Sinclair, Inc. (SBGI) Q3 2008 Earnings Report, Transcript and Summary

Greetings ladies and gentlemen and welcome to the Sinclair Broadcast Group, Inc., Third Quarter 2008 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr. David Amy, Executive Vice President and Chief Financial Officer of Sinclair Broadcast Group. Thank you Mr. Amy, you may begin.

Well thank you Claudia and good morning everyone. In the room with me today are David Smith, President and CEO; Steve Marks, our Chief Operating Officer of our television group; and Lucy Rutishauser, Vice President of Corporate Finance and Treasurer. Before we begin Lucy will make our forward-looking statement disclaimer.

Thank you Dave and good morning everyone. Certain matters discussed on this call may include forward-looking statements regarding among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors. Such factor have been set forth in the company’s most recent reports on Forms 10-Q and 10-K as filed with the SEC and included in our third quarter earnings release. Our earnings release was furnished to the SEC on an 8-K earlier this morning. The company undertakes no obligation to update these forward-looking statements. The company regularly view to this website is a key source to company information which can be accessed at ww.sbgi.net in accordance with Reg FD this call is being made available to the public. A webcast replay will be available on our website later today and will remain available until our next quarterly earnings release. Redistribution of this call is prohibited without the express written consent of the company. Included on the call will be a discussion of non-GAAP metrics, specifically television broadcast cash flow, EBITDA, free cash flow, and leverage. These metrics are not meant to replace GAAP measurements, but are provided as supplemental detail to assist the public in their analysis and valuation of our company. A reconciliation of the non-GAAP metrics to the GAAP measures in our financial statement is provided on our website, www.sbgi.net under Investor Information, Reports and Filings.

Thank you Dave and good morning everyone. Certain matters discussed on this call may include forward-looking statements regarding among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors. Such factor have been set forth in the company’s most recent reports on Forms 10-Q and 10-K as filed with the SEC and included in our third quarter earnings release. Our earnings release was furnished to the SEC on an 8-K earlier this morning. The company undertakes no obligation to update these forward-looking statements. The company regularly view to this website is a key source to company information which can be accessed at ww.sbgi.net in accordance with Reg FD this call is being made available to the public. A webcast replay will be available on our website later today and will remain available until our next quarterly earnings release. Redistribution of this call is prohibited without the express written consent of the company. Included on the call will be a discussion of non-GAAP metrics, specifically television broadcast cash flow, EBITDA, free cash flow, and leverage. These metrics are not meant to replace GAAP measurements, but are provided as supplemental detail to assist the public in their analysis and valuation of our company. A reconciliation of the non-GAAP metrics to the GAAP measures in our financial statement is provided on our website, www.sbgi.net under Investor Information, Reports and Filings.

