Gray Media Inc (GTN) 2009 Q3 法說會逐字稿

Good day everyone, and welcome to Gray Television's third quarter earnings release conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to our moderator, Hilton Howell. Go ahead, please.

Thank you very much, operator. Good afternoon, everyone, and welcome to the Gray Television third quarter earnings call. As I was introduced, my name is Hilton Howell, I'm Vice-Chairman and Chief Executive Officer of the Company, and I'm joined by Bob Prather our President and Chief Operating Officer and Jim Ryan, our Senior Vice President and Chief Financial Officer. Together, we will be giving you some highlights of the quarters, and then finishing with a short question-and-answer session at the end.

In what remains a spotty, but essentially slowly improving advertising market, we are pleased that we have found it necessary to raise the high end of our guidance for this quarter. Although our total revenue dropped by approximately 20%, this drop was against a presidential election year last year. The driver of this improvement was primarily political advertising related to the national debate on healthcare reform. We believe that this portends well for the fourth quarter, and for all of 2010. In fact, the television business report on October 21st released a report predicting that approximately $3.3 billion in political advertising dollars will be spent in 2010. And importantly for us, they call Gray Television the clear winner of all broadcast groups, with 37% of our consolidated revenues coming from states and districts with, in their words, hot races next year.

It is also exciting that with regard to our new media efforts this quarter, Gray has launched iPhone applications for essentially all of our local television stations. And as an iPhone addict personally, and an Apple aficionado, I can tell you that I'm particularly excited about this endeavor. And in fact, this past week was able to follow with great attention the catastrophe in Fort Hood on our iPhone applications for both KWTX in Waco, Texas and KBTX in College Station, Texas. Also, on July 24th, we launched our mobile digital television signal at our NBC affiliate WOWT in Omaha, Nebraska. As Jim Ocon, our Vice-President of technology said, it's like having a television in your pocket. We are pleased that we're one of the very first broadcast groups in the nation to be successfully operating this new technology.

I would also like to mention that our extensive local college and local sports broadcasting in Knoxville, Tennessee, via our CBS affiliate, WVLT, was prominently highlighted by TV news check, which demonstrates our continuing efforts to broadcast on a very, very local basis. We're excited by this coverage, and by the hard work as evidenced by all of those individuals involved. With that I'm bring my comments to a close, and let Bob continue.

Thanks very much, Hilton. Welcome, everybody. I guess let's start out with the good news. I think business is definitely getter better. I always say I think for things to get better, people have to start feeling better. I can tell you, all of our GMs feel like business is getting better in their markets, both on the advertising side, just in the general tone in the economy in these markets. Also, some more good news, we are once again for third quarter, right at the very top of our industry in all of our performance metrics, and we're very proud of that. I think that is once again a tribute to our general managers and their staffs and the markets that we're in. I think the fact that we're in markets that have been hit less hard by this economic downturn is a tribute to our strategy of being in as many state capitals and university towns as we are, so I feel very good about that.

You know, I've used this saying before, but I'll use it again, Confucius said over a thousand years ago, "May you live in interesting times" and I think these are very interesting times. I think we all do. I don't think anybody of us has probably lived through anything like this economic downturn we've had, especially the television and broadcasting industry. It's the steepest decline along with (inaudible) advertising that television's ever seen. But here again, I think it's the strength of our company is that we're operating at the very top of the industry, as far as our performance goes, and we feel like 2010 could be a very good year.

A couple of things that I want to mention that we're continuing to look at controlling costs. We've come up with a plan, probably going into next year, to save between $700,000, $800,000 on some of our mobile Internet expenses, which we think will make that side of our Internet operation very profitable. I'm still a huge believer that we're in a three-screen world now. We're in a television screen, a computer screen, and a mobile screen, and we've got to be top of mind for all of those screens to continue to grow in this business. Mobile is becoming more and more important. Hilton mentioned live mobile testing we're doing right now. I think that will be available, hopefully to everybody in the next 12 to 18 months.

