Sinclair Broadcast Group. (NASDAQ:SBGI)
Q4 2008 Earnings Call
February 11, 2009 8:30 am ET
David Smith - President & Chief Executive Officer
Steve Marks - Chief Operating Officer of Television Group
Lucy Rutishauser - Vice President of Corporate Finance & Treasurer
David Amy - Executive Vice President & Chief Financial Officer
Bishop Cheen - Wachovia
Michael Morris - UBS
Aaron Watts - Deutsche Bank
Edward Atorino - Benchmark
Avi Steiner - JP Morgan
Michael Meltz - JP Morgan
Marci Ryvicker - Wachovia
Greetings and welcome to the Sinclair Broadcast Group fourth quarter 2008 earnings 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)
It is now my pleasure to introduce your host, Mr. David Amy, Executive Vice President and Chief Financial Officer for Sinclair Broadcast Group. Thank you. You may begin.
Thank you, operator and good morning everyone. In the room with me today are David Smith, President and CEO; Steve Marks, Chief Operating Officer of our Television Group; and Lucy Rutishauser, Vice President, Corporate Finance and Treasurer. Before we begin, Lucy will make our forward-looking statement disclaimer.
Thank you, Dave. Good morning. 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 factors 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 fourth 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 uses its website as a key source of company information, which can be accessed at www.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 expressed 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 statements is provided on our website under investor information reports and filings.
Thank you, Lucy. Since we last reported results, the economic recession has deepened and it appears that the economy will continue to struggle, although for how long remains the question. As expected, our visibility towards revenue generated in future quarters is virtually non-existent and so we are unable to provide meaningful revenue color for 2009, beyond the first quarter.
In anticipation of a recessed year and coupled with the absence of political revenues in a non election year, we spent the fourth quarter of ’08, evaluating and making changes to our cost structures in an effort to offset the revenue declines, maximize our returns and preserve liquidity.
Among some of the steps we initiated were cuts to capital expenditures, to maintenance levels, reducing our investments in projects outside of television which we announced previously, reduced corporate overhead and TV station expenses through lower promotional spending, travel and entertainment, restructuring our sales commission levels and freezing salaries. In addition we’ve eliminated over 200 positions, about 7% of our workforce.
While our forecasts assume normal expense reductions due to it being a non-political career and due to an analog being turned off, we estimate that our cost control initiatives will save an additional $19 million in ‘09. Unfortunately, we do not believe that those savings will offset the expected declines in advertising revenues in ‘09.
Nevertheless, even with this negative sentiment, we feel confident that our expected free cash flow generation in ’09 would meet our principal obligations and support our regular quarterly dividends of $0.20 a share. Despite that, the Board did not want our employees being the only ones to make a financial sacrifice in these difficult economic times and therefore has suspended the dividend until further notice.
Now, let’s turn to our results. You may have noticed that our release this morning referred to preliminary results for the fourth quarter. That is because we are still finalizing the non-cash impairment charges related to SFAS 142, which requires that we test goodwill and SEC licenses for impairment based on estimated fair values as of October 1, ‘08.
Due to the economic recession, we expect to record an impairment charge of intangible assets of approximately $460 million or $300 million on an after-tax basis. This is a non-cash charge which has no impact on our cash flows or financial covenants. The company assesses goodwill and other intangible impairments each quarter and may need to record additional impairment of goodwill and other intangible assets in the first quarter of ‘09 based on the current level of our stock price among other things.
It is worth noting however that our non TV investments have not incurred impairment charge. Unfortunately, while the accounting standard requires that assets be written down in difficult times, it does not permit companies to write them up in good times and so we believe that this charge does not reflect broadcast TV’s true fundamentals or longer term valuations.
Net broadcast revenues for the fourth quarter were $164.4 million, down 0.8% or $1.3 million versus fourth quarter of ‘07. The decrease was primarily the result of a decline in the core business, offset by $22.8 million in higher political revenues. $1.7million in higher retransmission revenues and the effect of our Cedar Rapids station transaction, which was accounted for under a joint sales agreement last year.