Thank you, Lucy. Before reviewing the financial results I wanted to comment on how difficult it has been to forecast the fourth quarter. We have provided several updates to you as the quarter has progressed and information has become available. We hope that you have appreciated these updates on the current trends in the marketplace and found them useful. The main reason for the difficulty was the lack of visibility on political spending, not only with the record levels of campaign dollars raised by the parties. But when we combined with an election that was just close to this one, and the fact that political buyers are last minute orders you can see why the amount of end timing of the ad spend was difficult to forecast. Offsetting those gains and equally unpredictable has been the core business, which is pacing down in the fourth quarter due to the crowding out effect by political in October and the uncertainty of advertising spending levels in this economy. Therefore, our discussion regarding future events are subject to changes which may or may not be significant to our financial performance. While we are not required to provide updates to our guidance, we will continue to evaluate whether such public communication is wanted based on our determination of materiality. So now moving on to our third quarter highlights. Since reporting our second quarter results in August, we have been actively repurchasing our Class-A common shares and bonds in the open market, which Lucy will describe more fully. And if you are probably aware stock and bonds are trading at their historic lows. We believe this is a reflection of the current economic and financial issues affecting the marketplace and not a reflection on our fundamentals. Given the returns of these trading levels we believe that it is to the benefit of our investor to take advantage of this opportunity. During the third quarter we invested $11.4 million to our Kaiser capital and Sinclair Investment Group subsidiaries and in various real estate ventures and expect to invest about 25 million in the fourth quarter and ventures for which we are already committed. Due to the current economic environment, we have scaled back our expectations for additional investment in ’09. Net broadcast revenues for the third quarter were 150.1 million up about 0.5% or $700,000 over third quarter of ’07. The increase was primarily the result of $7.6 million in higher political revenues, $600,000 in higher retransmission revenues, and the effect of our Cedar Rapid station transaction which was accounted for under a joint sales agreement last year. These revenues were offset by a decline in the core business. Television operating expenses in the third quarter defined as station production and station SG&A expenses before barter were 72.8 million up 4.9% from third quarter of last year. A 3.4 million increase was primarily due to the addition of Cedar Rapids, higher engineering and transmitter cost and our news expansions, which were offset in part by lower sales volume. Corporate overheads in the quarter was 5.9 million, $400,000 higher than third quarter last year as a result of higher compensation cost related to our investment entities and higher legal and professional cost. Operating income in the quarter was 37.4 million, an increase of 4.5 million or 13.6% over the last year's third quarter result of 32.9 million. 2.2 million, of the over performance was due to a non-cash gain on the exchange of equipment. The remainder was primarily the result of lower program amortization cost which were offset in part by the higher TV production cost, higher depreciation expense and lower operating income from our other operating division. Net interest expense for the quarter decreased 13.6% or $3 million in third quarter last year primarily due to three months LIBOR being 253 basis points lower in the third quarter this year and also to repurchasing our bonds in the open market with lower cost revolving debt. Our other operating divisions had a $100,000 in operating income in the quarter compared to 1.3 million last year. This was less than the 1.8 million income, we forecasted primarily due to delayed transmitter sales at Acrodyne. Television broadcast cash flow in the quarter was 59.8 million, $3.8 million or 6% lower than the third quarter last year’s broadcast cash flows due to the higher TV production cost. EBITDA was 54.3 million in the quarter, 5.2 million or 8.8% lower than the same period last year due to the decline in BCF and lower operating income from the other operating divisions. The broadcast cost flow margin on net broadcast revenues was 39.8% and the EBITDA margin on total revenues was 30.5% in the quarter. We had diluted earnings per common share in the third quarter of $0.14 as compared to $0.11 in the third quarter last year. During the quarter we generated $36.9 million of free cash flow, 7.7 million less than third quarter last year. Primarily due to the lower EBITDA, higher CapEx, and a lower current tax benefit, offset in part by the lower interest expense. Year-to-date we have generated $112.3 million and free cash flow. At quarter end our stock price was $5.04 per share. And our trailing 12 months free cash flow yield on our market cap was approximately 36.2% with a 15.8% dividend yield. Based on our October 31, price of $3.23 per share. Our dividend yield was 24.8% and our free cash flow yield was 56.7%. So you can see why we have been opportunistic and buying back our stocks. Now Lucy will take you for the balance sheet and cash flow highlights.

Thank you, Dave. Cash programming payments were $19.8 million in the quarter and capital spending was $7.1 million. As we mentioned last quarter CapEx is one of severe areas are reviewing and we look to reduce in 2009. We had 11.6 million of cash on hand as September 30, and 1 billion, 396.3 million of debt which include 54.2 million of non-recourse and variable interest entity debt that we are required to consolidate on our books. At September 30, we had 91.9 million drawn under our revolving line of credit. At this point, assuming the economy does not get materially worse additional financial institutions do not go bankrupt, we expect the revolver to be able to handle our working capital needs in 2009. Understand, however, how difficult forecasting is in this environment. Nevertheless we will continue to look for areas to cut cost and conserve liquidity. Leverage at the operating Company was 2.74 times at quarter end and if we had a leverage test at the holding Company it would be estimated at 5.35 times. That is derived from total debt on the balance sheet net of cash, less than 54.2 million of variable interest entity and non-recourse debt and divided by the trailing four quarter EBITDA of 248.9 million. During the quarter the Company repurchased 2.7 million shares of our Class A Common Stock plus another 3.7 million shares during the month of October. In the third quarter we also repurchase $12 million of our 6% subordinated convertible bonds and 22.3 million of our 8% senior subordinated notes, and another 1 million of the 8% notes in October. That brings the face value of the 6% bonds outstanding today to $141.2 million and the 8% note face value to $224.7 million. In October we received the 17.2 million federal income tax cash refund which was applied to repay our outstanding revolver. Now, Steve Marks will take you through our operating performance.

