Belo Corporation Q3 2009 Earnings Call Transcript

| About: Belo Corp. (BLC)

Belo Corporation (NYSE:BLC)

Q3 2009 Earnings Call

November 3, 2009 12:30 PM ET

Executives

Paul Fry - Vice President Investor Relations

Dunia A. Shive - President, Chief Executive Officer

Dennis A. Williamson - Chief Financial Officer & Executive Vice-President

Analysts

Michael Meltz - J.P. Morgan

Edward Atorino - The Benchmark Company

Bishop Cheen - Wells Fargo Securities

John Kornreich - Sandler Capital

Edward Atorino - The Benchmark Company

Ken Silver - Royal Bank of Scotland

Grange Johnson - LaGrange

Dennis Leibowitz - Act II Partners

Michael McCaffery - Shenkman Capital

Andrew Finkelstein - Barclays Capital

Operator

Welcome to the Belo Corp Third Quarter Earnings conference call. (Operator Instructions). I would like to turn the conference to our host Mr. Paul Fry.

Paul Fry

Thank you Trisha and good afternoon. Welcome to Belo’s third quarter conference call. We issued press releases today, one announcing the company’s third quarter 2009 earnings and another announcing a proposed financing transaction due to Safe Harbor restriction, as we will be unable to answer any questions today relating to the financing.

Please refer to the releases posted today for any questions related to the topic. These releases have been posted to our website at www.belo.com.

Today’s call will include comments from Dunia A. Shive, President and Chief Executive Officer and Dennis A. Williamson, Executive Vice President and Chief Financial Officer.

Before Dunia makes her opening remarks, let me note that our discussion will include forward-looking statements. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements. Additional information about these factors is detailed in the company’s press releases and public filings with the SEC including the annual report on Form 10K/A.

Also, reconciliations of non-GAAP financial measures discussed during this conference call to the most directly comparable financial measures presented in accordance with GAAP including the reasons we believe the non-GAAP financial measures provide useful supplemental information for investors, are posted at Belo’s website www.belo.com under investor relations. Now, I’m pleased to turn the call over to Dunia.

Dunia A. Shive

Thank you Paul. The company’s third quarter total decline at 17.7% was an improvement over the second quarter’s revenue decline of 23% and is noteworthy given the significant political and Olympics revenue generated in the third quarter of 2008.

Spot revenue excluding political declined 16% in the third quarter of 2009, an improvement from the 28% decline experienced in the second quarter of 2009.

When factoring out the Olympics impact in August of 2008, monthly percentage declined from the company's core local and national spot revenue had improved sequentially from May through October. Much of the improvement is due to better advertising conditions in our core Texas market.

The company's combined station and corporate operating cost decreased 9% in the third quarter of 2009 compared to the third quarter of 2008 due primarily to cost effecting measures implemented over the past year.

The company generated $35 million in consolidated EBITDA in the third quarter of 2009 and reduced its debt by $27 million during the quarter.

Retransmission revenue totaled $10.6 million as third quarter of 2009 and represented 7.5% of the company's total revenue for the period. The company expects to achieve approximately $41 million in full year retransmission revenue.

The increase in retransmission fees is due to contractional growth rates included in existing agreements, the full year affect of negotiation completed in the past year, and continued growth in subscribers of across cable, satellite and teleco distribution systems.

The third quarter of 2009 included a non-cash impairment charge of $242 million, $155 million net of tax reflecting a reduction in the fair value of the company's FCC licenses.

The charge was determined during Belo's quarterly impairment testing of goodwill and other intangible assets using the methodology prescribed by Generally Accepted Accounting Principle.

A non-cash impairment charge will not affect Belo's liquidity, cash flows from operating activity for that covenant or have an impact on the company's future operation.

We all can talk about Belo's marketing leading television stations and the attractive growth market they have. According to the Nielsen DMA market rankings released in August, private Belo’s television markets improved their market rank, which is based on television households and no Belo’s market declined in rank.

As a result, all of Belo’s markets are now ranked in the top 13, also significant when you combine all of Belo’s television markets. The number of television households grew 1.2% according to Nielsen, three times and 44% national average.

In the July ratings period, our television stations enjoyed strong performances once again finishing number one or number two channel-to-channel in 12 to 15 Nielsen rated markets.

Today, the Company announced it is nearing the completion of an amendment to its bank credit, the effectiveness which will be subject to the completion of a separate financing. The Company currently expects the amendment to be completed and effective at the end of November.

The company will use proceeds of the separate financing to reduce the outstanding balance and commitments of its current $550 million credit facility.

Although Belo was in compliance with the terms of its credit facility at quarter end, the contemplated amendment is expected to allow for additional capacity under the credit facility’s leverage and interest coverage covenant and also to extend the term of a portion of the commitment under the bank credit facility from June 2011 to December 2012.

When finalized, the extended credit facility is expected to provide for increasing pricing based on the company’s leverage ratio and other modifications to the existing agreement.

In summary, we're encouraged that advertising conditions appear to be improving. Looking to 2010, we will have the Super Bowl on our CBS Station and the Olympics on our NBC Station.

Together with an improving economy and a strong political performance, we are optimistic that Belo will deliver revenue growth in 2010 over 2009.

In the meantime, we continue to remain focused on revenue generation, managing expenses and reducing debt.

Now, I’ll turn the call over to Dennis to provide further details about our third quarter results.