Once the testing is done, and the standard is already set, so I think it's just a matter of getting some other issues resolved around how to distribute it, whether it's going to be a subscription model or an advertising model, but I think it's going to be a huge growth area for us in the future. And I think its something that will help continue us to spread our brand, to spread our local news coverage, the things we do best. Just to give an example of how strong the Internet is for us these days, year-to-date, we've had over 442 million website page views. This is up almost 26% over third quarter, over second quarter, and up almost 27% over last year. Our monthly unique visitors are almost 8 million. That's up over 20% over 2008

Our mobile so far this year, we've had 94 million-plus page views, up 38% from 2008. We've had 50,583 iPhone application downloads that Hilton mentioned. This is a 45% increase month to month, and this continues to grow. We are also going to make sure that we have apps available for the Android. The Android I think was introduced on Friday, the Google phone, so we will definitely have that. We're working on apps for Blackberries also, soon. To give you another example, I think this is a very important thing for us in our industry, we've sent over 14 million text messages to viewers who wants to get our news, weather, sports, updates by text so far this year through September, and we think this is going to continue to grow.

Another area that I wanted to mention that I know a lot of you are asking questions about in the world today is what's going on with network affiliates. Very fortunately, we've got -- our CBS stations are all due in 2014, our ABC or 2013. Nine of our 10 NBs are 2012, the others 2015. So while there's a lot of speculation, a lot of interest out there in the network affiliate world right now. I know all of you have probably heard about they're looking for retrans and getting part of retrans. Fortunately, we'll have several years to see how this shakes out before we're faced with this directly. I think it's something that we as an industry need to really work hard on trying to make sure that the networks don't use the old divide and conquer, and the affiliates need to use their affiliate boards, NAB, as much as they can, to have a united front on this effort to maintain our retrans.

We've worked very hard to get retrans from the cable industry, led by Sinclair, Nexstar a few years ago, they were the first guys to really step out there and get it. Virtually every TV broadcast is getting retrans revenue right now, but it's based on our work and nobody else's work. And we ought to work hard to keep 100% of it. I think that's something we're all going to be faced with in the future. But I feel very, very good going into next year. HIlton mentioned those figures on political. I think political is going to be huge. I think these Republican wins in Virginia and New Jersey have made Republicans feel like they can maybe retake the House, especially. So I think there's going to be a huge effort spending-wise to elect Congressmen and senators and governors next year. There should be 36 governor's races, also, next year, and I think we'll be, as the article mentioned, the forefront of all of that.

Also, we've got the winter Olympics next year in Vancouver. Anytime the Olympics are in the North American continent, they always do much better ratings-wise, much better advertising-wise, so we feel very good about that. And we have got the Super Bowl in early February on 17 of our CBS affiliates. It was on Fox last year, and we have got only five small Fox affiliates. So I'm looking very much forward to 2010. I think it's going to be a great year, and I think we're going to be positioned to take full advantage of it. At this time, I would like to turn it over to Jim Ryan. Jill will go over some specific numbers.

Thanks, Bob. Hello, everybody, I'm going to keep my remarks relatively short. I think most of the main points are laid out pretty clearly in the release, and we've also files our 10-Q today, as well. As Bob mentioned and HIlton mentioned, total revenue is down about 20%. A lot of that is reflective of the strong political from last year. Our local revenue, while down 11% for the quarter, did show improvement from first quarter and second quarter, so we are pleased with that. And I would note that TVB's survey for the quarter indicated that industry-wide, local was down nearly 17%. We were down only about 11%, and, again, I think that reflects the strong positions of our stations. And as you see in our guidance for fourth quarter, we're seeing continuing improve of, especially on a local front, and we think we'll be back to positive territory by about 1% in fourth quarter. So, I feel like we found the bottom, and we're beginning to pull out of the ad recession.

Political for the quarter was $3.1 million, and we were very pleased, as people have already mentioned, we increased our expectation on political by about $2.5 million. As we went through the quarter and a lot of that $2.5 million was reflective of the national healthcare debate. That's obviously continuing through fourth quarter, as well. We're seeing activity both October and November, and it looks like there may be a possibility of that activity continuing into December, as well. As far as the categories go, our legal category was up about 27%, 28% for the quarter. That was the only category that was up. Auto is still showing pressure, but some improvement from earlier in the year. Our auto business was down about 32.6%, representing about 17.9% of our total time sales. All other categories are still in the negative territory, as well.

We're pleased, again, that the operating expenses are coming in about as we had planned for the year. We're down 7% for the quarter, and for the total year, looks like we'll be down 14.5 % to 15%, and actually we'll be working hard to try to be as aggressive as we can before the end of the year on that. Couple of quick comments again on year-to-date again, our local revenue, core revenue, was down 12.6%, compared to the TVB national averages of 21.9%. We're very pleased with that comparison. Our national was basically in line with industry averages on a combined basis, our local and national is down about 16.6%, compared to an industry average of 23.3%. And again, keep in mind in Q3 '08, we had about $3.4 million of Olympic revenue that we're going against this year, both in the quarter and year-to-date. So that was an additional hole we had to be filling.