Thank you, Lucy and good morning. As we discussed on last quarter's call the third quarter advertising environment proved to be difficult even with political. Nonetheless we were able to grow our net broadcast revenues by a half a point in the quarter on higher political advertising. The Cedar Rapids station which accounted for under a joint sale agreement last year and higher retransmission revenues offset by the decline in core advertising business. Our time sales were basically flat in the quarter, a performance we are pleased with when you consider that we did not benefit from the Olympics since we have only one NBC station. In fact our third quarter time sales beat the aggregate of 709 televisions stations with reported an average declined up 3.3% to the Television Bureau of Advertising. Including political, open time sales in the third quarter were down 0.4% and national was up 0.4%. Excluding political, local is down 1.7% while national is down 13.8%. Despite now participating and electric revenues are stations grew their local market shares on average on both and an including and excluding political basis during the third quarter. In addition with 4 to 3 markets reported we held our total market share at approximately 17.5%. As expected in this environment, very few categories were up materially and third quarter with the exception of fast food, which was up approximately 700,000 or 8.1%. Major categories that were down in third quarter or movies, retail, home products, restaurants, and pay programing. In August we've discussed our expectation for auto to be down 14 to 15% in the third quarter in part due to natural crowding out from political and Olympics, but also due to the weakening economy and oil prices. We finished the third quarter with the auto category being down 15.4% or 4.4 million, auto now which represents 18.2% of our time sales. Our next largest category is Services which comprises of 14.3% of time sales. Service category was up 250,000 or 1.2% in the quarter. From an affiliation break down including political our ABC stations were up 1.4% in the third quarter and our CBS stations on a same station basis were up 10.9%. Our NBC stations were up 28.6% due to the Olympics and our Fox stations were flat. Stations affiliated with My network and CW were down 5.1 and 3.8% respectively excluding political revenues our ABC, Fox, CBS, CW or My Network stations were down 11% 4.5, 18.2, 5.3, and 6.5% respectively while our NBC station was up 11.1%. Political revenues were 8.7 million in the third quarter versus 1.1 million in the same period last year. And tuning to our fourth quarter outlook, for the fourth quarter we are forecasting net broadcast revenues before barter to be down low single-digit percents from the 165.7 million reported in fourth quarter last year. As you have witnessed already in this volatile and unpredictable environment it has been very difficult to forecast the revenues side of the business. Included in our fourth quarter guidance is approximately 25.6 million for political advertising as compared to 2.2 million in the fourth quarter last year for the 2008 year. That would bring our political revenues to a record level 41 million a 28% increase of the approximate 32 million earned in the 2004 election year. For the fourth quarter excluding political revenues all station affiliate groups are currently pacing down. Excluding political most of our advertising categories are expected to finish fourth quarter down from fourth quarter last year due to the economy and crowding out from political. The category is expected to decline the most are automotive, financial services, consumer products, retail, medical, and movies. We expect automotive to finish the fourth quarter down by the high 20%. On the expense side we are forecasting our TV production and SG&A expenses before barter expenses to be approximately 75.9 million in the fourth quarter a 2.5% decrease from fourth quarter last year 77.8 million. The 3 million decline is due primarily to lower sale expenses as result of lower revenue guidance. For the year this would bring our TV operating expenses before order expenses to 296.6 million or up a nominal 2.7%. Fourth quarter film payments are estimated to be 21.6 million and 82.7 million for the year. Based on guidance as provided in this morning's earnings release we expect broadcast cash flows to be down mid single to low teen percents and EBITDA looked to be down high single digit to mid teen percents. Looking to 2009 we are managing the company assuming the continued difficult economic environment as such we begun to evaluate all areas of expenses and have already started instituting cost cutting measures in areas such as salaries, staffing, travel and entertainment, sales incentive programs, promotion expenses and capital spending. With that I would like to open it up to questions.

Thank you. Ladies and gentlemen, we will now be conducting the question-and-answer session. (Operator Instructions). Our first question is coming from Lee Westerfield with BMO Capital. Please state your question.

Thank you and good morning. These are clearly unprecedented times. So my next question is probably very difficult one to come around you. But David, let see, how are you approaching the budgeting for 2009 from the standpoint of understanding what your options are and what you are asking of your station managers in terms of what they can be expected to do in 2009? And then I have a followup question specifically related to CapEx in 2009?