For the year, net broadcast revenues were up 2.7% or $16.5 million, on $15 million higher retransmission fees, a $36.1 million increase in political revenues, and $4.0 million dollars of incremental Super Bowl revenues, offset by the economy’s impact on the core advertising business and the writers strike earlier in ‘08. For ‘08, revenues from retransmission agreements were $73.9 million, a 25.5% increase over ‘07 $58.9 million. Political revenues in ‘08 were a record level, $41.1 million, which was a 28% increase over ‘04 level.
Television operating expenses in the fourth quarter, defined as station production and station SG&A expenses before barter, were $74.4 million. That was down 4.4% from the fourth quarter last year. The $3.4 million decline was primarily due to lower sales commissions, management bonuses and various sales and G&A costs, offset in part by the addition of Cedar Rapids, our news expansions, higher rating service fees and severance costs.
For the year, television operating costs were up a nominal 2.2% or $6.4 million, primarily on the addition of Cedar Rapids. Corporate overhead in the quarter was $6.2 million, $700,000 higher than our fourth quarter last year, as a result of higher compensation costs related to our investment entities, severance costs and higher legal and professional fees.
In the fourth quarter, we reported a $1 million non-cash gain on asset exchanges. We had a preliminary operating income in the quarter of $46.9 million, flat to last year’s fourth quarter result of $47 million. Net interest expense for the quarter decreased 13.1% or $2.8 million from the fourth quarter last year, primarily due to a 226 basis point decline in three month LIBOR and also due to repurchasing our bonds in the open market with lower cost revolving debt. For the year, net interest expense was down $16.7 million or 17.8%.
Our other operating divisions had a $3.1 million operating loss which included a $3.9 million bad debt expense. Last quarter we estimated that our Kaiser capital and Sinclair investment group subsidiaries would invest about $25 million in investments for which we were already committed. We ended up investing $10.6 million net in the fourth quarter and expect the remaining amount to be spread over the first half of ‘09.
Television broadcast cash flow in the quarter was $71.1 million, down $200,000 or 0.3% from last year’s fourth quarter broadcast cash flows, due to the lower revenues and higher film payments, offset in part by lower TV operating expenses. For the year, broadcast cash flow was $270.1 million, a 2.4% increase or a $6.3 million higher than ‘07.
EBITDA was $66 million in the quarter. $1.4million or 2% lower than the same period last year, due to the decline in Bcf, higher corporate expenses and lower operating income from the other operating division. For the year, EBITDA was $247.5 million, a 1.8% increase or $4.5 million higher than ‘07.
The broadcast cash flow margin on net broadcast revenues was 43.3%, and the EBITDA margin on total revenues was 33.7% in the quarter. We had preliminary diluted earnings per common share in the fourth quarter of $0.24 as compared to diluted earnings per common share of $0.15 in the fourth quarter last year. During the quarter, we generated $47.5 million of free cash flow; $4.7million more than fourth quarter last year, primarily due to lower interest expense and capital expenditures. This was offset in part by the lower EBITDA and a lower current tax benefit.
For the year, we generated $159.8 million in free cash flow. At our year end ‘08 stock price of $3.10, our trailing free cash flow yield on our market cap was approximately 63.8%. Based on our more recent trading level of $1.50, our free cash flow yield is 131.3%.
Now, Lucy will take you through the balance sheet and cash flow highlights.
Thank you, Dave. Cash program and payments were $21.2 million in the fourth quarter. For 2009, we estimate program payments to be $82.7 million, which is basically flat to ‘08’s $82.3 million level. Capital spending was $3.5 million in the fourth quarter and $25.2 million for the year.
For 2009, our expectation is for CapEx of approximately $15 million, that’s a 43% decline. Approximately $9 million of the $15 million is for the analog sunset and to build redundancy systems for digital. This is critical for any broadcaster who does not want to risk an equipment failure in being off-air.