Political for the nine months is tracking to about $5 million. Again, better than expected. It looks like if the current pace continues, and based on guidance, we should be north of $7 million by the end of the year. Which basically puts us on pace to at least tie the best off-year performance we've had before. We did $7 million, as well, in 2005, in an off year, based on the strength of the highly contested Kentucky governor's race that year. Again, for the quarter, year-to-date, auto is down about 41%, but showing some improvement. As we move through the quarter, for October, we actually are -- our auto was up about 1.5%. Now, that's somewhat reflective of a slowly improving situation. It's certainly also reflective of displacement of the very large amount of political we had fourth quarter last year, as well. But it is nice to see it score in positive territory, and year-to-date, the rate of decline is slowing a little bit.

Turning to some balance sheet items for a moment. Our leverage is defined under our credit agreement, which is on a trailing 8 quarter average at the end of Q3 was 8.22, as defined in the credit agreement, against a covenant of 8.5. Our cash on hand was $8.2 million. Our total debt for purposes of compliance with the credit facility, was $806.4 million. Everyone should remember that what they need to do is include the accrued facilities fee on the facility as part of the debt number, and thinking about compliance thresholds. That facilities fee is actually treated accrued interest for GAAP purposes. On a -- again. the ratio, our covenant came if at 822 against an 850. Looking ahead to fourth quarter and guidance, again, we're pleased to see that the local is moving into positive territory. We've actually, since the beginning of October, increased our internal forecast for fourth quarter. We hope we're still being conservative in our guidance and that the quarter continues to slowly improve as we move through it. At this point, Bob, I'll turn it back to you.

Thanks a lot, Jim. Operator, at this point, we would like to open it up for questions.

Thank you. (Operator Instructions) And our first question comes from Marci Ryvicker. Go ahead, please.

Thanks. Can you talk about the performance of your different affiliates, specifically how your CBS are performing versus your NBC stations? Obviously CBS is doing really well. NBC is not doing so well, for obvious reasons.

Marcy, our CBS clearly are performing better right now. You know, obviously they're -- got a strong programming line-up. NBC's programming line-up has been weak. It looks like it's getting weaker. I think the Leno experiment is not working so far. I'm sure they'll stick with it longer than they need to. Their ego won't let them probably get rid of it soon enough. It's definitely hurting their lead in to the 10:00, 11:00 news in some of our markets.

NBC is very important to us. They're actually -- their cash flow in their 10 stations is almost identical to the 17 CBS, because they're in and of our bigger markets. So it's something we're keeping a close eye on, but they need some programs pizzazz, which they don't have right now. And this is interesting going on obviously with Comcast and what's going to happen there. I've been reading where they may turn around and Comcast, even if they do the deal, spin off NBC and the O & O's to a third party and just keep the Universal Studios for the movie content. But, anyway, I think CBS is clearly riding pretty high right now, and I think they've got a lot of things going good for them. And the good news is, like I said, we've got 17 CBS affiliates, so --

Is there anything about the young stations that have surprised you, either good or bad?

You know, I think the young station is really interesting. We've had our regional GM spend a good bit of time visiting the stations, evaluating the markets, evaluating the stations. And I would say in general, I think the young stations are stronger and better than we probably thought they were going to be. They're got some upside to them we believe, and at the same time I think they have a good overall market position in most of their markets. They're very strong in several of their markets, and we think there's a big upside opportunity for us there.

All right. Thank you very much.

Thanks, Marcy.

And our next question comes from Aaron Watts. Go ahead, please.

Hey, guys.

Hey, Aaron, how are you doing?

Good. Just a few questions for me. You talked about some of the impressive page views you're getting, and also the mobile apps acceptance, Bob. How are you converting those views, though, into advertising dollars? How are you propping those to your advertisers? What's kind of the acceptance there? Is it something people are buying independent, or is it getting bundled in with your over-the-air ad sales? Just maybe if you could talk about that.

