Gray Media Inc (GTN.A) 2006 Q2 法說會逐字稿

Good day everyone and welcome to the Gray Television earnings release conference call. As a reminder, today's call is being recorded. I will now turn the conference over to the President of Gray Television, Mr. Bob Prather. Please go ahead, sir.

Thank you, I want to welcome everyone to Gray Television's second-quarter earnings call. I've used this line before but I will use it again from Charles Dickens A Tale of Two Cities “The best of times and the worst of times.” I clearly think what we're going through right now is a good example of both of those. I think we're in the best of times.

I think this new digital technology HDTV, all the technology things we're in right now are going to be a tremendous boon for TV in the years ahead. And I think companies like us have strong local presence, strong news presence, it's going to be even better in the future. We're going to be able to get our news out on the Internet and on mobile phones and any other way people want them. I think HDTV's going to be a new product for the viewers and the advertisers when it comes in full blast in February of 2009. And we're going to have multicast capabilities of at least four channels and maybe more which we haven't had in the past and I think it's incumbent upon us to figure out a way to monetize those channels.

We will have 30 digital channels on the air this year, we will have 16 MyNetwork, nine CW and five Fox on our digital spectrum before the end of the year this year. We've been very successful operating these digital channels with UPN and we think we'll have continued success in the next years ahead and we think once 2009 comes around, these channels will be available on 100% of the TVs out there. So we think we're creating basically 30 duopoly situations at a very low capital investment and I think it gives all our stations an opportunity to do more local sports and local college things around the programming provided by the networks. So we're real pleased with our digital channels.

We’re very pleased with our television operations through the first six months and we've been able to hold expenses very tight and had an excellent year profit-wise so far. I think we're on track for overall record year this year or should be close to it. The political -- obviously the big political's going to come in the fourth quarter in October, November, the good news is there's seven days in November this year for the -- before the election, it was a -- I think there was only two or three days in '04 so we'll have more days in September for -- excuse me in November for advertising so I think that's going to be a huge boon for us. But we feel very good about the rest of the year. Our stations all seem to be positive about the outlook and we think -- like I said we're going to have a -- if not a record year, a very close to it and I think it very well could be a record year so these guys that think -- the bad news -- I always get to the -- that's the good news, the best of times.

The worst of times is Wall Street has just written off the TV industry. I had a fellow who knows the industry pretty well just tell me in the last two or three weeks that if you take the combined market value of all the public television companies, their public float combined is less than $1 billion right now. That's just almost incomprehensible when you think about what a major industry [you got] and also how profitable it is, that the combined public float of all the TV groups out there that are pure play TV would be below $1 billion in total, just tells you that at the present time the investment community has just written off TV. I think they're totally wrong but we got to prove them wrong. We're going to keep doing what we're doing. We think we're doing virtually all the right things right now in our operations.

We are going to continue to be the news leaders in the towns we're in. We're going to continue to invest in these towns where we think we got a great future with the college towns and state capitals where we think the demographics and growth is better than the national average overall and so we feel very, very good about the future, both in the short term for the rest of this year and over the next few years. And as I said I think come February 17, 2009 we're going to all see a whole new world open up for all of us. And it's going to be like color coming in, in 1969. But I guess I'm just telling all you guys out there don't despair and hang in there with us.

The stock price is enough to make anybody want to cry right now because I know this company's much more valuable than what we're selling for but we just got to keep doing the right thing and hope the market will recognize what we're doing at some point in the near future. At this point, I'm going to turn it over to our Chief Financial Officer, Jim Ryan and let him go through the numbers and then we'll open it up for questions. Jim?

Thanks, Bob and good afternoon, everybody. I'm going to keep my comments very brief and in commenting about the operations for both the quarter and for the six months, I'll just focus the comments on comparisons to the pro forma 2005 results that are published in the release and I will remind everybody that there is on our website available for all four quarters of 2005 a pro forma as well. As Bob said, we were reasonably pleased with second quarter, overall revenue was up about 4%. It was kind of a mixture local up a little bit, national was down a little. Our auto was down between 1 and 2 in the quarter and we saw some softness in the restaurant category in about a third of our stations, but also saw good growth in communications and medical. So kind of a mixed bag in the quarter.