Dennis A. Williamson

Thank you Dunia. Belo today reported pro forma earnings per share of $0.05 in the fourth quarter of 2009 inline with analyst's estimates, compared to net earnings per share of $0.14 in the third quarter of 2008.

Pro forma earnings per share in the third quarter of 2009 exclude a non-cash impairment charge to intangible assets. Including the non-cash impairment charge to intangible assets, the GAAP net loss per share for the third quarter of 2009 was a $1.47.

Total revenue decreased 17.7% in the third quarter of 2009 versus the third quarter of 2008. Total spot revenue including political was down 21.5% with 15% and 18% decreases in local and national spot respectively.

Third quarter 2009 revenues were affected by the soft advertising environment particularly in the automotive category, which was down 36% compared to the third quarter of 2008. The 36% decline however is an improvement from the 50% plus decline experienced in the first half of the year.

We were also pleased to see the recent earnings announcement from the Ford Motor Company, another example of the automotive industry is beginning to show signs of recovery.

Political revenue of $2.1 million in the third quarter of 2009 was $9.6 million lower than the third quarter of 2008. Olympics revenue totaled $9.7 million in the third quarter of 2008.

Most advertising categories were down in the third quarter of 2009 versus the third quarter of 2008. However some categories that were up included grocery and food products, healthcare and professional services.

Advertising revenues associated with Belo's website decreased 7.2% to $7.4 million in the third quarter of 2009.

Total station expenses decreased 11% in the third quarter of 2009 versus the same period last year due primarily to the continued implementation of cost-saving measures.

Station EBITDA in the third quarter of 2009 was down 29% versus the prior year. The stationed EBITDA margins for the third quarter of 2009 was 31% compared to 36% in the third quarter of 2008.

Corporate operating costs were $7.7 million in the third quarter of 2009 compared to $6 million in the third quarter of 2008.

The increase was due primarily to higher non-cash share based compensation expense associated with the company's increased stock price and a decrease in the credit to pension expense.

Belo depreciation and amortization expense increased 4.5% to $11.5 million in the third quarter of 2009, up from $11 million in the third quarter of 2008. Interest expense decreased $5.5 million or 27% in the third quarter of 2009 versus the third quarter of 2008, due to the impairment of $350 million of 8% senior notes last November from borrowings under our revolving credit agreement, which carries a lower interest rate.

Other income net decreased $1.2 million in the third quarter of 2009, due primarily to a loss on the sale of certain non-operating assets.

Income tax expenses decreased $93.2 million in the third quarter of 2009, due primarily to an $87 million tax benefit associated with the aforementioned impairment charge.

In September, Belo and A. H. Belo's Corporation amended the tax matters agreement executed between the two companies at the time of the spin-off of A. H. Belo in 2008.

The amendment allows for the carry back of A. H. Belo's loses generated following that spin-off to Belo's pre-spin tax returns.

After the tax matters agreement was amended, Belo' amended a previously filed tax return to generate a $12 million federal income tax refund. Belo will apply the refund towards A. H. Belo's future pension obligations to the Belo-sponsored pension plan. The refund is expected to cover any 2010 contributions required from A. H. Belo. Corporation.

Total debt at September 30, 2009 was $1.042 billion, a reduction of $50 million from December 31, 2008. The company's leverage and interest coverage ratios as defined in the company's bank credit facility were 5.6 and 3.0 times respectively at September 30, 2009.

The company invested $1.7 million in capital expenditures in the third quarter of 2009, down from $3.6 million in the third quarter of 2008. Capital expenditures for the year are expected to be less than $10 million.

And now, I’ll turn the call back over to Dunia.

Dunia A. Shive

Thank you, Dennis. Looking at the remainder of the year the company’s core local, and national spot business in October 2009 finished flat with October of last year partially as a result of the crowd-out effect on 2008 core business from political advertising.

For the fourth quarter overall, we expect the percentage decline in core local and national spot business to improve from the third quarter of 2009.

However, because of $35.9 million in political revenue generated in the fourth quarter of last year, the company’s total spot revenue percentage decline in the fourth quarter of 2009 will be higher than the percentage decline experienced in the third quarter of 2009.

Excluding spin-off related charges, full year 2009 combined station and corporate operating cost are expected to be approximately 13% lower than 2008, an improvement from previous guidance.

Full year corporate operating cost from 2009 are expected to finish around $31 million, an improvement from 2008 corporate operating cost excluding spin-off related charges. We will provide an update on the company's fourth quarter outlook at the UBS Conference in New York City in December.

This concludes our formal remarks and we will be glad to answer any questions you may have.

Question & Answer session

Operator

(Operator Instructions). Our first question comes from Michael Meltz - J.P. Morgan.

Michael Meltz - J.P. Morgan

I think I have three questions for you. Can you give us the balance, I apologize if I missed it here. What was the existing borrowings on the revolver at quarter end and then per the grid what are you paying currently?

Dennis A. Williamson

The total drawn on the revolver was about $420 million at quarter end and I think we are paying LIBOR plus 4.50 I believe or it might be 4.25.

Michael Meltz - J.P. Morgan

In terms of what you’re seeing in the fourth quarter, can you just clarify, your saying you expect to be down less than 16% at the end of the third quarter, is that the right comparison?

Dunia A. Shive

Yes. Local and national stock, we were excluding political in those comparisons.

Michael Meltz - J.P. Morgan

And you are saying you are flat in October. So can you tighten that up a little bit and give us a sense as to where you’re actually pacing currently perhaps or some other - just between 0 and down 16 and how should I be thinking about it?