Yeah, Aaron, we've got a dedicated at least one, some cases two dedicated Internet or new media sales person at all of our locations. And their job is to go out and sell the Internet, sell mobile. Ideally, we encourage them to go after nontraditional TV-type advertisers, in a lot of cases. We try not to -- the word bundle is a bad word for me, because I think sometimes that means you're giving one piece of it away. So we try to stay away from that as much as possible, and we've done extremely well. Our Internet operations have been profitable since day one, and our mobile operations are profitable. Should be much more profitable next year. As I said, we've worked out a new deal with a carrier that is going to save us some considerable money going forward, and is going to allow unlimited text messages, which I think would be a huge upside for us, because I think texting is getting more and more important. Plus texting, you can -- with a text, you can direct people back to watch the news later in the day, or, you know, some special sports, weather, whatever it is going on in the local market, you can really use that as a way to keep in touch with people on an hour-by-hour basis.

So, my goal is for the Internet and the mobile to continue to grow almost virtually independent of what our TV stations are doing. So I think it's important that we keep them separated from a sales standpoint, and we want to combine as much as we can on operations just for efficiency purposes. But I'm really trying to get all our stations to realize that breaking news needs to be on the Internet first, and then we need to promote it to our regular news and have more in-depth coverage on regular news. But we need to be as many times, as we can, first on the Net with a story in these local markets. Especially in it's a story that's really news-generating, like the Waco thing, or weather generating that we have had in a lot of our markets. We want to be the first on the web and the first on television in both of those stories.

All right. I'm just curious. I guess my natural instinct, just historically, has been when I want news on-line, I go to the local newspaper.

We've got to break you of of that habit.

Any feedback from to those dedicated sales guys on sort of how your page views compare to the local newspaper? Whether you think you're steal something of their share, and if advertisers are picking up to that?

I think we are, and, Aaron, the one big advantage we've got over newspapers in all our markets, we've got a tremendous promotion engine with our stations that they don't have. And it's incumbent upon us, and I encourages this all the time with our GMs, that they do more and more promotion of our mobile product and our internet product on the air. Because it's easy to wind it into your newscast, into your -- all kind of things, where you incorporate that promoting that says don't forget to go to our website to check sports and news, whatever, same with weather, and the same thing with mobile. And we encourage the sign of up of more and more text messages as much as we can to -- as I said, that's the one thing, we've got the best promotion engine in our market of any of the media, by far, and it's incumbent upon us to use it.

All right. One other one, I may be jumping the gun a little bit on this one, but just thinking about next year, in sort of two pieces. One, you talked about how your stations are well aligned for political in 2010. Do you think that as you compare it to 2006, or even 2008, how do you see political shaking out? And then on the expense side, you've done a lot of cost cutting this year. As I think about next year, do you see expenses being up versus '09, or down versus '09? How do you feel about that?

I'll start with expense. Our goal, and we are finishing up our budgeting right now, is to be flat, at the least. I mean we want to be flat to '09. Ideally we want to be down, but we definitely want to be flat. The one thing you always have to overcome, Aaron, when you go into a political year is, you've got -- depending on the political dollars, but just say it $50 million, you've got about a 6%, 7% commission rate to your national rep firms on most of those dollars. So that's $3 million-plus there that could go out in political commissions that you would normally is kind of an add-on expense. But we're budgeting very tight. Like I said, we're still looking for ways to save money in all areas of the company, and we -- we think political could be easily be better in '06, and, hopefully, could be a record year. I don't know.

Aaron, this is Hilton, let me share just a few numbers that might help answer your question just a little bit. Among the 2010 contested governors races within our broadcasting profile, we had 12 contested governors races. For contested Senate seats, we have 15. This compares to 3 governors races in 2008, and 14 contested Senate races in 2008. So with a quantum jump between those two years.

All right. That's helpful, guys, thank you.

All right, thanks, Aaron.

And our next question comes from Matt Swope. Your line is open.

Hi guys.

Hey, Matt.

Hilton, can you will talk about what that study was you mentioned earlier?

Excuse me, was this the political article?

Yes.

Yes. It's from -- it's the Radio Business Report and Television Business Report, and it ran October the 21st of 2009. And I will quote to you the paragraph with regard to our Company. It says "The clear winner is Gray Television, which has 37% of its consolidated revenues in states and districts with hot races next year. " So it goes through and talks about that in just general lines. And we were kind of pleased to have that noted and wanted to make note of it in this call so that people realized that we really do have, we think, a great upside in 2010.

That's sounds great. And Jim, maybe a question for you. Could you tell us auto for fourth quarter of 2008, how that -- how that fared versus fourth quarter 2007?

Matt, just give me a minute, let me pull it, and I -- yes, I can tell you, just a second.

And maybe while he's pulling that, Bob, can you talk a little bit, either anecdotally, or with numbers, if you have them, on what the Leno impact has been on your local news at your NBCs?