As Bob indicated our expenses, we were very pleased, came in about -- up 1% and allowed us to produce broadcast cash flow up 8% for the quarter. For the whole first half of the year, again we've been pleased with 6% local growth overall. The same station local growth is 4%. Again, we're relatively pleased. Like everybody else has reported or virtually everybody else has reported national has continued to be a little sluggish in the first half of the year, although actually August of this year is showing some strength so hopefully that's a sign of things to come.

Both in the quarter and the six months certainly political has been reasonably important to us. Up to 6.5 million for the first half of the year compared to about 1.3 million last year. Again, this is a very solid -- very established two-year cycle and as we've said, a couple times already this year, we've expected a very back weighted political spend this year. We think September and basically the classic campaign season of after Labor Day through election day will be very, very heavy given the races in all of our markets. And as Bob mentioned there's a full week in November of campaigning this year compared to just a couple of days in 2004.

For the whole first half of the year our expenses were up about where we thought they were at 4%, about at expectation. The release goes in some detail trying to explain the impact of the digital channel start-ups and so again we're -- we are looking at core expense being under -- very much under control and the digital being something that positions us well for the future. For the six months broadcast cash flow was up 7%, which we were pleased with. We put out guidance for third quarter, which basically indicates the local national -- excluding political, we are thinking is going to be up about 3%. We are looking for a reasonably healthy political of 10 to 12 million net. And, again, the -- a large amount of the political to fall in fourth quarter.

Quickly on the balance sheet, DAT at the end of the quarter was 858.3 million. Our trailing adjusted broadcast cash flow, which is -- it's just plain old-fashioned operating cash flow. It's broadcast cash flow less corporate overhead and the non-GAAP recs are out there both on the release and on our website. But trailing 12 months operating cash flow was 110.7. We had 7.4 million of cash, so on a net leverage basis we were at 769 at the end of the quarter. We come down already from our high-water mark just after closing NDU in early March. We are on good track to reduce our leverage as we've indicated before. And, again, with a strong political in the fourth quarter, we still think overall leverage by the end of the year including some debt reduction using some of that political money in the fourth quarter should bring us somewhere around a leverage ratio in the mid 5s by the end of the year.

CapEx was -- is in the -- is disclosed in the Q, which has also been filed today, but totaled 6.9 for the quarter, 14.5 -- or 14.4 for the six months and there's about 2.8 million of HD transmission CapEx. And that's pretty much winding down and cycling through at this point. And our primary focus in our non-HD capital so far this year has been supporting launch of our digital stations, supporting further automation efforts in our television stations to gain operating efficiency, late this year and next year. And, also, in support of rolling out a common traffic system across all our stations. At this point, Bob, I'll turn it back over to you for questions.

Thanks, Jim. At this time I'd like to open it up to the listeners for questions, please.

Thank you. [OPERATOR INSTRUCTIONS]. We will take our first question from Victor Miller with Bear Stearns.

Hi. This is actually Tracy Young. How are you?

Hi, Tracy.

Two questions. Just on your 2Q pro forma expense. As you mentioned, expense was extremely low for -- we estimate less than 2%. Can you add more color on how you kept those expenses so low? And as you roll out the new affiliates, if you could provide us some color on how you plan to promote the business and what we should expect for expenses in 4Q? Thanks.

