheet.

All right. Makes sense. I guess one quick follow-up. Any competitive response expected I guess either from the industry with respect to the combination of XM Sirius, both generally, and then how it might affect the rollout of HD radio?

Well, I guess you won't be surprised to hear that I think the decision was a poor one, and we feel disappointed that both the Justice Department and the FCC came down where they did. Having said that, it is what it is. We move on.

I do not expect it to have any material impact on our operations or on our futures, and as far as HD is concerned, you may have seen that the FCC is going to be looking at that issue going forward, and frankly, we believe that ultimately car manufacturers will continue to do what they have been doing over the last few years, which is to be rolling out and announcing plans to add HD chips into their cars, based upon the fact that there will be continuing growth in consumer demand to receive their local AM/FM stations, and their new HD2 and HD3 channels, and the car makers ultimately will want to meet that demand.

Great. Okay. Thank you very much.

Thanks, Mark.

Our next question comes from Jim Goss of Barrington Research.

Good morning. David, your arguments are very compelling in terms of radio usage and the cost effectiveness of the medium, and I am just wondering why you feel those arguments haven't been embraced more by advertisers, in a way that would have led to more firm pricing and higher revenues. And then I have a couple of other issues.

Jim, it is a great question, and it is a frustration for us. But I will tell you this, I would far rather be in a business where you have a great story that doesn't get told, or doesn't get heard, than be in a business where you have got a poor story, and you are trying to work around that.

So yes, that has been something which is a frustration, and we will continue as a company and as an industry to make those points. And I would commend a number of my peers, and Jeff Haley at the RAB, and also David Rehr in the NAB, and the expanding radio 20/20 effort, as a very focused effort on the industry, to get more serious about this problem, and do a better job of articulating our story.

Okay. Couple of other things. Remind me where you come down on PPMs, as to whether it is an immediate challenge, but a longer term benefit, or how you think that shakes out. And then with HD radio, the traffic, the commercial-supported traffic idea I thought was an interesting one, that Emmis brought up in it's conference call.

Are there other such usages that you might think be something, a killer app sort of things, that might help the HD rollout a little bit more? And then finally, a little follow-up on Lee's question about the tax rate. Steve, when were you talking about the 42 to 43% annual rate, is that a rate that strips out the charge, or right, the impairment charge and just gets to more of a pure number?

Let me deal with your first two questions, and then Steve will touch on the third. First, as far as the traffic initiative that we announced with NAVTEQ, yes that is an Emmis led initiative, we give Jeff enormous credit for putting that together. And we are very excited about that deal, and are glad to be one of the participants in it. As to other types of data driven partnerships and applications, there are things that get talked about, but nothing right now that is to be reported.

On PPM, we see PPM as a great thing. Electronic measurement is a good thing for our industry. As you have seen in Philadelphia and Houston, and in preliminary data from New York and upcoming markets, there is a dramatic increase in reach per station. And when you see a station like Clear Channel's WLTW in New York single handedly outreaching every single major New York City newspaper combined, it speaks volumes about the power of the business. We so are very excited about what PPM reveals, and also the greater immediacy of that data, which we think will be helpful for us in the selling process. Steve.

Your question on tax, Jim. What I am saying is we are always going to have adjustments come through that impact our tax rate. Clearly, the impairment charge, as we show in our reconciliation table, and you will see further details in the Q, we show net of tax. There are other items in there. So the 42 to 43 is kind of an annual guidance to give you some kind of feel, and we will continue to update that as we get more visibility of items, tax items for the year.

All right. Thanks very much.

Our next question comes from Tony Wible of Citigroup.

Thank you. A few questions for you. First, I appreciate your candor on the macro layout, and then some of the near term issues, but I had a question on the strategy with that comment. Is the strategy to ride out the storm, or are there other things that you see that radio could do to adapt, and in particular, with digital growing and you are seeing greater implementation of smart phones, and now having the iPhone 3G able to stream a lot of Internet radio stations, do you see an opportunity to I guess invest in that more so than HD radio, to adapt to some of the challenges as you have laid out?

First of all, I completely agree with you, Tony, that our strategy is not just to ride out the storm, but it is also how do we take advantage of opportunities and capitalize on trends, and we have talked often about not only our substantial investment and growth in our digital assets and our digital platforms, but also our focus on being more of a marketing solutions based company, capitalizing on the power of radio, the power of our digital platforms, and the power of integrated marketing ideas, in order to drive our share of total ad spend from our customers and that is something which we remain excited about, and we are seeing great growth in, and we think it is an important part of our future.

On the technology platforms, absolutely we have our team working on a number of initiatives and a number of opportunities. We touched on the Emmis-led NAVTEQ partnership earlier, but I would also point out, that we are hard at work looking for ways as an industry and as a company, that we also can have a greater presence in the cell phones of the future and on other devices, and feel very confident that so long as we are able to generate great brands and great content, predominantly local, that we will have an important place in the media world of the future.