We don't have any specific numbers yet, just the weakness of Leno overall though is hurting our lead-in on our 10:00 news in the Midwest and 11:00 news in other markets. Omaha, we have got a strong NBC there. We've got a strong NBC in Madison, Wisconsin; a very strong NBC in Huntington, West Virginia; a strong NBC in South Bend, all of those markets are -- it hasn't hurt us bad. But if it continues like this, people will gradually be watching other things before the 10:00 hour, and a lot of times people just stay on the same station, so it -- in the long run, it could hurt us. Like I said, I don't know how long they'll keep this experiment going, and guys like that sometimes have a revival, and all of a sudden people start watching. But we're going to keep a close eye on, and we're going to let NBC know what our feelings are regarding Leno, as it goes down the road some.

Matt, I will say, this is Hilton, it will be interesting to see when we're on reruns and on nonfresh programming, how Leno stacks up to the competition at that point. So, I know NBC is looking just on an annualized basis, and we're looking at it at the start of the fall broadcasting season. And it will be interesting to see how it all leads in through the course of the year.

Great.

Jim, do you have the number? Matt, to answer your question, in Q4 '08, auto compared to Q4 '07 auto, was down 34.2%. So it certainly was down. In total year '08, versus total year '07 was down 16.8%. Now, a little bit you have to keep in mind, in a political year, a strong political year, we would expect our auto to be displaced a little bit. But certainly everyone would recognize that by second half of last year and certainly by Q4 of '08, we were all well into the recession. So, how much of the down last year is recession versus political would be almost impossible to tell.

Right. And so given all of that, do you think auto can be up for the fourth quarter of '09? You said you were up for October already, right?

I -- I would be a little cautious on it being up for the whole quarter. I mean, it's still hard to tell. We were up a little bit in October, as I said, and certainly you would expect to be up a little bit. I think at least to some extent with filling in some of the political from last year. I think it's a little too early to tell whether we're up for the whole quarter or not, but certainly things have been picking up, and it feels like we're moving in the right direction. Although the visibility on revenue still continues to be extremely short. The visibility hasn't lengthened significantly over the past couple of months.

Right. And then maybe just a last one. Have you guys looked to the first quarter when you're maintenance covenant and your bank debt steps back down? Have you started talking to your bank debt holder group about what you may do if you trip that covenant?

We've reached out to Wachovia, who is the lead bank, and have talked to them about once we get closer to the end of the year, what our year-end numbers. And we'll have our budgets done at that point. And we'll be sitting down sometime between now and the end of the year and talking with our lead banks about what things are looking like for next year.

Okay. But that's premature at this point?

Yeah.

Okay. Great, thanks, guys.

Thanks a lot, Matt.

And our next question comes from Larry Haverty. Go ahead, please.

Larry, how are you?

Hi. Good, Bob. I'm just kind of curious in the retail area there. A couple of folks that I would think would be good customers that could be loosening their purse strings fairly significantly. And one would be the auto parts guys, where business is really pretty good. And the other would be Radio Shack, which just got a concession to sell the iPhone, and then in the general retailing, looks like things are getting better progressively by the day, as opposed to last year, where they were getting worse progressively by the day, and --

Right.

I'm thinking that your assumptions on retailing could prove monumentally conservative in what you're seeing on the trends and businesses in that area. Well, Larry, I hope you're right, and you're one of the smartest guys I know, so you probably will be right. But we don't actually break out auto parts from auto. We might ought to do that, but I guess people like Auto Zone and some of these guys, or could be-- O'Reilly Auto Parts a lot of those guys, I'll definitely check into that. That's a good point, we ought to be keeping a closer eye on it. And Radio Shack, we get a lot of good advertising out of them, and hopefully that will continue. I thinking that, like I said, all of our managers are feeling better about the tone of business, and about things picking up in their individual markets, so I hope you're right on with your ideas. Do you have any comments on what you're trend is in retail versus your expectations?

Jim, have you got any numbers there broken out on the retail side?

Larry, I can tell you that, and this is Q3, furniture and electronics was down 14.7%. Department and discount stores were down 21% quarter over quarter. Supermarkets were only down 2%. So we're still seeing some -- through the third quarter, we're still seeing the down turn in the economy. Now, again, in October only, we're seeing ups in most categories. Furniture is still -- is still down, but --

That will be the last to come.