Tracy, we always try to keep a close eye on expenses. I think our managers have done an even extra special job the last few months. Mainly because, I think we've just concentrated on it. We weren't sure in the -- after the first quarter how the year was going to look so we all just took a hard look and made sure that anything we could do to hold expenses down we did. Also, the fact that -- the UPN -- when they announced that they were going to cease operation and become CW, we probably have cut back some of the promotion things there in some of the areas. But one of the things we plan to do is -- like we did with our UPNs, is we're going to heavily promote the MyNetwork, the CW and the Fox on the digital. We think we've got the best promotional tool out there with our number one TV stations in most of these markets and that's one reason I think we've been so successful with our -- with our digital second channels is we do a real good job of promoting to our viewers that they've got an alternative to go to, to get a different type of program and it’s aimed to a different demographic and age group and also with our advertisers obviously it's a lot cheaper ad rate that they can buy ads and we repurpose our news just about on all of these -- will on all these digital channels so people can watch our regular network news usually at 7 o'clock or at 10 o'clock or sometime. And one of the big factors I think's been important to us is we were able to rebroadcast Oprah in 18 of our markets that -- where we have Oprah on -- during our regular schedule that we rebroadcast Oprah in prime time and that's been very successful for us. So I'd say that's a long answer to a short question but I hope I answered it.

Thanks very much.

Tracy, real quick on the Q4. The expense for the digital. Part of the guidance for Q3, we indicate that the total incremental expense on the digital efforts in Q3, which include the upfront and the September promotional launches of CW, MyNetwork is about 1.3 million. So I would expect Q4 certainly wouldn't be more than that and actually I would expect Q4 to be a little bit inside of that because some of the promotional money would be front loaded towards late Q3.

Okay. Thank you.

Thanks, Tracy.

Bishop Cheen with Wachovia has our next question.

Hi, Robert.

Hi, Bishop, how are you doing.

I'm good. Thanks for taking the call. You guys have been very even handed trying to do everything for your shareholders and your cost of capital's certainly sensitive to that. You have an inflection point coming up in December in 9.25. Is there any reason to believe that you wouldn't want to rid yourself of that 9.25% coupon if you could?

Right now I can't think of any Bishop unless you just had a huge spike in interest rates between now and then. I think comparable bond rate for us now is in the 7.5 range or something like that hopefully, so obviously we plan to take a hard look at it at that point but unless we had a huge spike in rates, I think it's incumbent on us to plan on refinancing those bonds when they do -- when the first call date's available.

And what about devoting capital towards shrinking your stock base or instead taking down debt or instead issuing more dividends?

Well, we've -- we announced at the first of the year that we plan to use 90% of our free cash flow to pay down debt and the other 10% for stock buybacks. We did buy back 800,000 plus shares this quarter because we just thought the stock was so cheap we couldn't pass it up. But we think that's going to wind up being about 10% of our free cash flow for the year. If the stock stays this cheap in the fourth quarter and the political’s coming in as strong as we think it might we may buy a little more stock back then but clearly with the stock price this cheap, we want to make sure we do the right thing on the leverage side of the coin. But it's hard to pass up stock at these cheap prices, too, so -- we'll be doing some of both.

I hear you. Last question and tell me if I have this right. Last time when you devoted to a cycle of paying down debt I think it was kind of like two years for you to get it paid down to the level. This time it feels like if you get to your leverage target 5.5 times year-end, it will be a shorter period.

Well, we hope so. And I think if you look back over the years we've always paid down quicker than we said we were going to, so I hope we're going to do it again and I think we're on track to do it again.

Okay.

Bishop, I just want to clarify, too, when Bob said buying stock this quarter, what he was talking about is in third quarter in -- essentially in July, not to confuse it with second quarter.

Okay.

Oh. That's right I'm sorry.

And in second quarter how many shares did you buy in?

We didn't buy any in second Bishop. I apologize.

I forget actually first or second it's in the Q. We bought -- somewhere in the first half of the year we bought in about 4100 shares but -- so that was negligible.

Got it: Thank you, guys.

Thanks, Bishop.

And from Gamco Investors, Larry Haverty has our next question.

Hi, Robert.

Hi, Larry, how are you doing?

Good. This is the first year that you have the South Bend station and this is the first time that's been run as a commercial enterprise and the prospects for the team are pretty good. I'm just wondering if you're being excessively conservative given the likelihood of a sharp increase in cash flow there?