That was going to be my next question. As you move more to digital, do you see the local/national mix being the same, or would it skew more toward national with some of the new technology?

I think ultimately our strength is as a local business, and I think that is where the vast majority of our dollars are going to come from. On the other hand, we have had had great success in speaking with national advertisers and several of our peers have as well. To capitalize on this incredible footprint of radio stations which reach 93% of Americans, more cost effectively than any other medium.

Last two questions, they will be quick ones. One is on the third quarter revenue guidance. I just missed that. Was it a same station high single-digit, or was that just total revenues were high single-digits, expected to be down for the third quarter?

That would be same station.

Okay. Can you talk about visibility? I know it seems to be tough to talk about in the context of the Olympics, but generally how has it been trending for this quarter? Has it kind of maintained the level of visibility that you have seen from the first quarter, or has it deteriorated or improved at all? As far as what percentage of bookings you might have in any given month.

It is probably about the same in that advertisers are making late decisions, and so it is hard for us to know where we are going to end up until we are pretty much right on top of the date.

But it hasn't gotten worse. That's the good news, I guess.

I don't think it has gotten worse. That is fair.

Thank you. Next question comes from Harry DeMott of King Street Capital Management.

Hey, guys. Just following up on Tony's question then, so if July was sort of down mid single-digits and August I think you characterized as far worse, and these guys are making late decisions, I guess it hasn't gotten worse, but September could get worse, I guess, is what I would take from that? You have a certain amount in the books now, and you feel it won't turn into August, I guess is what you are saying?

Harry, I think your question is a fair one and I think that right, you don't know until you are there. I would be more optimistic than pessimistic based on the upcoming political cycle, but right, we don't have the ability to call September now any more than we do October, November or December.

Also, this is just sort of, I have a couple general questions here. You mentioned the Olympics as being a contributing factor. I assume you are saying that because you're hearing that from your sales folks, and the general managers out in the field. I guess what I was wondering was sort of why.

I mean, the local bars and grills and Best Buys of the world really, I can't imagine are spending a lot of time thinking about the Olympics, and truth of the matter is, where you reach 93% of Americans every week is largely in their cars, where you can't watch the Olympics. And therefore, is actually I would think radio actually should to some degree benefit from the fact that TV is in somewhat of a disarray, and yet you can still reach people fairly uncluttered in a car setting, during a time period when a lot of people outside the car are watching this. Just sort of wondering, do I just have that mentally wrong? I mean, very possible.

Well, let me frame it this way. First, I think we are probably overstating the significance of the Olympics, just on the nature of the ebb and flow of questions in this call. We are not sitting here saying that the Olympics are a problem. I think it is important to step back, and recognize that there is a very difficult environment, economic environment, and where we see the auto manufacturers basically selling 20% fewer cars than the prior year, and you see a host of other consumer facing businesses, obviously, finance, real estate, you name it, dealing with substantial problems, that you have a significant amount of impact on the ad supported world.

And that is true in radio, TV, newspaper, cable, Internet, you name it. So that is the single largest factor that we are dealing with out there. The point on Olympics was not to suggest that that is any more than an exacerbating factor in a single month, and in fact that does not come from our salespeople in the field, so I would kind of agree with your points about the local retail community, but it is a factor that we have heard anecdotally, that a number of larger advertisers have opted to hold back, and that does affect the supply/demand profile of the month.

Okay. Just so then following up on that then, I mean, given that sort of no man is an island, no business is an island, I would think that you guys compete for dollars with the newspapers, Yellow Pages, TV Guides on a local basis in these markets. When you take a look at the statistics coming out of those businesses, I mean, your business looks good , which is not a great statement.

I mean, newspapers are down high double-digits, 20% in some cases, depending on where and when. I assume these guys are doing, their sales staffs are doing whatever they can to collect whatever dollars they can, which just further hurts you guys. I guess I am wondering, how do you talk to your sales force about dealing with a situation like that, where it is not just the economy that is bad, but your competitors for local sales dollars are also dying, basically. You may not be dying but they are dying, and therefore it is making you sick. How do you avoid that, or is there just no avoiding it and you just hope they die

I don't want to sound, the tone of your question Harry is pretty dire for a lot of folks. At the end of the day, put it this way, there are still going to be hundreds of billions of dollars of advertising spent in this country in all sorts of media. The fact is, folks still get up, go to work, consume things.

Yes, we are going to ride out a storm here as a nation, and hopefully the storm won't get more severe and won't last that long, but you cope, and I think we are a company that has demonstrated through many business cycles both positive and negative, that we execute very well, and that we stay focused on what we need to do, and both in terms of our immediate execution, but also in terms of the strategies we deploy to make sure that we are stronger in the future, and we will continue to do that, and feel good about where we are going long-term.