Dunia A. Shive

We didn’t provide any further guidance. With October being flat, even though there was some crowd out from political last year, I think you can take that as a positive sign of the fact that we’ve had sequential improvement every month since May.

I would also take as a positive that we did not provide any guidance between that range obviously we expect the quarter as a whole to improve with October being flat.

Michael Meltz - J.P. Morgan

It appears to say November is not flat?

Dunia A. Shive

I think it's honestly too soon to give any projections on November, a lot of business is being written inside the month. We are taking reports everyday and I see some pick up in the pacing everyday.

So it's difficult to project that so much business is written within the months, it's hard to get a good gauge at this point. We feel good about the trends we're seeing Michael.

Michael Meltz - J.P. Morgan

It looks this might just be a rounding issue, was retrans down sequentially?

Dennis A. Williamson

No.

Michael Meltz - J.P. Morgan

It wasn't okay.

Dennis A. Williamson

From second to third?

Dennis A. Williamson

It should not have been. No, I don't believe so.

Michael Meltz - J.P. Morgan

And then my last question for you. Any update on ABC Agreement?

Dunia A. Shive

Sure. I'll give you a brief update. I don't think there is any secret that the networks look for some sort of a reverse payment from the affiliate and as for ABC, well I can't get into specific because we're in the middle of negotiations.

I do expect to reach an agreement with ABC to renew our affiliation agreement and I expect the ultimate terms that we agree to financial or otherwise to be manageable for the company.

Operator

Your next question comes from Edward Atorino - The Benchmark Company

Edward Atorino - The Benchmark Company

I had a question on cable, maybe I got a wrong number in 2Q '09, but I have 11.4 in 2Q '09 and 10.6 in 3Q, maybe I got a wrong number in 2Q '09.

Dennis A. Williamson

No you've actually got to right. I was looking at a net number on the retrans and so correct that. We actually had an entry in second quarter that was a whole that it should have probably been booked in first quarter but we were still negotiating a contract.

Edward Atorino - The Benchmark Company

There has been a lot of talk that things are getting better, could you talk about some of the categories that you’ve seen get better and to what extent your seeing auto share up in there?

Dunia A. Shive

I will take about auto for just a minute. If you look at the first half-year as we mentioned in our prepared remarks, auto in the first quarter was down about 50%, the second quarter it was down about 53%.

We mentioned third quarter down in the 36% to 37% range and based on current pacing; fourth quarter will finish better than that. The current pace is in the mid 20s range and I would expect it to improve from that level.

Dennis mentioned in his remarks that with respect to categories in the third quarter, most categories were down with the weakest being in auto, entertainment, financial services and retail. Looking at October, the only month that I have some information on, there were actually several categories that were up that would have included categories like restaurants, furniture, healthcare, department stores, financial several categories that were in the plus territory.

Auto home improvement entertainment continued to be weak for October and those were fairly large categories, but we're encouraged by the number of categories that actually were in the plus column in October.

Edward Atorino - The Benchmark Company

If Dallas is anything like New York, you must be seeing political money and we're getting tired of seeing Bloomberg and those other guys on television here, what are you seeing down in Texas in terms of political in the fourth quarter?

Dunia A. Shive

Nothing in the fourth quarter yet.

Edward Atorino - The Benchmark Company

Really?

Dunia A. Shive

No.

Edward Atorino - The Benchmark Company

Well, you cannot tune the tube without seeing these ugly people on television or anyone.

Dunia A. Shive

Some detectives won't see anybody.

Edward Atorino - The Benchmark Company

Well, my next question. In the press release, it talks about what seems to be a jump up in costs on operating expenses in the fourth quarter that seemed a little bit surprising to me. Can you comment a little bit?

Dunia A. Shive

Ed, forgive me third quarter or fourth quarter?

Edward Atorino - The Benchmark Company

Fourth quarter.

Dunia A. Shive

No, we didn't talk about fourth quarter specifically. What we said is that for the year our operating cost will be down 13%.

Edward Atorino - The Benchmark Company

Yes, I did the math on that and it looked like the fourth quarter - maybe just higher than was estimated anyway.

Dunia A. Shive

Yes, and if you look at first half of the year, I think we were down in the 12 to 13% range, it's 9% and we’re saying it for the year it would be in the 13% range.

Operator

Your next question comes from [Barry Lucas].

Unidentified Analyst

I know you can't say much of anything about the new deal. Maybe I could just try to ask a couple of questions around the edges there. Can you talk about why the deal might be the size that it is? How much of the revolver you would like to term out here versus how much you'd like to extend?

Dunia A. Shive

I guess we put in the release that we would - $250 million to $275 million range and I can only refer you to the release with respect to those numbers. But if you remember back in November of 2008, we had $300 million of notes outstanding - $350 million I believe in notes outstanding and we took those in under the revolver and it was always our intention to go back into the marketplace and refinance a portion of those notes and that’s essentially what we’re doing. It's less than the $350 million.

Unidentified Analyst

And maybe as it relates to the revolver and your talk about extending that to the end of 2012, can you talk about why the end of 2012 is the time period? Are you limited by the 2013 bond maturity?

Dunia A. Shive

It tightens up to three years potentially, but I would, I think it's safe to assume that any agreement on the revolver wants that maturity to come before the 2013 but that’s four years from now.

Unidentified Analyst

Right, and is there any thought on addressing the 2013 in any way at this time?

Dunia A. Shive

Not currently.