Well, so far we're on track. We're doing real good there. The margins just have moved from the mid-20s up to 40% plus range and we think we've still got some improvement ahead. We've got a real sharp manager there who's attacking the market both on the revenue side and the cost side. I think he's done a good job on both. He's a -- he was a general sales manager at our Huntington Charleston station and he knows how to go out and get the sales and I think we're going to have -- we've seen both a pop on the revenue side. And also obviously Charlie Weiss and the football success is great for the station, great for the market there and we're looking at some ways to do some things more to do some more programming around that ourselves on Saturdays and -- that's something we're working on even possibly doing a nationally syndicated pregame show on -- that would be ahead of the NBC broadcast of the Notre Dame game. So we feel real good about that station and the market and -- I think it's going to do nothing but get better in the years ahead.

Well, won't you see, in the as reported basis a pretty big spike once the football season starts there? Is that station more seasonal than others?

Not really. It's not that much more. It's still a -- it's bread and butter day in and day out just local news product and I -- the -- this will really be the first year, if they have a great year, Weiss obviously came in last year and surprised everybody. This could be a breakout year if they wind up, -- they're ranked third in the country preseason. If they wind up in the top two or three and in one of the BCS bowls we could see some results, but I think that's something we won't -- I think there's still kind of a wait and see attitude among people on that on advertisers, and whether they are really going to be as good as people think they're going to be. I think they're going to be but they got to prove it.

Okay, thanks, Bob.

Thanks, Larry.

[OPERATOR INSTRUCTIONS] We will move next to Jim Goss with Barrington Research.

Hi, Bob, hi Jim.

Hi, Jim.

With regard to the digital duopolies. To the extent that you had relationships with the UPN stations and there was some cost in getting into that relationship, did -- were there any financial ramifications positive or negative when that ended since I know you -- it was sort of a bidding war to see who got the new CW relationships?

Well, we basically decided not to get into any bidding wars, Jim. And we passed up the CW in several markets where we could have had it by just meeting the price and we just made up our mind that we -- we had a real good model on the UPNs before this announcement. And we basically stuck to the same model and just felt like we weren't going to go chase these deals. And so I -- you know, I would say that -- and I feel good about it. I think that MyNetwork is going to be a real good network, the economic model could be even better than the UPN for us and we didn't chase a single deal out there on the CW as far as bidding up to get it. I'm glad we didn't frankly, I think it's -- the network's going to do fine, but our strength is those programs are two hours a night. We put a real good group of programs around it in the past, we've still got that same programming. We've got our local programming and we've also -- filtered into those -- into those markets and so I think we're going to do real good with the MyNetwork and the CWs we got. And we've been able to make those things profitable pretty quick. And I think we will continue.

I'd say the only caveat -- we've had some fights with cable guys on the -- once we switched over from UPN to either CW or MyNetwork where they are pushing us -- trying to push us off the analog tier onto the digital tier. And that could hurt us a little bit in the short term because you just don't have as many people that have digital capability out there in the market as you do analog, obviously. So that would be -- that's probably the only thing I'd say I am disappointed about going forward, but I think we're buying cheap real estate. It's going to be real valuable as we build it up over the next two or three years heading into 2009 and I think 2009 comes we're going to be in great shape to have duopolies in virtually all of our markets.

You have a lot easier time having the digital duopoly to wind up on the cable network somewhere than some of the digital must-carry issues faced in larger markets,I would imagine.

I agree, I agree.

Also, did you have to pay any sort of fees to get the UPN relationships in the first place and did you get a rebate on any of those?

No, we did not. We didn't have to pay any fees. And -- so, the only cost you would say would be the promotion costs that we promoted the UPN, but we were -- we did -- that was expensed on a current basis and we were profitable in those markets so actually, it's just an operating expense that we were able to cover and make a profit.

And two other things. Do you think the digital duopoly plus the anchor station will expand your opportunities with regard to local Internet sites? And then secondly you might comment on acquisition multiples now?