Well we had said it’s fairly the fog of war, if you can imagine the analogy such as that. And you know, we are right in the thick of it in terms of just seeing some of the most significant declines in some of our categories that we have ever seen here as we come through this fourth quarter. And you have seen how we have tried to update the market just on our fourth quarter pacing and the changes that we are seeing just on a week to week basis. So it’s a very difficult time in terms of visibility and our expectations are that -- although they talk about maybe we are in a recession, that’s clearly for our industry we are in recession. And so how long will that lasts and how long will that persist is a question, I don’t think any of us have an answer for this point. Certainly with the election being over and that uncertainty being removed from the equation, I think that will help some, but a lot remains to be same.

I guess David the root of my question is really how are you managing internal expectations in the processing of budgeting?

Well, we go through the process of first seeing what the field sees and what their thoughts are in terms of their markets, because you know, this business is primarily a local business in most regard. So their input is the primary input that we look for in regards to each and every market, what are they seeing? What their expectations are from a standpoint of their markets and we built it from there.

I think the other thing Lee is to appreciate is that this isn't the first time we have seen this. We have seen it in 87, 91, between 91 and 2001 there was at least one event, 2001 is an event. So this is why it was difficult is not new from the standpoint of managing through this process. The thing like we have to do is as everybody has to do is, they have to try and mange to a number, because we all have obligations to various institutions, banks et cetera, that has to be met. So our first obligation is to start from there and essentially work backwards to get where we need to get to in order to fulfill these obligations as kind of a minimum standard. So I think, yet there is foggy out there, but we know what we have to do in order to be able to accomplish everything that needs to be done from that perspective. So, I don’t think it comes as any great shock to anybody because we've done this before.

David, actually I want to ask a different question, not the CapEx question. But David Smith may I ask you, if you can comment on the CC white space about in the context to the Open Mobile Coalition and what options are in the broadcasting industry at this point?

Well, I think the white space though I anticipate is problematic in a large sense because what the FCC is to some degree essentially say with the full knowledge based on their own reports that it is going to create materially fast. And what means is that people who have cable boxes and TV sets could theoretically be wiped out by virtually of a 40 mill watt toy that somebody is going to walk around in their hand. So it seems kind of uncharacteristic, the FCC kind of little bit an industry is big as the cable industry and the satellite industry and the broadcast industry and say well, we really aren’t concerned about what happens to the viewers of your content. And by content I mean all the cable operators, all those channels, all those proxies that are going to be in jeopardy from to the devices they want to place on their marketplace. So I think the battle certainly is not over from the standpoint of our industry and I fully expect that the cable industry and everybody who is going to be adversely impacted potentially by this. We will simply start to move toward Washington and figure out how to stop it because it certainly doesn’t serve the consumers’ purpose under any circumstances, at least from a standpoint of being able to watch television. So imagine somebody goes out and pay $5,000 for a fancy television only to find out it interfered with by some $10 device. That’s what the risk is. So I think let this thing play out a bit longer and hopefully more rational technical heads will prevail and the politics will be set aside.

Thank you very much.

Your next question is coming from Michael Morris with UBS. Please state your question.

Thank you. Two things, one on the local advertising side, down 1.7% is a great number compared to what we are seeing for other station groups and other media. And I guess I am looking for any more color you can provide on why that was so strong relative to others? I realize of course you are not – you mentioned you are going to have good visibility but anything to help me understand why that was such an outperformer and with the sustainability that will be very helpful. And then on the dividend side, you mentioned in your prepared remarks I guess that a change in the economy could affect the rate of the dividend. Can you talk a bit about how you determine the size of the dividend, if it’s a payout ratio on earnings or cash flow? How are you looking at that going forward? Thanks.

Thank you, Michael. On the local side, I appreciate you taking notice of that. The fact of the matter is when you take a look at our performance, not only in this quarter but it mirrors some of statements we've been making consistently quarter after quarter. And then our statement today clearly suggests that we are outperforming our competitors and as they say we have challenging networks. We have a host of My Network and CW stations that not only beat the local market, they beat the local market including political. And of the games of the Olympics, which the only NBC station we have is in the smallest marketplace which is Tallahassee, so even political included this company beat its competitors handily. Where did it come from? We have shows that are doing obviously higher ratings. We are still in the business where we are celebrating and we picked it up throughout the course of the year on most of our CW, My Network and Fox stations, 2.5 Two and a Half Men, which has been a huge success for us and will continue to be a success for us. So as a company our ratings have increased in three years and networks that were affiliated were moving in the right direction. Obviously very top heavy Fox and even without the benefit of Fox’s strongest programming, i.e. American Idol, we still blew away third quarter. So from a sales perspective the numbers clearly demonstrate that we are beating our competition handily, some of that is part obviously into rating success but we have been doing this consistently and it’s been a consistent performance that’s been going on for quite some time.