Unidentified Analyst

Just one operational question. Started in the quarter you signed up for an affiliation agreement with LVI media's Australian network. Can you comment on how you think about your digital multi-task channels and how you might expect values from those?

Dunia A. Shive

Sure, I think when you look at our markets, we have several market that have high Hispanic population and we were looking for programming opportunities that might appeal to those Hispanic populations in our marketplaces and that was one of the program. If you look that, I believe we have it in five of our markets.

In several under markets, we have news operations, be it weather services or in [void] differences, a 24X7 local cable news channel.

So, we are looking at the digital multi-cast opportunities then to try to provide opportunities for, in our marketplaces that our viewers are after, in terms of maybe some program initiatives.

In addition to that however, what's important to us is to be able to have local opportunities using that digital spectrum, we are active member in OMBC, we are working with many groups on looking for, working on business models for mobile opportunity and believe that we can provide valuable programming to consumers free over the year using their mobile devices.

So, to me that’s probably the biggest opportunity right now in terms of use of the digital spectrum but in the interim will be looking for ways to provide programming services to the viewers in our market in addition to our main signal.

Unidentified Analyst

Do those multicast channels have a must carry rights with MSOs?

Dunia A. Shive

Well actually all of our agreements, we negotiate for multicast rights within each of our agreements. So it is not as if you could have retrans on your main channel and then a must carry on your multicast.

Unidentified Analyst

So that would be negotiated on a one off basis to get carriage for those?

Dunia A. Shive

Correct.

Unidentified Analyst

There was something in Wallstreet Journal last week about the government possibly looking to retain, claim some of that digital spectrum, and presumably they would pay the affiliate groups for that. Is that something that’s realistic?

Dunia A. Shive

There is a lot of talk about looking for alternative second for broadband and reclaiming a portion of the broadcast spectrum for that purpose. Honestly I think it's way too early to speculate as to the outcome.

Broadcasters just spent billions of dollars on the digital transition; they are talking about changing it all over again just a few months later is a concerning. But the spectrum we use had value beyond the financial value.

And that we reach nearly all households, we serve the public interest, and we provide timely emergency information to viewers.

I think also when you think about the investment consumers have made in digital receiving equipment, that could be marginalized if there were to take back that limited ability to for broadcasters to provide HD.

And then top of that, there are still consumers out there that rely on free over-the-air television and some of the ideas or some of the things that article or several articles that I have seen may put that at risk.

So we are not interested in cash per spectrum, we are interested in developing opportunities that we talked about just a moment ago that are recorded by the digital transition and the investments that we made in it like in mobile for instance.

Again, I think the talk about all this has just begun and we will work with our fellow broadcasters in the NAB to ensure that broadcasters get a fair hearing on this topic.

Operator

Your next question comes from Bishop Cheen - Wells Fargo Securities.

Bishop Cheen - Wells Fargo Securities

Let’s talk about leverage since I know that is clearly your heart. Your covenant leverage, I think you said on the call was 5.6 times. I think when we do our own non-adjusted calc that’s 6 times. Can you refresh my memory what goes back into the covenant leverage?

Dennis A. Williamson

You start with EBITDA and then you basically add back those non-cash items.

Bishop Cheen - Wells Fargo Securities

So it’s just mostly simple non-cash (inaudible).

Dennis A. Williamson

Yes. Pension expense, those kinds of items, you add them back.

Dunia A. Shive

To the extent of non-cash.

Dennis A. Williamson

So nothing exotic?

Dennis A. Williamson

It doesn’t sound like it. Comfort level, Dunia, you’ve been there through thick and thin, every season imaginable. Where is your comfort level to get your leverage within a range? It’s been a tough couple of years for everybody and including Belo. So as you look out and do the vision thing, where do you think you can get your leverage?

Dunia A. Shive

As far as where we think we can get it, as we’ve mentioned, our priority is on paying down debt. Obviously we’re coming off of a trailing fourth in 2009 that has been the worst that we've seen and any of the broadcaster seen in a long time and that's what has driven us to the 5.6 times.

So certainly I believe with what I see today and looking into 2010 and having getting political backend and having Olympics and Super Bowl, we should be able to de-leverage and then our focus would be continue to de-leverage overtime and get back in the territory and the four territories that we are operate today and many times before that we operated previous historically.

But we're certainly focused on delivering over the next couple of years, it's just that the 2009 certainly I think probably had the more dramatic effect than we've seen in than we ever seen actually in terms of what we did our leverage.

Bishop Cheen - Wells Fargo Securities

I doubt it's quick. So you talked about the next couple of years which certainly is at least are realistic framework and then once you do get the leverage down maybe it's not like you had it early in the decade with a [free-handle], but you get it down, it would seem to me below that. Isn't 5.25 times the magic number for you to be allowed to go back to a dividend policy?

Dennis A. Williamson

Yes, between I think it's 5 and 5.25 we could pay half of what we were paying before or up to half. That is an agreement.

Bishop Cheen - Wells Fargo Securities

Yeah, but it's not an average metric, in other words, it's not up to your average, it's year-in and year-out. And the nature of television what was political there is some data, some volatility to your leverage in and out of a political gear.

Dennis A. Williamson

Bishop, it is the way that language reads, it's a pro forma leverage after you would anticipate making a dividend announcement. So you have to calculate it perspectively and then you can't violate that 5.25

Bishop Cheen - Wells Fargo Securities

Right and pro forma for the dividend part is not averaging eight quarters, it’s only a trail in the fourth -

Dunia A. Shive

It’s trailing four quarters.