Yes, I definitely think the digital duopolies will help extend our brand on the Internet. We are doing real, real well on the Internet right now with all our stations. We are on track for really having a fantastic year in the -- in our Internet websites and our mobile phone websites also. And I guess your question on multiples is how in God's name can these private value multiples be what they are when the public value multiples are so low. I think it just tells you the people that know TV are willing to pay for stations. I've noticed there's been about seven or eight single station deals in the last -- announced in the last three weeks and every one of them was 12 plus times cash flow.

Okay. Well, Lou Dickey I think was commenting yesterday about the radio acquisition multiples, public and private having to converge at some point and it's hard to justify making any acquisitions--.

Let's hope the public goes up.

That's another way to get there.

There you go.

Thanks a lot.

Okay.

And we will move next to Ronnie [Maho] from TD Securities.

Hello?

And Ronnie, your line is open. Hearing no response--.

I'm sorry, my question had already been answered earlier.

Okay. Thank you.

Thank you.

We will move next to [Brian Broadband] from Highland Capital Management.

Hi, guys.

Hi, Brian.

Just a couple of questions. In the 10-K -- in the 10-Q there was a disclosure about the litigation with [Tarzine] being closed and -- was that mutually assigned by both parties' attorneys? And would that -- can I assume from that that you are in -- that you are in discussions with them?

Yes and no. That was -- they were turned down for the second time by the U.S. Supreme Court and then they came to us and offered to drop the balance of the litigation that they had against us, which -- so there was a mutual agreement by both sides that they would do that. We have not had discussions with them yet. I would hope to sometime in the future but we've not had any -- we're not having any at the current time.

Okay. And when you say record year this year or potential record year, is that based off the pro formas that you guys published on the website at 161 million of Bcf, roughly?

Yes. That is -- that would be our all-time record on a pro forma basis and that's right in the investor presentation on the website. I even -- if anybody wants to go look, it's slide 36.

Okay. And so that would imply -- I would assume you're looking for a -- kind of based on your guidance somewhere in a mid-50s to potentially even above 60 million in the fourth quarter on broadcast cash flow, is that a safe assumption?

The simple answer is yes, I think that's correct.

Okay.

Yes.

And then on -- it looks like this quarter you guys are launching several new digitals. It looks like potential -- I don't know the exact number. Is it 16 or 17 this quarter? And when are we going to start to -- is the revenue from these stations going to be more of a fourth quarter or a 2007 event? If you could just kind of give us some color on how that's going to flow through, that would be -- that would be helpful.

I would think, Brian, that we're going to be looking at -- obviously, we've got 13 UPNs on the air right now. We hope that there won't be a -- much blip in the revenues, though, switching over to either MyNetwork or CW. We've got a couple of Fox's included in that that we know will be fine. I think there's always -- with two new networks coming onboard there will be a little shake out period and I would say fourth quarter is probably more -- is -- would be a -- up and get going, a lot of promotion, those kind of things. I would look for us to really see some revenue coming in next year.

Okay.

I wouldn't plan on much additional revenue in the fourth quarter of this year or even early next year for that matter. And on the political spending, I know that were some primaries that are hitting in this upcoming quarter. Did you guys see a lot of revenue leading into the primaries and is it safe to assume that a pretty decent portion of the political guidance you gave of 10 to 12 million is in the bank for this quarter?

I would say a good chunk of that's in the bank. Jim, you can speak a little more in detail to that. But the political really I think -- it looks like both parties have pretty well tried to keep as much powder dry as they can in the primaries and really focus on the general election because there's so much anticipation that the Democrats might can gain one or both houses in the Congress or -- several of these key governors' races and things like that. So I would say some of our markets that normally see earlier money haven't seen it yet. We've had some other markets that haven't seen early money get some real good early money. So overall, we're a little bit ahead of budget so far and -- like I said, the big money's going to come in October and that first week of November.