In October, as previously announced, we received a $17.2 million federal income tax cash refund, which was applied to our outstanding revolver. We had $16.5 million of cash on hand at December 31, and $1.376 billion of debt, which included $55.5 million of non-recourse and variable interest entity debt that we are required to consolidate on our books.
At December 31, we had $84.6 million drawn under our revolving line of credit with another $84 million available, excluding the Lehman commitment. With the steps we have taken to preserve liquidity and based on the current economic conditions, we expect the revolver to be able to handle our working capital needs in 2009.
Leverage at the operating company was 2.68 times at quarter end, on a covenant requirement of 6.75 times and if we had a leverage test at the holding company it would be estimated at 5.27 times.
Now, please note that beginning January 1, 2009, the operating company leverage test stepped down from 6.75 times to 6.5 times where it will stay for the remainder of the bank agreement life. At that level, our full year 2008 EBITDA could decline by another $150 million, which would imply that 2009, full year net broadcast revenues could fall by $165 million or 25%, before we would violate our operating company leverage covenant.
Our weighted average cost to debt at year end was 5.4% and during the fourth quarter, the company repurchased 4 million shares of our Class A common stock, $1 million of our 8% senior subordinated notes, $6.5 million of our 4.78% senior convertible bonds, $6.1 million of our 6% subordinated convertible bonds and in January of this year we repurchased $1 million of the 6% converts and $8.1 million of the 3% converts.
Now Steve Marks will take you through our operating performance.
Thank you, Lucy and good morning everyone. As we discussed on last quarter’s call, the fourth quarter advertising environment proved to be difficult even with political. Including political, local time sales in the fourth quarter was down 7.6% and national was up 9.8%. Excluding political, local was down 14.2% while national was down 24.7%.
As expected, we had declines in just about every category during fourth quarter due to the recession. Automotive, which represented approximately 14.9% of time sales, was down 31.6%, which was in line with our expectations. Other categories that were down were services, retail, medical, movies, paid programming and pharmacy. Services, our second largest category, contributing 12.6 to time sales were down 16.1% in the quarter.
From an affiliation breakdown including political, our ABC stations were up 10.6% in the fourth quarter, and our CBS station on the same station basis was flat. Stations affiliated with FOX, My Network, CW and NBC were down 2.7%, 11.1%, 13.7% and 11.6% respectively. Excluding political revenues our ABC, FOX, CBS, CW, NBC and My Network station were down 25.7%, 15.3%, 30.8%, 17.7%, 23.1% and 15% respectively.
Political revenues were $25.6 million in the fourth quarter versus $2.2 million in the same period last year. For the year, political revenues were $41.1 million, a record level of advertising spent on our stations and more than 28% of the $32.1 million spent in the 2004 election year.
If you compare our performance in the fourth quarter to the 738 stations that reported results in the Television Bureau of Advertising, our station’s time sales which were down 1.6% outperformed the industry average, which was down 10.5%. The same holds true for the full year in which our station’s time sales were up 1.4%, while the industry was down 6.2%.
Our stations also grew their local market shares on average, on both an including and excluding political basis during the fourth quarter. With all markets reported, our total share excluding political increased from 17.3% to 18.2%.
Turning to our first quarter outlook, let me just preface this by saying that we have very little visibility which makes forecasting revenues extremely difficult. Nonetheless, we do appreciate the public’s desire to have some data points on an industry performance and so after much internal debate, have decided to provide a range for first quarter net broadcast revenue, which we are forecasting to be down low to mid 20%s from our first quarter 2008 base of $160.9 million.
Included in our first quarter guidance is approximately $100,000 for political advertising, as compared to $3.2 million in the first quarter last year. Last year also included $5 million of Super Bowl revenues which we won’t see this year, as a result of the game being aired on our one NBC station, rather than our 20 FOX stations of last year.