Yeah, but the department stores, in the month of October, were up 10%. Supermarkets were up 40-some percent. But again, and a part of it is I think things are improving. Part of it is we sold $27-plus million worth of political last year, and used inventory, and obviously -- and that's fourth quarter, and most of that was October. So obviously we're using that inventory this year to sell nonpolitical. So there's some of just the natural cycle on the political, especially in our case when it's so heavy for us in October on a political year. But it's nice to see some positives. I mean, I was certainly expecting positives if October. I hate to be sitting here looking at negatives.

Well, hopefully November and December will be a lot better.

Yeah, I hope so too, Larry. And like I said, if you're thinking that, I feel pretty good.

Yeah, I'm thinking it.

All right.

We'll see you, Bob.

Thanks, Larry.

Our next question comes from Larry Schumacher. Go ahead, please.

Hi, Bob. How are you doing?

Hey, Larry, how are you?

I'm good. Just a general question about how Gray properties are doing versus peers. If you could specify anything that's exciting or not, if you could?

I think the main thing that we've got going for us is I think our local has held up much better in most cases than most of the other public companies reported. Like I said, "ex" political, I think we're right at the top of the industry. And here again, I think that's a tribute to our station strength in these local markets and the strength of the markets in general. I think these university towns and state capitals in most cases have not been as hard hit.

We've got a couple of markets, Reno has been a pretty hard hit market because it's such a boomtown for a while there. I think in 2007, Reno had the highest home price increase in the United States. The average home price increased 39% that year. So,they've had a pretty drastic fallback like Las Vegas. Not as bad as Las Vegas, but -- and I think the other area where we're probably hurting even though it is a university town and a state capital, is Lansing, Michigan. Obviously the economy there is pretty tough, and South Bend, the economy is heavily auto oriented there, too. So it's not as bad. But I think those kind of areas are not as robust as a lot of areas. But overall, I feel very good about the markets we're in, the fact that the local economies in most of those markets is stronger than the national average.

All right. Thanks. Good work.

Thanks, Larry.

And our next question comes from Bishop Cheen.

Bishop, you're supposed to be first in line, not last.

Yeah, well I like to hear all the color.

Okay.

Let's just go back to the balance sheet a second. I know that you're going to be, as so many other companies have, trying to get flexibility, restate your Company, et cetera.

Right.

Talk to me, Jim, this is probably maybe more to you than Bob, talk to me about the preferred. The preferred, remind me again, when you come up with any kind of maturities or puts on that preferred?

Bishop, the preferred has a put right by the holders in June of 2015, so that would be the first possible date. So there's quite a ways between now and then.

Okay. And then if the preferred is not really eating any kind of cash maintenance because it's all picking?

No, it -- well, we suspended the dividend on the preferred, which we had the right to do.

Right.

When we did that, and went three quarters in arrears on the cash payment of the dividend, the dividend rate moved to 17%. It does not pick, it accumulates.

Yes. Okay.

And so we are--if you look at the balance sheet quarter over quarter, you'll see the line that will say Accrued Dividends and Arrears, and that will obviously--it will grow. And the -- obviously with leverage where it is in the senior -- the terms offers the senior facility, we are prohibited from paying a cash dividend on the preferred for the immediately foreseeable future.

Right. The classic trade-off of P&L to balance sheet. You're putting pressure on your equity to relieve your P&L, because you don't have to do any cash maintenance on that. So it really comes down to the maintenance and the servicing of the big term debt.

Yes, and that -- from an amortization standpoint, we only have a requirement to pay $8 million a year. The term loan matures, the rest of it bullet point, matures at the end of 2014. So there's still a lot of time on that. The interest rate, when we amended last March, obviously moved up significantly from where we were. We're now at LIBOR 650. Which was a significant step up last March, and the -- not to overly confuse things, but the 3 percentage points, the 300 points of facilities fee that currently accrues, is part of what I referred to as the L plus 650, will go cash pay in April of next year, when our current interest rate swaps, and we basically channel the dollars that we had been paying to the swap counter parties and will pick up the 300 points in cash on the senior facility at that point.

Right so aside from the -- the capital event in April, is also the accrual, which is growing, part of the covenant calculation in your trailing eighth quarter?

Yes, it is, which is why it said that for covenant purposes at the end of the quarter, the defined term for debt in the actual calculation, you would need to use $806.4 million.

Right. And the last thing to this position, just to make sure I have it right, existing covenants, which is the key covenants right now in the bank facility, 7 times begins in Q1, and then the next step down would come year-end 2010 to 6.5 times and thereafter?

That would be correct.

Okay. All right. That is all very helpful. Thank you.