The political even in the quarter -- third quarter is still heavily back weighted. For instance, July on a net basis we probably ended up with about 1.7 million of political. The good news there is that we had only budgeted for 1.4. Now, the numbers for August are that much larger and the numbers for September are much larger than that. And traditionally, political is not bought very far in advance. So we're tracking well for the quarter and we feel good about the quarter but I -- you can't -- because it's not placed until the very last minute, the -- it's not like we have $10 million of political orders on books right now.

Okay. Great.

And once again, Brian, we encourage guys like Ned Lamont who were born with a lot of money to spend $4 million on a primary, we love guys like that and hope they just keep on running. Unfortunately, we didn't have any [stakes] in Connecticut.

But just specifically if you could give color on your station in Lansing, know that Davos is spending a ton of money up there. If you could just kind of give some color on what you're seeing up in that station and what you think could kind of happen for the year, that would be interesting to hear about.

To date they've done very well. The third quarter we expect them to be hitting, maybe potentially exceeding, the budget number and my recollection is year to date through second quarter they're actually running, one of the stations running ahead so it's been a good season there so far.

And then finally on Charlottesville, are you going to -- with the Adelphia, are you going to get the additional cable carriage there in reasonably near future?

We certainly hope so. Comcast has taken over Adelphia Systems and they have assured us they want to sit down and talk about us getting better placement on the cable there and doing some things that will help us. And we just announced about two weeks ago that we've been named the official flagship, our three stations there, for the University of Virginia athletic program. So we think that's going to be a tremendous boost in that local market. We just made a ten-year deal to handle all the Virginia sports stuff and so I think that's going to be a real, real boost in the Charlottesville market for us.

Okay. Thanks a lot, guys.

Thank you, Brian.

And we'll take our next question from [Aaron Watts] with Deutsche Banc.

Good afternoon, guys.

Hello.

Most of my questions have been answered I just had a couple here, quick ones for you. Once you reach your target of sort of these -- or once you reach the 30 digital stations you say you're going to have here shortly, do you have any sense or is that where you're going to stay for a while? Do you think 2007 you're envisioning a lot more of those stations popping up? What's your comment there?

Aaron, here again I like to use the same term I use about acquisitions. Opportunistic. I think if we're looking at some -- Motor Trend has got some stations -- a network coming out early next year that we're looking at that may be interesting, especially in some of our markets where we think it might work real good. We're actually putting in on our digital spectrum -- I didn't even count this, but several 24-hour weather channels, things like that that we're looking at. So we may wind up in a fair number, especially some of our larger markets actually going ahead and having three networks on the air in a . We'll have -- our primary network, a CW or MyNetwork and then possibly a 24/7 weather channel. And possibly doing some repurposing of some local news on kind of a CNN headline news type basis.

And will most of the viewers in your markets be getting all -- let's say three of those digital feeds?

Here again, I think the key is the cable coverage. We've been fortunate to get pretty high cable coverage in all these markets. And as I mentioned, the only negative I've seen is that we are -- we are having some pretty tough discussions in two or three of our markets with a couple of the big carriers about wanting to only carry us on their digital tier and not on their analog tier and that would take some viewers away in the short term. In the long term we will get them back but in the short term it will take some viewers away.

All right. But on the whole, with the exception of those couple markets, you're finding the cable carriers fairly receptive to picking up these different feeds?

Well, yes, I think they realize that these channels have a real value in these markets and here again, I think the key for us is convincing them it's not only just a network, but it's the local component to it, too, because we are doing local programming in virtually all of these digital channels. So they're able to expand their local footprint, which is important to all the cable guys.

Okay. And as you introduce these new digital stations in the markets and the new opportunities that arise, like for instance with Motor Trend what you were saying there, what's your sense as to how advertisers in your markets view these new opportunities? Do you get the sense that this is incremental ad dollars that they're reaching into their pocket to put more on the air, or are you sensing that they're taking that money away from other areas of their advertising budget? Do you get any feedback in that regard from them?