What that means is we simply do it better. That’s the long and short of it.

As far as the question regarding dividend policy, we've I think been consistent in describing our approach and our focus to the dividend. And we have wanted to put ourselves in a position where you could be confident and that the dividend payments as investors that they would continue to come to you. And so we want to maintain that as best as possible and provide that level of payment that we sustain. We cautioned, certainly how that might change or may not change based on the outcome of the performance of the stations going forward. Certainly, we are concerned about what '09 might bring to us and we are very much focused on exactly what the down side might be, what effect the dividends would have on, payments would have on us. And I think you know, it was some point of pride I guess that we should have in Sinclair is the fact that we have prepared ourselves from a standpoint of the balance sheet and our performance not to put us to be in a position where when a storm like this comes along that we can handle it, and handle it you know, in a way that we think is make sense. So we are prepared for recession. We think we can work through some of the worst times here as far as what might be happening to our advertising lines and our revenue lines going into '09. Certainly, there is no guarantee of that. We don’t like, we said earlier, have the type of vision to know exactly what's going to happen. But I think it's important for the investors to understand that we haven’t gone out and extended ourselves in unreasonable ways. But we've been cautious and prudent in terms of how we have extended our balance sheet and we think we're in pretty good shape as we go forward here to not only withstand the recession, but to continue to provide our investors with a return, a dividend return on their investment.

Well thank you guys.

Our next question is coming from Bishop Cheen with Wachovia Securities. Please state your question.

Hi, thanks for taking the questions. Just moving to balance sheet, I am just doing some moving parts. It looks like pro forma the 25 million, you will spend on TV ventures in the current Q4, you have roughly what 76 million of true availability on the revolver?

Well we have -- even though, Bishop, the revolver is 175 million commitment the Lehman bankruptcy, they had a small portion of that, about 6.3 million, so that 175 commitment is right now 168.7. We will find out what happened to that commitment as Lehman goes through the bankruptcy courts. And then we said we had 91.9 million outstanding at the end of the third quarter so right 76.8 million is available.

Okay. And then no other big, I know you have that 17 million cash refund in October and is there any other significant chunk of cash coming into your balance sheet?

Coming in would just be normal working capital free cash flow pieces. The one other piece is going out though in the fourth quarter or the stock buyback that we did in October.

Which brings me to your, you have so much to look at in your balance sheet for arbitrage between your Hold Co pieces and your stock, and your eight's, and I guess you've had lots of choices of which discounts to go after? Do you think that as you go forward the level of those discounts are going to be as attractive, or would you just be looking more to just keeping dry powder and keeping your cash because compared to others in your sector you certainly have the best balance sheet and cash resources?

Yes, we look at a lot of things Bishop. We've talked over time about looking a what type of investment gives us the highest return. Clearly where our stock has been trading that’s given us the highest return year in the third quarter and in October, but given this environment we also need to look at our dry powder so we have to balance all those pieces from a return perspective and also being able to live within our revolver.

Well, you certainly have done that. All right, thank you for the color.

Thank you.

Our next question is coming from Marci Ryvicker with Wachovia. Please state your question.

Hi thank you. As David and Steve, you both mentioned that the core business is facing down in the fourth quarter can you tell us by how much? And then David, you also said you're scaling back your investments in 2009 can you give us a potential power amount? And then lastly given the economic environment have negotiation or retransmission consent renewals gotten more difficult.

Core business in fourth quarter is facing Rutishauser were speak about minus 20 which from the other calls that I've listened to is quite a bit better than our competitive out there, as difficult as it is, it's the number that since to be quite a bit better than the field but that’s the number right now.

And the investment in '09?

Yes, I'm sorry. We're scaling those back, certainly when you have fourth quarter pacing a Steve just mentioned that the it causes us to really think exactly where we end up in 09 and as Lucy is mentioned the certainly we want to hold our dry powder and make that we do not have any liquidity issues and certainly there is an opportunity be aggressive on the discounts that are out there in terms of our bonds and our convert that’s an opportunity that we can make lot of sense to us as well.