Dennis A. Williamson

That’s correct, trailing four quarters.

Operator

Your next question comes from John Kornreich - Sandler Capital.

John Kornreich - Sandler Capital

I have two quick questions. What are the cash taxes you paid so far this year and maybe you can give me a stab at it for the full year?

Dunia A. Shive

Dennis?

Dennis A. Williamson

Hang on a second.

Dunia A. Shive

So, I am going to keep looking at that.

John Kornreich - Sandler Capital

I also wanted to ask where is the headcount right now? What was it at the peak, which I imagine is probably late ‘07, or mid '07?

Dunia A. Shive

Paul will get that number. He'll pull the specific number, but it is about 12% lower than it was, probably 12 to 14 months ago, about 2600 FDEs. I'm sorry John, net total headcount, not FDEs.

John Kornreich - Sandler Capital

Total headcount you are saying is in the 3000 area 18 months ago maybe?

Dunia A. Shive

Probably, yes 29. I’ve done the calculation, it is about a 12% differential.

John Kornreich - Sandler Capital

This year were they any, because I don’t remember, was there a policy of unpaid furlough?

Dunia A. Shive

We did not implement furloughs.

John Kornreich - Sandler Capital

Okay, when you said the costs would be down 13%, those were operating costs not corporate, right?

Dunia A. Shive

That’s our total operating costs.

John Kornreich - Sandler Capital

So, does it exclude OH?

Dunia A. Shive

I'm sorry.

John Kornreich - Sandler Capital

Does it exclude overhead?

Dunia A. Shive

No, it is station-in corporate costs I believe we are in that number, John.

John Kornreich - Sandler Capital

Based on the expense savings that would be in place for the second half of '09 and therefore into next year, and based on your rough plans is it conceivable that even with the higher Olympic and political costs, your operating costs could still be down in the mid to high single digits next year?

Dunia A. Shive

Many of the cost reductions and hiring freezes and salary freezes that we implemented were done very early in the year.

Dennis A. Williamson

The other thing I would say to John is we have significant credits due to the Nextel purchase of our analog new gathering equipment replacing that with digital. And I think this year - well, 2008 and 2009 will largely offset each other, we’re expecting somewhere in that $8 million to $9 million range in this year as a credit.

Dunia A. Shive

On a comparative basis that will affect us in '10 but I do think it's important to say that '08 and '09 kind of wash each other out, that’s what really was driving us.

John Kornreich - Sandler Capital

Could operating cost be down at all next year?

Dunia A. Shive

I think it's too early for us to speculate on the operating cost, but John I will say this whatever we’re able to layer back in is dependant upon what happens in the revenue environment. So there are certain levers that we pulled, we had a hiring freeze, we had a salary freeze, we had management pay reductions, we had several other items on the operating expense line and the way that we layer those back in is largely dependent on revenue.

We certainly can't freeze people's salaries forever nor do we want to and we’re hopeful that we’ll have opportunities to layer some of those back in but we’ll be very mindful of the revenue environment in doing so.

John Kornreich - Sandler Capital

But if the revenue is up next year, as you project it will be, but solely due to every other year boost with the -

Dunia A. Shive

I don't know that I could say it's only due to every other boost I mean keep in line we’re coming off of 2009 in terms of core local and national. So we’re optimistic that we'll be able to see some growth in core business.

John Kornreich - Sandler Capital

Where are we in the cycle or retransmission revenues? Is this $40 million to $42 million also a good number for 10 or are you still in negotiations with some big players.

Dunia A. Shive

We have one large provider that comes up at the end of 10. We do already received compensation based on our cable channels, so it is not all incremental. But we have seen growth in subscribers as we mentioned and we do have escalators in the agreements we have today.

So, while we have had very large growth in terms of percentage over the last several years, I wouldn’t expect the same percentages, but I do expect that number to continue to grow.

John Kornreich - Sandler Capital

When you say you have a large player at the end of 10, once you reach an agreement, would that be retroactive to 10?

Dennis A. Williamson

The contract expires at the end of 10. And John, I will have to call you on the cash taxes, all I have are tax [extends].

John Kornreich - Sandler Capital

I want to also, I don’t know if this is really a comment or a question. But if you assume, that the core local and national in the fourth quarter would have come out flat. Doesn’t that suggest when you do the old 50% displacement rule that you are still down double-digits in the core? I think $30 million of the $36 million political, assume $18 million of it shoved aside some advertising?

Dennis A. Williamson

The only thing I would say to that John is that, most of that came in at about a 3-week window at the end of October. So, it is not going to that dramatic effect across the whole quarter.

John Kornreich - Sandler Capital

I understand that. One last just real quickie. Is this new offering that you announced, is this imminent, is this like happening tomorrow and is it a 144A?

Dunia A. Shive

John, I can only refer you back to the release again. We are not able to speak to it, but it did give a timeframe in terms of when we thought we would have this completed within a week.

John Kornreich - Sandler Capital

It’s either a 144A, it’s not a 144A.

Dunia A. Shive

No, it's not a 144A.

Operator

Our next question comes from Edward Atorino - The Benchmark Company

Edward Atorino - The Benchmark Company

Would you remind us in any way, the political and Olympic money in '06, was it $50 million or so?

Dunia A. Shive

Olympics generally run in the $8 to $10 million range. I think it was in the high 9's in '06 for Olympics and if I'm not mistake direction for '06, not '08.