A combination. I think -- obviously the UPN and WB had existing markets. I think they will retain a lot of those advertisers probably. I think MyNetwork, a lot of it's going to depend on, Fox has had a pretty good reputation of putting programming on the air and being successful with it. And I'm sure a lot of their -- the national ads they are going to get are based on just Fox's reputation until they see some ratings. In our case on local advertising, here again I think it's -- we've done a good job in these markets of really convincing people that we are promoting the channels heavily, that we're getting pretty good ratings on them in most cases and that we've got local programming which the local advertisers like. So we're doing some of the college sports and our local news, repurposing that, things like that that local advertisers like.

Okay. Great. And I guess finally, as you have been obviously on top of the ball with this rollout of digital, second stations,. probably ahead of the curve in most respects,. do you find yourselves being a little more efficient in doing it? I think back when you started rolling these out, you had talked about cash flow break even in the first maybe three months or so of operation. Is that still where -- where that is?

You know, I think it's still about the same. I tell you why, Brian, the main -- Aaron, the main issue is we're going into some smaller markets so in those markets this would probably take just as long or longer to get up and cash flow positive. We started out with our biggest markets with the UPNs and are gradually getting down where we're in some of our smaller markets. So I would say that I guess efficiency probably hasn't changed that much.

Okay. Thanks for the color. Keep up the good work.

Thanks a lot, Aaron.

[OPERATOR INSTRUCTIONS] Harvey Sandler with Sandler Capital Management has our next question.

Hi, guys.

Hey, Harvey.

I have a couple questions about political advertising. Since you had the highest percentage of political advertising of anybody, I wanted -- I'd like to know how do you view political advertising? How do you plan for it? And particularly, how do you plan for not having it in the off years? And then how does your presidential political years compare to your off presidential years? And I think this was asked but do you believe that you can reach the number in the presidential year pro forma?

Well, first of all, Harvey, we love it. That money's green and it spends real good and one of the things I've told you that we've talked about in the past that most people don't realize about political. Because it really becomes such a supply and demand -- I mean it's really, really a true example of supply and demand in October and November that you're able to get rates up and the key is trying to maintain as much of that rate increase going into the 2007 or into an off year as possible. The way we plan for the off years and I think we've shown it is we just always try to keep our expenses real tight going into the off years and we -- if we let expenses go up a little bit, it's usually in a political year we feel like we've got a leeway, but then in the off years we always try for a zero or even a -- we've actually in the past had -- cut expenses in off political years. But I think that's just a discipline that we've built into the Company that we will continue to do but -- and, as far as planning for political, that's probably the toughest thing in the world Harvey because you never know -- they have battleground states identified and we try to obviously know where those are and which states we've got that are considered battleground states. And we get all the data from our national rep firm and from people like Victor Miller at Bear Stearns that do political forecasts on what they think are -- political contests are going to be. But a great example is like this year in Nebraska which has had virtually no political money for the last few years they got a fantastic senate and governors' race going on out there and we've got more political spending there so far than we've had probably in the last two or three election cycles combined.

Your other question was about presidential. So far our political going back to '98 as far as we actually track it on a pro forma basis, we go up every two years whether it's presidential or not. Now, 2004 was obviously a great year. We still think based on the races we're looking at this year and the fact that -- there's just been as much or more money raised, it looks like more than was in 2004. We think we're going to, -- we got a chance to hit that kind of year like we had in 2004 even though you don't have the issue of crazy issue money like the swift boat guys and all the other guys that were out there spending money, the MoveOn.org and those kind of people. So far, those kind of things haven't popped up anywhere. Although I think these races are going to be so tight going down the stretch and for example, with Lieberman getting beaten and turning around and announcing he's going to go independent. I think there's going to be a lot of money poured in both sides. Lamont spending his own money and Lieberman raising money from independents and from probably Republicans for that matter to try to retain that seat. So I just think -- and as I mentioned earlier, we actually have got I think seven days of -- in November before the election this time. We only had one or two or three in 2004. So -- and that's when you get your most intense advertising, is those last eight or ten days. Hope I answered that.

Yes.

Okay. Thanks, Harvey.