For the first quarter, excluding political revenues, all station affiliation groups are currently pacing down, which should not be a surprise the to anyone given this environment. Most of our advertising categories are expected to finish the first quarter down from first quarter last year due to the economic recession.
The categories expected to decline the most are automotive, services, fast food and movies and we expect automotive to finish the first quarter down about 45% to 50% versus first quarter last year. Included in that is almost 3% attributable to the Super Bowl last year. Travel and entertainment, breakfast foods, grocery and Internet categories are expected to finish minimally up.
On the expense side we are forecasting our TV production and SG&A expenses to be approximately $69.2 million in the first quarter, a 5.9% decrease from first quarter last year’s $73.5 million. The $4.3 million decline is due primarily to lower sales expense as a result of the lower revenue guidance, lower promotional expense and the effect of cost cutting measures we implemented in the fourth quarter of 2008.
For the year, TV operating expenses are estimated to be $279.4 million, down $15.7 million or 5.3% from 2008’s $295.1 million. For other line item guidance, please refer to our earnings release provided.
With that, I would like to open it up to questions.
(Operator Instructions) Your first question comes from Bishop Cheen - Wachovia.
Bishop Cheen – Wachovia
Because of your cost structure, which is both fixed and variable, how is it that you’re comfortable giving guidance for full year of station operating expenses but not for what that implies for revenue?
That’s a good question, Bishop. The numbers that we are providing are based on the internally generated budgeting process that we go through in regards to our revenue and as Steve suggested to you earlier, our visibility is so poor going out past the first quarter that it’s very difficult to nail the first quarter number, let alone provide significant guidance for the balance of the year.
Bishop Cheen – Wachovia
We do appreciate the guidance, because as you well know...
I would say that we believe that the first half of the year is going to be the most difficult in terms of comps from ‘09 versus ‘08 on a non-political basis, because of the fact that we are in such a significant recession here and along with that, the second half of the year of ‘08 we saw the recession starting to take hold. So we think the comps in the second half of the year will start to show improvement, but actually to start nailing the number is pretty tough, but that’s how we’re approaching it.
As we mentioned earlier, in regards to just our free cash flow, based on that premise and our expectations, plus the fact that here we are halfway through the first quarter and we feel pretty good about the numbers that we’re providing you for first quarter, that we’re really looking from a risk standpoint in regards to the balance of this year on three quarters, rather than a four quarter risk is where we look at it right now.
The point I’m trying to get to there for you Bishop is that our free cash flow expectations are that we can manage our principal payment obligations and could have managed the dividend at the $0.20 per quarter, but as we mentioned, the Board has opted not to do that. So we feel pretty good about where these numbers are going to come out and how strong we’ll be relative to our free cash flows and our covenants and everything else in that regard.
Your next question comes from Michael Morris - UBS.
Michael Morris - UBS
A question on the convertible notes you have due till 2027. It looks like the holders have the rights to require you to repurchase it in May of next year. Can you remind us how much is outstanding on that, what your level of concern is, that those notes will in fact be put to you, and what your plan is to finance that, if that does happen. Then also it looks like the convertible notes due 2018 have a similar provision in 2011, so I guess the same question applies. Thanks.
Yes, I think that’s the sort of priority of the day for us in terms of our balance sheet. That’s a focus that we’ve had for a number of months now and we expect that put, the holders of the 3% converts will be exercised in May of the 2010, well over a year from now. So we are looking at that today. We’re in the midst of looking for solutions. Right now we’ve looked at the bank market; we’re looking to see what we can accomplish there.
As you well know, the bank market is virtually shut down at the moment, unless you’re willing to pay some extraordinarily high interest rates and that seems to be changing. We’re starting to see improvements in terms of the conversations we’re having and the direction of just where the bank market’s going. We don’t expect anything to happen overnight here, but we are seeing improvement in terms of the lending direction and the pricing direction in regards to the bank markets. So that’s a real positive that we’re starting to see out there.