Thanks, Bishop.

And our next question comes from Barry Lucas. Your line is open.

Thanks very much. Good afternoon, gentlemen.

Hey, Barry.

I've got several items, but just to beat that horse that Aaron Watts was riding, if you're looking at auto in Q4, up a bit in October, not sure what it's going to be. What is built into your plus 1% guidance for local with regard to auto?

As Larry just said it differently, the plus 1% would represent everything we're currently looking at, and based on our current forecast for the quarter. So the local is imbedded; the up 1 is just reflective of the whole book of business.

Okay. On the political side, Bob, I think we've got an early look at what should be an early window in Texas, which is fairly important to you. Have you written any business either from Kay Bailey Hutchison or Rick Perry, or what's the state of request for avails, or anything like that?

Very little so far. We expect that to be a big race, though, and we've got three Texas stations that should benefit tremendously from it, because they're all number one stations, and dominant in the markets they're in. But that should be a real good one for it, and Texas normally is not a real good political state, because Republicans have been so strong out there for the last few years. They haven't had much of a race either locally or presidential, where we were able to get a whole lot of political, but this year could be with two Republicans running against each other for governor, could be a big race.

Right. Okay. You've got a mobile delivery system up and running, or at least testing. Any thoughts about what the business model is eventually going to look like there?

Barry, that's the big question. The Open Mobile Coalition, which we're a member of, I think it's got about 26 different groups in it. There's a lot of debate there. Some people think it ought to be a subscription model, other people think it ought to be an advertising-based model. I personally think advertising, probably in the long run, we can do better with that, because we know how to do that business. And if you've got a subscription model, there's going to a lot of hands out wanting a piece of it. From the phone -- the telephone people would probably have to be involved in that, all the way through the networks, through the syndicators, through the CNN, AP, all of those people would want a piece of the action if you were charging some kind of subscription fee, where if it's basically free over the air, which is what our TV model is, hopefully we can -- there will be a measurement system, which we think there will be, that we can show people that if there's a 100,000 mobile phones in the market, they're watching live mobile 'x' hours a day, or whatever, that we can tack on some advertising based on that. And that -- I think mobile is going to continue to grow.

Chrysler has already announced, and I think the other car dealers--car manufacturers all want to have more mobile TV devices in cars and trucks and things like that going forward. And I think you're going to see it be pretty much a standard item within the next couple of years in cars, which obviously is going to increase the availability of people being able to watch. And we're testing, for example, our engineers driven down the road 70 miles an hour between Omaha and Lincoln, and gotten a perfect picture on our NBC station out there on a mobile device. So we think it could just be a huge upside for the whole industry.

Perfect. Last area. You've always been -- I say always, but a little bit outspoken on retransmission fees. So why don't we move to topic du jour of late, and that is spectrum, and the possibility of the government trying to recapture some of that spectrum. How would you feel about it? What would you want to get paid for it? Would you like it at all?

I would be very opposed to it, in general. First of all, the TV industry, over the last 10 years, has spent way over $3 billion, getting ready for digital TV. Part of the promise of that was being able to multi-cast, which we're doing now. We have got 40 multi-cast channels on the air right now, and they're profitable for us, not to mention mobile. We plan to use part of the spectrum for our mobile live TV. I would be very very much against giving up any of it.

I think the government would have a hard time making a case, even if they tried to buy it. I don't think they could do anything where they could force it. And if to Congress tried to pass a law or something like that, I think it would wind up in the Supreme Court, and I think it would have hard time at the end of the day prevailing. There is plenty of other spectrum out there they can go after if they need some spectrum. But I do think that it's incumbent upon local broadcasters to make sure we continue to put a good product out there that serves the community, it is important for emergency situations.

I think our TV station, we were on wall-to-wall coverage, for example, out there in Waco and Brian College Station covering the shooting at Fort Hood, no commercials. We were there with live trucks covering every second what was going on. And in those cases, we're the only ones that can do something that good, I think. And I think we have got to be judicious in our use of our spectrum, make sure we use it for the right things. But one of the reasons television stations have this spectrum in the first place is we're supposed to be a semipublic servant, as well as a profitable business. And I feel that way about our -- I think most all our stations are very, very good corporate citizens, and are considered part of the fabric of the communities they're in, and part of the --what makes these communities vibrant and growing is the fact that our TV stations, they're covering everything that goes on in the local area. And I would be very much against anything where we were trying to get spectrum taken away from us, or even selling it.