And we will take a follow-up question from Victor Miller.

Hi, Bob.

Hi, Victor.

Could you tell us how much money was associated with the retrans in this quarter versus a year ago? And given the fact a lot of television companies are starting to put interesting to significant amounts of retrans dollars in their numbers these days. I just wondered where you are in that process and where you think--?

Victor -- Jim may have that exact number. I think we talked about it in the past. We pretty well chose to really go after making sure we got cable carriage on these digital channels as opposed to going after cash. Now, we do get cash payments from satellite guys and we do get -- there's one or two small systems that pay us some cash, but most of our -- we spent most of our retrans negotiation making sure we got maximum cable coverage on the -- on our digital channels, which here again we just felt like that was the -- that was the way we wanted to go. I think hopefully in 2008 when these things all come up again, at that point if CBS has drawn a line in the sand and some of the big guys have caved in, I think maybe all of the affiliates will be getting cash. In the short term we're not getting much cash except from the satellite guys and Jim may have a number I'm not sure if he does, but--.

I don't have a specific number but Victor, it wouldn't be a lot incremental because again our satellite deals have been in place for quite a few years. So it's just basically as subscribers grow there, we get a little bit more every month as the check comes in.

And that's -- it's done in 2008, that's when everything recycles?

Pretty much everything. There's one or two that I think may be a little early and one or two a little later but virtually all of them are 2008, yes.

Okay, thanks.

Thanks, Victor.

And we will take our last question from Bishop Cheen.

Thanks. Just a follow-up. Robert, you're such a great student. You too, Jim, on multiples. Look, it used to be when a big private market deal was done, M&A deal, the public market would notice and as you talked about the convergence, Robert, the public would come up if not for a few days, sometimes a week. Why do you suppose the public market has mostly ignored the M&A in TV? And what do you think, any factors you would name, that would change that?

Bishop, as I told you, I think the overall Wall Street investment community has lumped TV, newspaper, and radio into old media and it's just not fashionable to be interested in old media. And as I said, I think the great example -- I think -- I think Victor Miller actually told me this stat, but two or three years there was something like 20 analysts following Sinclair and there's three now. You've got a lot -- you've had a lot of companies get rid of their TV analysts. And I think what's going to turn it around like I said is if we get closer -- first of all, 2008's going to be an unbelievable political year. I think it's going to be so off the chart that nobody's even going to be able to comprehend it. And then 2009 right around the corner coming in with full digital and I think at that point, the investment community's going to realize that this is a new ball game. It's four plus channels, maybe more and we know that we can do two full HD and two SD right now with great quality. I mean there's the technology. We've already bought the technology in a couple of our markets and doing real well with it.

And if -- I told all our managers you can bet it's going to get better than that because there will be somebody trying to do it where you can do six stations on that spectrum. Or who knows. But I just think it's going to be a totally new ball game at that point and I think we just got to hunker down and keep running our business like we've been running it and at some point people will recognize we got a great business here. And then short term -- let's hope people keep paying big prices for stations out there that -- that just shows you that the -- the operators and the private equity guys that really follow the business close know it’s a great business and know it's worth those kind of multiples.

From your lips, Robert.

Thank you, sir.

And there are no further questions. Mr. Prather, I will turn the conference back over to you for any further or closing comments.

Thank you very much, everybody. I want to appreciate all your support. We are looking forward to a very good strong third quarter. I think you see from our guidance we are -- we really feel good about third quarter and fourth quarter also coming around. And as I tell you, every time Jim and I are easy to find, we answer our own phone. So if you've got any other questions or comments don't hesitate to call us and we'll talk to you again in about three months. Thank you, everybody.

That does conclude today's conference call. We thank you for your participation and would like to inform everyone that there will be a replay available starting today after 4 p.m. running through September 9, 2006. The number to access the replay is 719-457-0820. Please use the pass code that you were provided for today's live teleconference. Once again, the number for the replay is 719-457-0820, using the pass code that you were provided today. Once again, we thank you for your participation and have a great day.