Two more quick ones, then.

Yes, please, quick.

Quick. If you could prioritize between buying back your debt, buying back your stock with your free cash which is still going nicely, how do you look at that, or is it literally just an opportunistic, here's the price of one versus the other, and you are happy to do either?

I think, Harry, management and the Board is always going to look at the mix of overall leverage, business conditions, being mindful of the opportunities for share and debt buyback at a discount, and we will continue to make opportunistic calls on that.

We are mindful of the choppy business environment. We are mindful of our leverage, and you have seen us I think manage that prudently over the years.

Absolutely. Thanks.

Our next question comes from David Bank of RBC Capital Markets.

Thanks, guys. Good morning. I have a couple of questions. The first one is, Steve, could you remind us what the current annual book tax amortization income shield contribution annualized run rate is, and I guess sort of bigger picture, it is a pretty big asset that kind of keeps growing, and do you have any views about how ultimately you get to unlock value that maybe isn't being recognized right now? I have got three others. I am sorry.

The second question is given the guidance, I think that kind of takes us to an SOI number, that is down kind of maybe in the low to mid-teens range. I was wondering where that would take your leverage up for the end of 3Q? Two more.

The third, Dave, do you think you are seeing in terms of the August weakness, was it about cancellations, or sort of bookings that just didn't occur? And then the last question is when you sit in the sales meetings, and when you are deep in the trenches and you talk to the sales guys, how much do they think is really, this is kind of the economy, versus something more secular? I know it is a really hard question to answer, but any color you have would be really helpful.

Why don't I have Steve address the first couple questions.

In terms of our total deferred tax asset, David, I am not in my office at the moment, but off the top of my head, and you can follow up if you want more specific, it's around $40 million. It is not growing any more. Primarily that is driven by our acquisitions and the fact that we depreciate for tax purposes our intangibles, we do not for book.

As you note this quarter, and prior quarters, we periodically test the intangibles and for book purposes not for tax, make some adjustments much like we did now. So we have that deferred tax asset, and we are taking advantage of that this quarter and in future quarters.

Second question was leverage. Yes, we have not guided on our leverage. We had a couple of things, don't forget, as I mentioned, we did complete in the third quarter the Rochester divestiture so we will have cash from that. I would say we might experience a tick-up based on the guidance we have given of about a tenth of a point, but I am not being formal in that guidance, but you might expect that. Okay.

As to your latter two questions, August has looked weak for quite some time, so it is certainly not driven by cancellations. I think it has just been the general tone of the month that we have been seeing for quite a while. And then as far as the balance between secular versus economic, I would say far and away right now our issue is the economy.

Okay. Thanks.

Okay. Operator, I think we have time for one more.

Thank you. Our final question comes from Michael Kupinski of Noble Financial.

Thank you for taking the question. My question really is to determine how broad-based what you are seeing in terms of the weakness? Of the stations that you identified that showed growth in the latest quarter, are there any particular reasons that they would have shown growth that you can identify a particular ad category that was significant for them versus others, for instance?

And aside from Boston, are there regional economic disparities maybe in some of those markets? I trust that most of the markets you identified, just looking at those markets, didn't have a lot of national advertising, and would that account for some of the variance? And then finally are the stations still showing growth in the third quarter pacings, or are they showing weakness like most of the other stations are at this point?

Let me try to sort through that, Michael. First, there is some weakness in particular pockets of the country, and it shouldn't surprise you that the markets where we are dealing with tougher competitive conditions are predominantly Sacramento, which I know has gotten some write-up as being one of the weakest real estate and one of the weakest economic areas of the country. And also in the Southeast, we are seeing that to some extent as well. Again I think real estate related probably at some level.

It is not about national versus local. It is more about just the geography of where our markets are located. As to your first question, why are we succeeding in certain places so strongly, and I think as much as anything it has to do with local execution, and an ability to develop business and evolve into being more marketing solutions based, and demonstrate to our customers that the value proposition that we offer is superior to so many of the other choices that they have in the ad market today. And I think that is the fundamental driver for us.

Obviously, there are some other local idiosyncrasies as you would expect, but that is the driving force for us. Lastly in terms of Q3, I think you should assume based upon the comments we have made about third quarter business conditions, that across the board we are seeing just the economic softness taking numbers down a little bit from where they have been, in virtually all of our markets.

Okay. And any of those markets that you identified David that you have Best Practices that can be applied to some of your other stations, or is that when you were talking about sales practices in some of those markets?

I don't think there is a silver bullet. I think some of our markets are doing a better job of executing a strategy, and evolving than others, but we are directionally happy with the overall evolution in our company to become more adept at competing in an evolving world.

Great. Thank you.

Thanks Michael. Thank you all for joining us this morning, and we will look forward to reporting back to you at the end of Q3. Thanks.

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