Edward Atorino - The Benchmark Company

Yeah, the last time you have to same events.

Dunia A. Shive

Okay and that would have been $47 million.

Edward Atorino - The Benchmark Company

47 and 9?

Operator

Our next question comes from Ken Silver - Royal Bank of Scotland.

Ken Silver - Royal Bank of Scotland

One question on cost and I was just putting in my numbers and I think these are right. Your operating cost including corporate, looks like they were down about 9% year-over-year.

Dennis A. Williamson

That’s right.

Ken Silver - Royal Bank of Scotland

And then in the second quarter, they were down year-over-year about 17%. Was that was a big difference, did you, - were this certainly like anniversary going on of prior cost savings, what was the difference?

Dunia A. Shive

Actually, the second quarter was not 17%, it was 13%. And we mentioned this on the last question we had. We had the Nextel frequency relocation. There was a larger number for that in 2008.

Dennis A. Williamson

It was about $2 million. Those were about $3 million of credits in the third quarter of 2008.

Dunia A. Shive

And that’s impacting the percentage for '09.

Dennis A. Williamson

And then if you think about the operating corporate cost in this quarter, because of the non-cash share based comps and the pension expenses that variance, if you were to eliminate those two non-cash items, we would actually be down corporate expense. So it’s just the function of a non-cash entry in stock based comp and pension.

Ken Silver - Royal Bank of Scotland

I know you don’t want to talk about this new issue very much. Is the new debt going to rank high with the remaining bank debt or is that not that guaranteed?

Dunia A. Shive

No. I’m sorry. I really can't comment any further on that. I’m going to refer you to the information.

Ken Silver - Royal Bank of Scotland

And you said this is going to be a public filing, public view?

Dunia A. Shive

Yes.

Ken Silver - Royal Bank of Scotland

And just to clarify, the banks right now have guarantees and the bonds do not?

Dunia A. Shive

I really can't comment at all about the offering.

Ken Silver - Royal Bank of Scotland

No. Forget what the offering is. The existing bank deal?

Dunia A. Shive

Our existing bank deal has subsidiary guarantee.

Ken Silver - Royal Bank of Scotland

And the bonds do not? The existing bonds do not?

Dunia A. Shive

The existing bonds do not.

Operator

Your next question comes from Grange Johnson - LaGrange.

Grange Johnson - LaGrange

Just a question on general view towards equity. There have been a lot of questions around it. It’s, as I believe, maybe it was [Goldman], you had talked preference to not issue shares.

There has been talk on this call about reinstating dividend or not reinstating dividend. I just want to get a view. Do you view a convertible offering as issuing shares or not issuing shares?

Dunia A. Shive

The question is -?

Grange Johnson - LaGrange

You are doing the offering as a corporate offering. It could be a convertible bond. In my opinion that would be issuing shares. I thought the preference was not to issue shares.

I just want to get a better sense, I mean if you do a convertible offering, in my mind you are issuing equity, whether or not it's attached to a bond or converts a bond converts into it.

If you just do a straight debt offering, it’s a straight debt offering and you are not issuing shares. It’s, in my mind, black and white. So I just wanted to get your corporate view on that matter.

Dunia A. Shive

My corporate view is a convertible offering is issuing shares.

Grange Johnson - LaGrange

And then just to tie that in, what's your general view on, or if your stock has recovered from $0.50, but it’s still fairly low based on I think, what I view your prospects to be. And just wanted to get your view generally on equity buy backs versus dividends versus issuing convertible.

Dunia A. Shive

We don't have the ability under our bank agreement to repurchase shares.

Grange Johnson - LaGrange

But you do if you meet your covenants of ability to pay dividend.

Dunia A. Shive

Yes we do, we made our covenant. I'm speaking for corp facility.

Grange Johnson - LaGrange

And what about actually the issuance of shares via the convertible or straight equity offering?

Dunia A. Shive

Is your question, do we have the ability?

Grange Johnson - LaGrange

Your plans, desires, I mean the issue of shares. I mean better than $0.50, but $5 is still long way?

Dunia A. Shive

We've not had discussions about issuing shares.

Operator

Your next question comes from [Harry Dumas] - Knighthead Capital Management.

Unidentified Analyst

You mentioned so I have few questions about ABC and sort of reverse payment from where it was a long time ago. I'm just wondering what's the general ask by the networks these days in terms of reverse payment. They in fact were trying to grab all of your retran payments relative to a station or is it just sort of some part of that?

Dunia A. Shive

No I think I'll answer that generally because obviously we're on negotiation. Whether you want to call it reverse compensation or a part of retran, - programming payment.

You can call it several different things, but I think it’s really a mechanism for having the ability, which I believe share in the cost of programming and you call a negotiation.

I think it is fair to say that they’re not - at least from my perspective coming and saying 100% of the re-trends comes the other way.

It’s a negotiation, it’s a discussion and we expect to complete our agreements in a way that is manageable for - manageable for the company and continue the good relationships that we have.

Grange Johnson - LaGrange

But it is not some huge percentage of recurrence so far?

Dunia A. Shive

I really can't be anymore specific than how I’ve answered. We are in the middle of negotiations, so I really can't be anymore specific.

Grange Johnson - LaGrange

Okay. Either ultimately break that off or you will probably just - you will probably hide it somewhere in there?

Dunia A. Shive

We don’t hide anything - whatever we pay would be - if it were entertainment pack it would essentially be a programming expense.