Then beyond that, we have a $500 million availability within our current bank agreement. So it’s subject to the market as far as whether or not we can borrow and so we have access under our current bank agreement to go out into the bank market or find other forms of financing to take care of that put, but the high priority for us, we’re ahead of it right now. We certainly think we’ll be able to find some significant borrowing out there that will help us take care of the problem.
We’re looking, like you had mentioned, not only at the 3, but the 4.78 as well and considering what is the best way to handle both of those obligations and their objective is to handle those at the lowest cost possible, in the most efficient way that we can and we’ll continue to work towards that end.
And Mike, your question as far as how much is outstanding on the 3s, it was a $345 million issue and we repurchased $8.1 million in January and we have $336.9 million outstanding.
Your next question comes from Aaron Watts - Deutsche Bank.
Aaron Watts - Deutsche Bank
Maybe just one follow-up on the convert question; Lucy, you talked about the cushion that you have in your covenant test which I think is great going into this year. Are you comfortable though, as you roll into 2010, that if you do have to refinance these converts and coming off what’s expected to be a tough ‘09 that you still have enough cushion there or do you think that’s something that’s going to be a concern at that point?
Well, a couple of things happen in 2010 as everybody well knows. One is political starts to come back. The other thing is we have some of our retrans agreement that come up for renewal in this year, as well as some big ones to come up at the end of 2009. So we expect to have some revenue benefit from there too.
Aaron Watts - Deutsche Bank
Okay and then maybe one question on auto. If you could maybe just talk about it as we’re now in February. After the initial shock of sort of the adjusting to the new environment at the end of last year, can you talk about what reaction you’ve gotten from your dealers on the local level? Are you seeing any of that spending return or not and is most of the decline you’re feeling coming from the OEMs?
Well, obviously the report mentions first quarter down somewhere between 45% to 50%, with a couple to 3 points of that attributed to the Super Bowl. Obviously, the first six months of ‘08 was dramatically different in that category than the back half of ‘08 and as we get further into the year and we start going up against different numbers, I would expect that the pace of minus 45 to 50 will get better for us as we go further into the year and go up against our own numbers.
It’s a category that obviously is troubled right now, in terms of seeing positives. The interesting thing about how the business is being placed right now and why it’s difficult to forecast is that the phone rings without warning. So buys are coming down for automotive, recently, which is a good sign. They weren’t expected because the planning of it is being done at the last second.
So it’s hard to give careful guidance on where this is going to go but judging by the back half of the year, we’re confident as we go further into ‘09, these pace points will be better than what you see for the first quarter.
Just one follow-on to that. As you may be aware, the Senate recently voted and passed on an automobile stimulus package for the consumers that I think it was around $11 billion tax rebates and essentially what the Senate bill is attempting to do is to provide interest deductibility on loans as well as taxes, tags and title costs for the purchase of automobiles.
To the extent that that passes through the house and becomes part of the stimulus package, we would I think be hopeful that automobile dealers would then look at that and try and take advantage of getting people into the stores to buy and I also believe that our relationship with the car dealers suggests to us that people want to buy cars. The problem is the availability of financing at this point in time.
So as soon as that starts to crack open a little bit, I would like to think that the car business will return to some level of normalcy.
Aaron Watts - Deutsche Bank
Okay, that’s helpful. Then a last one from me, more of a big picture question, maybe for David. Obviously, in some of the industry rags and more recently in some of the main stream publications, there’s been a lot written about the future of local television and I was hoping maybe you could just give us your most recent thoughts on the networks reaching out for their piece of the retrans, the networks going around local TV, working directly with cable providers and then maybe also just people in general, viewers in general watching television online as opposed to through your station signal.
Well, I think we can address that in a broad sense by I’m going to ask Steve the question, because he kind of watches this stuff on a daily basis. If you were to look at our ratings in some cases, in some of our larger markets, again I’m asking Steve the question, do we see any evidence that there is a transfer of over-the-air to internet?