I think if stations wanted to make that individual choice, that's one thing. I don't see that happening anywhere. Like I said, I think everybody is very interested in live mobile, and you've got to have spectrum to be able to put live mobile over broadcasts.

Great. Thanks very much, Bob.

Okay. Thanks a lot.

And our next question comes from Jeff Tobias. Go ahead, please.

Yes. How are you doing? I spoke to Jim Oaken just about a month ago, we had a good chat for an hour on the phone.

Right.

And we were talking about this application, mobile application. Do you have any idea when these mobile applications will be out, or what?

You know, that's a good question, Jeff. The testing is going on right now. I think it's going to continue, obviously, through the end of the year, probably into next year. At that point, there will be some bugs, I'm sure, that will need to be worked out. And then once everybody feels like the equipment is really 100% ready to go. I would think it would be the end of next year and the following year before you actually see --

Yeah.

And also, you've still got to have mobile devices that can pick up the live. And some of these new iPhones and Androids, these kind of things, probably will be able to do it without much modification, but I think you'll see you obviously have got to get devices out there in the markets, also, so --

Yeah, I spoke to Jimmy Okon, and he said he was doing testing. We were on the phone, he's from Washington state, Mercer Island.

Yeah.

And I said, "Yeah, Jim, I'm ready for one of those, how can I get one?"

Yeah. A lot of people are.

And he said I'm testing and doing this and that, and we added a good chat for an hour.

Well, he knows the business real well, and he's on the OMBC board.

He's a great guy, I'll tell you that.

Yes, he definitely is. We're lucky to have him.

He comes from Washington State, Mercer Island. I told him, yes, that's where I from.

Yes.

So I appreciate it, and you think after this New Jersey race and -- West Virginia, which I think it was stunning --

Yes.

Do you think -- do you see any--I just think there's going to be huge political races, people --

Oh, I think it's going to be tremendous. Like I said --

I really think so, also. And --

I think the Republicans now feel like they can win in a lot of areas, and they're going to be raising money and spending money.

That's right. And you guys have -- will have a--will be able to pick up some dollars from that, or what?

We certainly think so, yes. We think -- we're hoping in the $50 million plus range ideally if everything hits like we want it to.

Right, right, right. Do you have any races in Atlanta, Georgia coming up next year?

There's a mayor's race going on right now. We don't have any stations here, so it doesn't do us much good. But there's a mayor's run-off, is going to be next week as a matter of fact. They had the regular election a few weeks ago, and two candidates wound up in a run-off. I think it's next to Tuesday, so --

Right, I was kind of shocked --

We don't have any local coverage here. We're in Augusta, Georgia and we're down in Albany, and down in Thomasville, but not Atlanta.

Right. I was kind of shocked. As a shareholder to Grey Television. I'm a shareholder of Cumulus Radio, which is on Peach Tree.

Yes, they're right down the street from us. Yes, and they're good friends of ours. They're about three miles from here, and Lou Dickey is a really good guy, and they run a good company, and they're in a lot of the same sized towns we're in, too. They're in, I think, nine, they're in nine towns that we're in.

I went on Google Map and see how far those guys were from you, and not too far, you know.

Yes, they're right down the street.

Yes and the Dickey family, they're great people.

They're great people, no doubt about it.

Yes. Do you guys ever have lunch with them?

Oh, yes, I see Lou all the time. Yes, he's a good friend, very good friends.

Well, it was great talking to you.

Well, thanks a lot, Jeff.

Take care.

Okay.

And our next question comes from Steven Carbone. Go ahead, please.

Hey, guys. Quick question. Once the mobile program is up and running, how will it actually function? Will it only function as you sending out a signal for your own means and your own spectrum? Or will it be something that you could actually send through the web, or I guess where I'm going with this, would someone be able to pick up your programming outside your normal distribution range?

That's going to be hard, because ideally what we're going to do -- and here again, you would run into some real serious overlap with your affiliate problems if you did that. We're basically going to be broadcasting the exact same signal that we would be broadcasting with a TV signal. So it will cover our DMA, whatever that covers, and it would be very difficult, I think, to expand any farther than that, both for technical and I think, even legal reasons.

Okay. Got you.That's all, thanks.

Thanks a lot. Sure.

We have no more questions at this time. I'll turn it back for closing remarks.

Okay. I want to thank everybody for joining us today. We appreciate your support. As you know, any of us can be reached anytime. You can call us here. We try to answer our own phones, and we'll look forward to talking to you after the first of the year, with the year-end results. So thank you, everybody.