Do you have dollar amount in mind from 09?

Not one that I would say here, here is the number and here is exactly what it's going to be, the economy is just in such a state of flux right now that it's hard to give you an exact number. It will be scaled way back, but the opportunities that come up on occasion are so can be so compelling and we have to keep our eye on that, but we have, like I said really cut back on that so that it would have to be some really very compelling opportunity for us to go after it.

And then any comment on have negotiations are for retrans renewals in this environment?

I think it's fair to say that the retrans renewals, the second time around are somewhat easier or because I think we've all kind offset at the table before and everybody has kind of looked everybody in the eye and knows what the reality of the situation is so I think there is lot less hostility than there was such as with Mediacom and some of the other folks but it's never easy when you're having these kinds of discussions, but I think it's safe to say that we're going to accomplish our objective and think everybody is well served.

Great, thank you.

Our next question is coming from Edward Atorino, The Benchmark Company.

Hi good morning. First, what did you pay for the -- how many dollars did you spend for your stock?

Sure.

Only numbers.

Yeah. For what we do in August and into October its about our 29.5 million and that was for August 6.6 million shares.

Right. Second, it was mentioned that there was delayed equipment sales would you get back that in the fourth quarter? Is it delayed, not canceled?

I think, I am not sure to talk about that.

There was a drop in sales from--?

Yes, the Acrodyne transaction...

Great.

Yes, exactly, they are transmitter sales to other television broadcasters and certainly, they pushed off their capital spending insofar as they can relative to their digital conversions, so yes, that’s a fourth quarter, we expect to see that.

You get that all back in the fourth quarter. Lastly, in terms of this pacing, I presume with political there are less availabilities in the fourth quarter. Is it possible to sort of adjust, to sort of say an adjusted pacings number? If you have X percent of less availability, so you're going to be down X percent just going in and I wonder if it is sort of overstating, if it's possible to overstate the weakness, if you get my point?

Yes, I think that's true. I think that happens in every action and certainly judging by the success that we have had increasing political revenue is by 30% that puts us more in a position where more spots were displaced and some of, the majority of the spending comes from a lot of our strongest market places. You are correct, couldn't tell you exactly what that equates to, but certainly its not as bad as it appears.

It's not 20% basically.

I would agree with that.

Thank you.

Thank you.

Our next question is coming from Aaron Watts with Deutsche Bank. Please state your questions.

Good morning everyone. I know you said for the year you are looking for I think around 72 million of retrans revenues. Did you guys give a hard number for the third quarter, what your retrans was?

We could get back to you, Aaron. For the third quarter, we did total 17.9 million.

How did that compare to last year?

It was about 600,000 higher than last year.

Lucy, do you have the year-to-date tally on that returns?

Give me a second here. I can add it up for you. It's 56.2 million.

Thanks. And I guess second, I was just curious, what you are hearing from your local auto dealers. Obviously, national auto is a little bit out of your control. But are you dealership I think open I guess would be the first question? And then second, I guess, what's the feedback from them and just how slow were things been? What you are expecting from them kind of maybe not in just the fourth quarter, but go forward in terms of their spending with you.

Well we are pacing much better on a local level in that category than we do on the national level, but that’s always been the case. We typically pace anywhere from 5 to 6 points better on a local level than we do on a national spot level in the automotive category. I think its fair to say that given the state of the economy and in particular the state of the auto industry that we're going to have a difficult first quarter. And we obviously think that we have hit the bottom in fourth quarter. And now its time to build the back up, how quickly that takes place remains to be seen. So we also are going into first quarter were very top heavy in Super Bowl last year being a Fox affiliate. This year it's on NBC, and we only have one NBC, so in terms of automotive that's going to have an affect on us as well in the first quarter.

Sure. Okay, and then just last one is a little bit more big picture, but maybe for David. Obviously, the challenges you guys are facing, we haven’t seen for long time a combination of the credit markets being what they are and the economies sort of going down into somewhat of a recession here, but valuations have certainly compressed for the television broadcasting state. Now I am just curious your thoughts with sort of heightened competition for viewers, eyeballs now and what your thoughts are in terms of what the bounce back might be. We have seen the bounce back for TV in the past after these slowdowns. But how does this one feel to you compared to the past?