I think there is a misnomer out there and there’s this constant barrage of press, talking about how local television stations and news operations and things like that are just not being watched anymore and what I would encourage you to do is to test that by simply pulling rating books from Nielsen and looking at the evidence.
We’re not sure why they’re saying all these things, unless it’s intended to create the impression that there’s a gigantic business out there that’s waiting to evolve and is going to mature into something beneficial, but it seems to we light of reality that in a huge number of our markets our ratings have increased. So, I’m not sure how they’re increasing if everybody’s going to cable and/or the internet to watch television, so I don’t buy the premise at this point in time in history. It just doesn’t seem to hold water.
1With regard to the larger issue of the networks moving to cable, they’ve been talking about doing that for years as a possibility. I’m not sure that that business model works. Frankly, they’ll have to make that decision at some point in time in the future. My sense is if hypothetically the networks were to move to cable tomorrow as a full time business, the local television stations might look upon that as a great opportunity because essentially they have one less competitor to deal with in the local marketplace.
So I’m not sure if the notion of moving to cable as a full-time channel is all it’s cracked up to be but we’ll have to wait to see how it evolves over time.
Your next question comes from Edward Atorino - Benchmark.
Edward Atorino – Benchmark
You’ve been buying stock pretty regularly. Have you continued to do so, so far in ‘09, if I looked correctly and what is sort of your appetite for buying in shares at this level? Second, regarding the statement you said I think I heard Jeff Zukerman say it might be five to ten years before that issue surfaced, so we’ll see how it happens.
Ed, as far as the buyback approach, certainly I tried to make a point there about the 131% yield on our free cash flow based on today’s price. How more inviting could a stock price be than something that is that far out of balance?
So the reality is we’ve been in a quiet period pretty much of ‘09. We have the maturity issue relating to the 3s as a priority and we’ve been trying to balance the limitation in our resources, the $80 million that’s available to us under our revolver versus what we see as nothing but tremendous opportunity in the market right now for both our equity and our debt at these just tremendously discounted values.
Edward Atorino – Benchmark
I take that as you have not bought any stock so far this year?
No, we went through that list, everything that we’ve done this year and it was the 3s that you saw that we took care of earlier in January.
Your next question comes from Avi Steiner - JP Morgan.
Avi Steiner - JP Morgan
Two quick questions hopefully. Number one, could you just remind us what the RP basket and if you don’t want to give that number out. Just confirm that it’s big enough to continue buying back the 3% notes in the open market, at least as much as you can do within the constraints of your balance sheet and secondly just on the business side, can you talk about what impact if any comes from News Corp’s division to change programming strategy on MyNetworkTV. Thank you.
On the RP basket, you’re correct that it is well in excess to handle the 3%, the 4% and past that.
As far as the My Network Avi, the deal first of all doesn’t take effect until the fall. So nothing much changes for the next nine months. Everybody knows this is a work in progress. The network people should not forget; it’s barely two years old; it’s still in its infancy, still trying to find its place and quite frankly, what they really amount to on this announcement is cutting back from six days to five days. Wrestling still stays as everybody knows.
They’re still going to be doing a movie which they’ve been doing twice a week, presently. So given their state as we exist right now, it will have next to no effect from a revenue standpoint and given the state of the economy, they’re doing things that they feel is necessary to keep them afloat. So it’s still better than a work in progress and that’s where we’re at with it. From a revenue standpoint, the short term will have zero effect on us.
Your next question comes from Michael Meltz - JP Morgan.
Michael Meltz - JP Morgan
Can you give us a sense on the ad pacing outlook for Q1, how is that pacing by month; and then secondly, what’s your retrans expectation for growth in ‘09 please?
Well, I don’t have the monthly figures in front of me. We are on par to hit the number very close to it that we budgeted for January actually. Without having the number in front of me, I know we over achieved the January number by a nice little cushion. February we’re going up against all of those Super Bowls. We did budget accordingly but we are just a little bit behind pace in terms of our budget for on Feb and have to make up just a little bit of ground for March.