Operator

Your next question comes from Dennis Leibowitz - Act II Partners.

Dennis Leibowitz - Act II Partners

I have a couple of questions, the stock is down 9% today and since the earnings were in line and presumably the financing is a plus, not a minus. It would seem to boil down to the streets interpretation that while Lynn and (inaudible) said their fourth quarter core bookings are actually up, you are looking for decline and I wondered, when you say that decline will be less, does that imply that you definitely expect a decline?

Dunia A. Shive

I'm not trying to give an implication of decline up or flat. What we're trying to do was give the market a sense that business is getting better and the trends are getting better and they have been since June and we ended up with October being flat and that given how difficult it is.

And I know others have given wide ranges as projections out there, but given how difficult it is in terms of trying to predict where November and December comes out, we are just saying things are getting better. We saw flat October and we'll give a further update in December at the UBS Conference.

Dennis Leibowitz - Act II Partners

So you're not projecting there will be a decline only that the trends are better?

Dunia A. Shive

I said what I said in the release in terms of the rate of decline being less than it's been. That’s doesn't guarantee its rate of decline but it doesn't guarantee that it's not, I'm just trying to give a trend statement to say that things are getting better.

Dennis Leibowitz - Act II Partners

Two other questions, on operating expenses did you say that the 13% for the year is an increased amount from the previous guidance?

Dennis A. Williamson

We had said 12% last time in the second quarter.

Dunia A. Shive

It's a little bit better.

Dennis Leibowitz - Act II Partners

Okay, and the last question. Can you say what capital expenditures are likely to be next year?

Dunia A. Shive

(Inaudible) We said under 10.

Dennis A. Williamson

Will be less than 10 this year.

Dunia A. Shive

If you were building a model, I've put 15 in, but I will say we have not finalized our capital plan.

Operator

Your next question comes from Michael McCaffery - Shenkman Capital

Michael McCaffery - Shenkman Capital

Just mechanically on the new issue, I just had a question as far as in the release it indicated that it was contingent, the new financing was contingent on getting the bank amendment complete, is that correct?

Dunia A. Shive

I'm sorry, could you repeat what you're asking?

Michael McCaffery - Shenkman Capital

I guess what I'm just trying to figure out is if we were to assume - if for some reason the amendment request does not go through, the bond deal will not happen then?

Dunia A. Shive

I expect the amendment request to go through.

Michael McCaffery - Shenkman Capital

Okay, well then with that said, as far as the timing expectation for month end, is that to have to the bank amendment done or the bank amendment and the financing done?

Dunia A. Shive

Like the minimum, it would have the bank amendment done.

Michael McCaffery - Shenkman Capital

On the extension request on the revolver, only going, if you're only going to push that out till the end of 2012 and then you are not wanting to address 6.75 notes as part of the new financing is that still going to leave you with work to do in 2012, 2013?

And I know just from previous discussions, there is some concern that there is going to be such a, there is so many companies that are going to be looking to refinance 2013 paper just from all the, it will be those refinancing from last three four years.

I guess I'm just curious of why you are not looking to push beyond that thick wall that the industry is facing?

Dunia A. Shive

We have, parts in time between now and then, we say that we would use the refinancing to pay down the revolver so would be a much smaller revolver, a much smaller drawn amount and over time we expect to continue to generate cash and reduce that and maybe within this period have the opportunity to generate cash.

There is only a $175 million outstanding by the time right now with the 2013 and its not big, they're would not if you will in terms of our projections looking at cash between now and '13 and the size of the revolver we expect to have and what we may have then to refinance under 2013 at the time.

And given the rate differential today, at least the expected rate differential between those rates on the 2013 and what might be on the marketplace today. We feel like it’s a manageable financing situation.

Operator

Your next question comes from Andrew Finkelstein - Barclays Capital.

Andrew Finkelstein - Barclays Capital

A couple of questions. One, I think Dunia, you mentioned that autos I think were pacing down mid 20s in the fourth quarter. Was wondering if you could maybe just give us a little bit more color there.

I kind of thought you were anniversarying on some pretty easy comps in auto and it looks to me like that would sort of imply no improvement or almost worst. So just wondering if you could talk a little bit more about where you guys see auto headed?

Dunia A. Shive

At the end of the fourth quarter last year, I believe I don’t have these numbers in front of me, I think auto was down about 35%. And the number that I gave the mid 20's is the pace today. Looking at it today, I would expect that to come down. I would expect it to improve as I go into November and December. I just can't predict what that number would be at this point.

So I'm comparing kind of a pace number as to where things are today versus an actual number for last year and I would expect it'd still have some business to book between now and the end of the year on the automotive side.

Andrew Finkelstein - Barclays Capital

I don’t know what you are hearing from sales people, in terms of what's coming back from the particularly the dealer community on understanding levels sort of anecdotally.

Dunia A. Shive

Well, there is good pick up in activity as you go back to the Cash for Clunkers program and certainly that helped improve the automotive category. It's hard to say by how much but that program ran most of July and August and we certainly saw improvements in those months.

But September auto comparisons for us were better than July and August when the Cash for Clunkers program was in place. And I think based on what I'm seeing, I think October will be better than September. So we used to, in the beginning of the year, the first half year some business was being put on but there were lots of cancellations. We’re not seeing that. What we’re seeing is and improvement week-to-week in the pacing of the business.