To tell you the truth, when you go back and look at history, I think nobody can predict what the bounce back is going to be. I think the biggest driver in all this is and you will keep hearing about this is the automobile business. When the automobile business starts to turn, my sense is everybody turns. And right now, the automobile business has got this gigantic overhang with Chrysler and General Motors and question as to whether they are going to be in business or not. So I think there are some huge macro consequences to not having General Motors in the marketplace and not having Chrysler in the marketplace. Notwithstanding the likelihood that Chrysler will reduce the number of products that it pushes into the marketplace, regardless of whether they survive or get merged with somebody else, so I think the automobile business is certainly will come back. It's at the lowest level it's been since the 1940's in terms of annualized sales. Cars only have a certain life to them. They have to be replaced. So my sense is that as soon as the credit markets loosen up a little bit, people are going to start to buy cars again, because they have to, they aren't going to be riding donkeys down the street or bicycles. That's not going to happen. Not going to be riding toy motorcycles, they are going to have cars. And they fully expect, the only issue is what day and my sense is when that starts, when that door opens up again it's going to go crazy like it has in the past and that's going to be a good thing for local broadcasters because the dealers will be saying, money is available, my customers can now get financing, and it's time to go. I mean, I think the thing you don't appreciate necessarily is that the bank credit markets have basically shut down the automobile business. If people were 700 beacon scores are finding it difficult to get financing. So that's just wrong, so I can understand that the dilemma the dealers have that they would love to sell cars and they in some cases are selling cars but on a completely different credit basis than they have in the past so that whole thing needs to get straightened out and the extent to which the government is part of that equation, that's fine. They need to get on with it and the banks need to cut loose with the money if that's what they're doing, and let the consumers get back to spending money which is what drives this damn economy. So I think it will start and like it always will, it will get back to 16 plus million cars, so if you look at 11 million this year and some of the projections are that it's going to be well over 16 because the population is growing, there's lots of older cars out there that are going to have to be replaced, you might see a 5, 6, $8 million surge in the next year and a half. The other thing to keep in mind is that historically in this country there's 13 -- 12 to 13 million cars a year that are shut up that are basically shut down, and shredded, and recycled, so those cars have to replaced by definition, so my sense is that it's coming and we just need to hold on until it gets here. There's nothing we can do as broadcasters to accelerate it. It's purely a function of the banks loosening credit. I think now the election is over with and people know what they have to look forward to regardless of what side of the aisle you are on, it's fairly defined now I think and people can get comfortable with okay, we are all going to survive and let's get back to business. So I think it's a good thing that the political season is over and I think, at least I'm hopeful that the first quarter next year we are going to see some changes in the world. And it should benefit us. So these things don't last forever as you well know, you go back and you look at history the average recession in the last 50 years has been 10 to 12 months so you pick the start date and I will tell you end date.

Sure, and I guess just on your points with what's going on in auto, if we end up with combined Chrysler/GM or something along those lines, even when auto sales rebound, has the revenue or has the advertising dollar pie changed with that sort of future? Will those combined companies be spending significantly less on advertising on TV?

I don't know that they're going to, first of all. That's not a data complete at this point in time. If they do, I think its possible that may happen but I think the reality is there are multiple brands out there that have to be branded, so it may be that there is some give and take in terms of that structure but at this point in time, it's too early to tell how that's going to be managed. It really is, and not only that, but you have two new interests in the marketplace. You have got the Indians are now offering dealerships and cars in the marketplace as well as the Chinese, so you may not have seen that yet, but they're here. So there's going to be more competition for different brands in the marketplace which presumably will be in the long term means more advertising. I'm not telling you if their cars are any good or whether they are going to be successful as a manufacturer and supplier but I can tell you there are more dealerships coming into the marketplace around the world, since we're the single biggest market out there so it only makes sense that they're here, but that's kind of watch that evolve.

Okay. I appreciate the thoughts.

Our next question is coming from Stacey Finerman with Goldman Sachs. Please state your question.

Hi, thanks for taking my question. Have you guys given any thoughts to your 3% convert that becomes putable in the beginning of 2010 and how are you going to look at that?

Yes, Stacey. We are all always giving thoughts to all of our debt instruments given that most of them have maturities or potential maturities between 2010/2012. We have seen how much the financial market did change here in the past two months. So we still have another year-and-a-half before the 3% hit their put call date and a lot can happen in a year-and-a-half. However, when we get to that point, we have a $500 million incremental term loans that we could go out and raise under our bank deal. We would have to see where the high yield markets are trading and even where our stock price is trading at that point in time to determine whether or not the holder would even put. If we think about it, year-and-a-half ago, our stock was up over $17. So as I said a lot can happen in year-and-a-half just by what we have seen during the past two months.