Now, what’s interesting about the pacing; we’re in a different world right now. Business is being placed at the very last second, so what’s encouraging for us is that we finally lapped the Super Bowl. So as we said in our briefing this morning, we had 20 Super Bowls last year compared to one this year. A lot of the money was placed late last year, so we were going up against that pace. As soon as we lapped that pace, we began to take off in terms of our expectations.
So I think we pegged the number pretty strong, pretty good. We’re right at it, we’ve got a real good chance at being at it and although I don’t have it in front of me month by month, we’re exactly where we had hoped to be at this particular point.
Michael Meltz - JP Morgan
Retrans in ‘09?
Retrans in ‘09, we expect to see improvement over ‘08 like Lucy had mentioned earlier. We have a number of negotiations that are taking place this year so it wouldn’t be prudent to be talking too much about that as specifics in regards to our retrans for ‘09 at this point.
Michael Meltz - JP Morgan
Do you expect to grow double digits, retrans?
We’re just really not working on it, disclosing that number at the moment.
Michael Meltz - JP Morgan
All right; two other questions for you. Can you talk a little bit more about the bad debt at the other divisions, what does that relate to exactly and is that something you expect to persist? Then secondly, in your kind of free cash flow assumption for 2009, are you anticipating to be much of a cash tax payer? What should we be modeling there?
Yes, I had mentioned earlier that there was really no impairment charges that we were incurring in our projects outside of television. Except for that bad debt which is not an impairment charge and that related to what we anticipate as a failure, a bankruptcy on one of our companies that we had made an investment in, the real estate developer as they sit on some very tough times and as a result he’s gone belly-up on us.
Although we procured the security we don’t know if we’ll be able to actually see anything come back in our direction, simply because the values have dropped so much and the banks having that first line in front of us. So we’re just taking a bad debt hit on that one.
Michael Meltz - JP Morgan
Is that a one-time event in your eyes, the $3.9 million?
Yes, absolutely. We just wrote the whole thing off. Hopefully we’ll pick up something but we’re not anticipating that we’ll end up with anything out of that particular investment. There was another part to your question?
The cash taxes for ‘09, we currently expect a minimal refund for ‘09. Nothing material though.
(Operator Instructions) Your next question comes from Marci Ryvicker - Wachovia.
Marci Ryvicker – Wachovia
I think I have two questions. The first is do you view delay in the digital transition as a net positive or a net negative? Then secondly, can you update us on progress with the open mobile video coalition?
Yes, sure. We are in the process of and we have requested a waiver on the digital transition so that we could move forward and go ahead and transition and drop our analog signal. We’re waiting for the President’s signature or an SCC approval on that matter. So we think that the public has been informed and looked at it as let’s continue to move ahead with the plans that we have. As far as the open mobile video coalition…
Let me respond to the open mobile. I think where we are, just as kind of a broad brush is that the technology side of it is moving quickly to be completed and I think the industry collectively is in discussion about where the business models are and the opportunities to produce revenue off this thing.
As you’re going to hear for a while as to work in progress, we would expect possibly this year; if not this year, probably next, that phones could very well start to be equipped with over-the-air television receivers in them. Just some technical nuances have got to be worked out through the standards committee and various other places, but the reality is it’s on track and it’s moving.
Ladies and gentlemen, there are no further questions at this time. I will turn the conference back over to management for closing comments.
All right. Well, just wanted to say thank you everyone and from our comments this morning we wanted you to recognize that we’ve been quick to address the recession’s impact on our company by taking appropriate cost cutting measures, scaling back our investments, programs and the suspension of our dividend in an effort to preserve our liquidity.
‘09 will be a difficult year, but we remain confident in television’s longer term fundamentals and viability and as always we thank you for participating on our earnings call and if anyone has any additional questions, please feel free to contact us. Thank you.
This concludes today’s teleconference. You may disconnect your lines at this time. Thank you all for your participation.
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