Andrew Finkelstein - Barclays Capital

And then it does seem like that there has been a little bit of movement in the corporate line, maybe (inaudible). What do you think is the right run-rate for corporate? I know last year the corporate was a little ahead in the fourth quarter of ’08. But what do you think the right run-rate is for corporate going forward?

Dennis A. Williamson

I think we’re looking at right now roughly $31 million in sales for this year. That does not have any planned bonuses in it. We were certainly not going to have any this year. So you would expect as we build a plan next year, we would build those back in.

And then as Dunia said, we have some modest restoration of some of the expenses reflecting compensation and benefits that we reduced in this year built into both next year and 2011 and frankly even 2012. Those will be subject to the then revenue generation that we see. And what I would say is maybe a sustained revenue generation that we might see.

I think it will be something north of $31 million, but at this point I’d have to take a little bit to give you a specific number but again I would add some kind of bonus number to that and some restoration cost to that.

Otherwise the hiring freeze is still on, the foot is still on the accelerator to drive cost out. So we may have offsets even if we do restore some of those expenses. All I could really point you to Andrew, is maybe north of $31 million for the year.

Operator

Your next question comes from [Harry Dumas] - Knighthead Capital.

Unidentified Analyst

Hey just following up on Andrew's question about the auto dealers, obviously you've seen tremendous displacement over the last year just in the auto category and some of that is you would hope temporary, but a lot of that given the restructuring that some of the big guys have gone through with their dealer network is more permanent.

Do you have any sense, if you take sort of two years ago as a base, how much of a decline of a typical base do you think is now sort of permanently build into that category versus I guess the sort of cyclical versus secular question for that one very large advertising category? Or are you making it up with national guys where you have lost local dealers?

Dunia A. Shive

I wouldn't say we're making up with national or local because local dealers are such a big part of our number as suppose to be maybe the networks where they have more a national player.

I think it's a good question when you think about automotive how much is secular versus how much is cyclical; it's a good question with a difficult answer. What I will say I think if you go back about three years ago they were selling about 17 million units a year and the advertising is directly tied to the number of units that were sold in this business.

And I think the projections for this year are in the $10 million to $11 million range, our number last week it's at about 10.5 million units.

So I certainly expect and I think most expect to see that $10.5 million unit number being higher than that next year there is an aging fleet of automobiles on the street.

So well I don't see us going back to 17 million, I certainly don't see it staying in this $10 million to $11 million range and I think that this trend will continue to be tied to the number of units that are sold.

So I do think a part what we've seen is secular, but I would say that most of what we’ve seen in 2009 at least in my opinion was tied to that decline in a number of units and has been more of a cyclical nature.

Unidentified Analyst

I guess thanks for that answer and I appreciate it. And I guess another way to look at it and I certainly don’t expect you to have the answer on this - would be to go back to take a look at your client roster at the beginning of 2008 and then compare it to your client roster going to 2010 and how many of those dealers don’t pick up the phone and how many of them are just gone?

Dunia A. Shive

It’s interesting because this goes back to the dealer closing. We actually did go look in each one of our markets and I headed them for - obviously for Chrysler and General Motors in terms of the number of dealer closings and while there were a number of dealer closings in our markets.

We also went back to see how big were they in terms of advertising with us and the dollar impact to us of those that closed was not that great because many of those advertisers either had already had substantially reduced their spend or were not advertising much at all in television more so of the local dealer.

So, that was not as big as an impact as one might have thought in terms of dealer closings, maybe more so in a market or two than others, but overall for us was not a large revenue number.

Dennis A. Williamson

Patricia, we have time for one more call.

Dunia A. Shive

One more question.

Dennis A. Williamson

One more question if it is in the queue please.

Operator

Your final question comes from Bishop Cheen - Wells Fargo Securities

Bishop Cheen - Wells Fargo Securities

Dunia, I'm wondering, the industry and you can speak for yourself, after going through all the torture of watching your largest category shrink, what has been done?

What are you guys doing to create a little more independence away from auto, what do you think the industry is doing and how far do you think any efforts have gotten and will get?

Dunia A. Shive

What I think is, as an industry, all of us as broadcasters have worked very hard on the new business development front and tried to reduce our reliance on automotive.

But we have to remember that at one point in time, automotive was 23%, 24% of most television station businesses.

And it's very difficult to change that overnight or even within a couple of years just because of the sheer size of the category overall.

But we as a company have been very aggressive in new business development, trying to bring advertisers on our air that had not advertised on air in the past.

Again, I think automotive is still a challenge, while things are getting better, it's a challenge and that is still down but as we work through this cycle, we’re going to continue to try to lessen our dependence on the category through other developmental effort to some degree but still would like to see a robust auto stand on all of the medium. It's hard for me to see it going back to the same percentage it was in the past.

Bishop Cheen - Wells Fargo Securities

Is technology an emerging contender to what auto has been to the TV business?

Dunia A. Shive

Right now there’s such a big gap between what auto has been and the next largest category. It would be difficult for me to call any other category a contender but as you know that automotive percentage have declined for everyone but it is still the largest category by a large degree.

Thank you. Thank you operator. I think we can all agree these have been challenging times but we feel good about the trends that we’re seeing and are positive going into 2010 with respect to the Olympics, and Political and Super Bowl and some pick up in the economy.

We look forward to providing you within another updated UBS conference in December. Thank you everyone.

Operator

(Operator Instructions). That does conclude our conference for today. Thank you for your participation, thanks for using AT&T's Executive Teleconference Service. You may now disconnect.

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