Okay. Thank you.

Our next question comes from Andrew Finkelstein with Barclays Capital. Please state your question.

Hey guys, good morning. Just one question as you look into ’09 on the cost side, obviously revenue is moving around a little bit out of your control, but on the cost side you guys were on a pretty lean shift there. So how much lack do you think there is from the system or how much ability do you guys to have – you have to take costs out?

I can’t give you an absolute number, but I think we can certainly be flatter than we are now and we are actually having those discussions about structurally what makes sense for us in the long term without affecting the core day-to-day operations of the business. The technology has certainly given us the capability to do things that heretofore we would have never been able to do and we are looking at technology as an opportunity to flatten the business out a little bit more, and I think we will certainly have our handle on that in the next 30 days or so before the beginning of 2009. But at this point in time, it’s just a tad early to tell what that might be. So just appreciate that we're thoughtful about that and we'll do everything that we can within our powers to flatten this place even more than we have in the past.

Yes, I think as well to some of the larger initiatives that we may be looking at would be prudent to a risk or loss during a period we'll have to defer some of that into the future days, so there is an extension of one aspect of a business to another that takes time to start yielding returns that may have to be delayed somewhat.

Okay. And then maybe for David, with the election over, what are your thoughts on a democratic FCC and how that might change the television landscape?

It’s hard to tell. I have been somewhat disappointed about the current administrations picks of the FCC. I don't think they've really done anything that had benefited the industry, at least that I can remember. I would tell you that from an industry perspective, the greatest things we have ever done were all under the democratic administrations. So while it’s the thought that republic administrations are deregulatory, I’ve never honestly seen much of that under the republic administration. So I am hopeful that a democratic administration will kind of look at our industry and say it’s time to take a large view of what’s going on in the industry and maybe react to some of the competitive pressures that are out there and those two things that we need to do to remain competitive in the long term.

Okay, thanks.

[Operator Instructions]. Our next question is coming from Edward Atorino with The Benchmark Company. Please state your question.

Dave, where do you think mobile is in the scheme of things? Has it gotten pushed back, on schedule, never happening?

I think its kind of where we said it was going to be -- there is a candidate standard that's going to be put fourth. I think the Consumer Electronics show in Las Vegas this year will be the next round of demonstrations of the capability of the platform. There are still some hurdles that have to be dealt with and I think given the support that exists within the industry, I think it's going to move forward albeit somewhat slow only because of the state of the economy today and because of the things that are happening in a mobile world, not the least of which is the potential that somebody like EchoStar who acquired an enormous amount of space as you may recall in one of the last auctions, they effectively have in the vast majority of cities in this country the capability to open up a mobile operation.

Yes.

With old television channels. So I'm really curious to see what their intention is because frankly, from a technology perspective, they could, I'm not telling you they will or won't because I have no knowledge but from a pure technology perspective, they could be offering mobile television upwards of 40 to 60 channels to cell phones, cars, any device that's out there. So I think there are so many different forces at work here all trying to figure out how to get into the mobile business, we're just one of them. I think the thing that we have that nobody else has is we have the spectrum space and we have the content.

Thanks.

So I think those are the key drivers is we are local provider of the vast majority of the content that's out there, so I think that no matter who goes and succeeds in terms of launching "mobile", they have to come to us sooner or later, much in the same way the satellite guys and the cable guys and phone companies come to us for local content, so I think we win either way. Its just the matter of defining what the game is going to be and that is yet undefined.

That sounds like its 2011 I guess.

I don't know it's going to be out that far, but you know what? With the economy being the way it is, nobody knows for certain, but I think just appreciate that there's lots of forces moving in the direction to establish footprints in that area.

Thanks a lot.

This does conclude the Q&A session. I would like to turn the call back over to David Amy for closing comments.

Thank you, operator. We realize that these are very difficult times facing our country's economy and we believe the economy and the financial market however will recover. Its just a matter of when. We want you to know that here at Sinclair we are attempting address those challenges early on and keep our long term fundamentals strong and as always, we thank you for participating on our earnings call this morning and if anyone has any additional questions just feel free to contact us. And thank you again.

Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.