Mediacom Communications Corp., Q3 2009 Earnings Call Transcript

Executives

Rocco B. Commisso - Chairman and Chief Executive Officer

Mark E. Stephan - Chief Financial Officer, Executive Vice President

John G. Pascarelli - Executive Vice President of Operations

Analysts

Michael Pace - J.P. Morgan

Jason Bazinet - Citi

Richard Greenfield - Pali Capital Research

Tuna N. Amobi - Standard & Poor’s

David Joyce - Miller Tabak & Co.

Jason Kim - Goldman Sachs

Mediacom Communications Corp. (MCCC) Q3 2009 Earnings Call November 6, 2009 10:30 AM ET

Operator

Welcome ladies and gentlemen to the Mediacom Communications Corporation third quarter 2009 conference call. (Operator Instructions). With us today are Mr. Rocco B. Commisso, the Chairman and Chief Executive Officer; Mr. Mark Stephan, the Executive Vice President and Chief Financial Officer; and Mr. John Pascarelli, the Executive Vice President of Operations.

I would at this time like to turn the call over to Mr. Stephan.

Mark E. Stephan

Good morning and welcome to our third quarter conference call. This morning we issued a press release detailing our results, and before I begin, I'd like to say that in our call today, we will be making statements about expected future events and financial results that are forward-looking and are subject to risks and uncertainties. Please see the reports and documents we file from time to time with the SEC including our Annual Report on Form 10-K for a description of the risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements.

We have made disclosures in our press release and will make comments on this call that reference non-GAAP measures. In our press release, we provide a discussion regarding our use of non-GAAP financial measures and a reconciliation of such measures to their most directly comparable GAAP measures.

Also note that we have presented certain pro forma financial and operating results on a comparable basis to reflect the February 2009 divestiture of non-strategic cable systems under the previously announced Morris transaction. This transaction was structured as a tax free exchange under which we exchanged the shares of a wholly owned subsidiary that held cable systems serving 25,000 basic subscribers and a total of 51,000 RGUs along with $110 million in cash for about 28.3 million shares of our Class A common stock held by affiliates of Morris Communications. This block of shares represented 30% of our then outstanding stock.

When we discuss among other things, growth in RGUs, revenues and adjusted OIBDA in this conference call, it is based on pro forma results. Please see tables eight, nine, and ten in our press release to help you understand the pro forma presentation.

With that covered, let's turn it over to Rocco for his opening remarks.

Rocco B. Commisso

Good morning everyone and thank you for joining us again. Against the backdrop of a difficult economy and an increasingly competitive media market place, I am pleased to report that in the third quarter, Mediacom continued to produce solid financial results and is on track to deliver record-setting free cash flow for 2009. We also tapped the credit markets in this past quarter effectively de-risking our balance sheet for several years to come. However, we are not happy with our RGU growth this quarter. We continue to feel the effects of the recession. What is alarming us was an increase in aggressive price discounting by satellite backed by heavy marketing campaigns. Most of our basic subscriber losses were video only, not that we want to lose any customers at all. We are going to stay focused and trying to keep a good balance between unit gains and cash flow growth.

Even with this weaker than expected RGU growth this quarter, I am still pleased with our performance given the tough economic and competitive conditions and let me list them why.

First, our year-over-year per forma growth in revenues are 4.8% and in adjusted OIBDA of 5.3% are among the highest reported by public cable and telecom company. While I have frequently talked about the resilience in the cable business during good and bad times, nevertheless they made their own records of never having had a year-over-year down quarter in revenues since we bought our first cable system in 1996. Few are those industries or companies that could make that statement over the past 13 years, not mighty Microsoft or Apple, not HMT or Verizon, not GE or Coca Cola.

We have stayed focused on free cash flow generation. Year-to-date we produced $83 million in free cash flow compared to just $2 million in the same period last year representing already $1.15 per basic weighted average share and on target for our free cash flow per share guidance of $1.30 for 2009.

Our success in delivering this dramatic free cash flow growth is expense control, making smart capital investments, and actively and successfully managing our capital structure. Investments in our people and our own networks and the leverage systems continue to generate our returns for us. Better network performance is turning into serious cost savings and a much improved cost lowering experience. The service quality has seen dramatic improvements along with greater partner activity and cost savings. Likewise, we’re seeing greater efficiencies in capital investment.

For the first 9 months of this year, capital expenditures have been reduced by 23% representing about 15% of our revenue compared to 21% of our revenues last year. Also, for the first 9 months, our after tax un-levered free cash flow represented 22% of our revenue, a dramatic turn-around than just a year ago of as good as 16%.

Our cost of capital is a big part of our free cash flows. Our relevant debt cost remains one of the lowest in the cable industry despite the fact that we are not an investment grade company. Our cash flow growth in addition to our debt reduction via free cash flow generation has permitted us to reduce our debt leverage despite the fact that we borrowed $110 million in the first quarter from the Morris transaction which allowed us to acquire 30% of our shares outstanding.

We opportunistically accessed the credit markets in the third quarter refinancing senior notes maturing in the 2011 to 2013 window with new senior notes and a term loan that matures in 2017-2019 timeframe. Pushing out the debt maturities well into the future, we have a lot of balance sheet risk off the table while providing us with annual interest cost savings of more than $8 million to the free cash flow line.

We continue to enjoy significant liquidity in this tough credit environment, our $518 million in the news and available credit lines in addition to our $70 million in cash in our balance sheet gives us plenty of financial flexibility.

Lastly, let me close by saying that I am confident that our business will continue to show resilience in a very sluggish economy, and we feel pretty good about the direction we are heading. We see that we can demonstrate sustainable growth in free cash flow and one that will lead to greater shareholder value.

With that, I will turn the call over to Mark.

Mark E. Stephan

In the third quarter, we delivered good financial results in spite of difficult conditions. As Rocco noted, revenues grew 4.8% and adjusted OIBDA rose 5.3%. This led to our record free cash flow for the year-to-date period amounting to $82.8 million compared to free cash flow of just $2 million for the same period last year.

We continued to see soft customer demand because of poor economic conditions. We also saw competitive pressures from satellite providers intensify. They ratcheted up their price discounts and it was backed by heavy marketing. This caught up to us and hampered customer growth in the third quarter.

On a pro forma basis, we grew 6000 RGUs compared to 68,000 third quarter of last year. Year-over-year RGU growth was still heavy, 3.7% and revenue per basic subscriber rose by 6.8% to $95.19. Pro forma growth in third quarter video revenues was 2.5% mainly due to customer growth in digital and other advanced video services. We lost 19,000 basic subscribers in the third quarter compared to 3000 gain in the prior year and our year-over-year loss was 36,000 representing a 2.7% decline.

Our pro forma quarterly digital ads were 7000 compared to 24,000 in the prior year period but we grew 8.5% on a year-over-year basis or 52,000 digital ads. Our high-speed data services performed much better than video in this weak economy. Pro forma high speed revenues were up 10.1%, largely fueled by 7.3% year-over-year gain of 52,000 HSD customers.

Our unit growth in the third quarter was 11,000 HSD customers against the 24,000 gain in the prior year period. Pro forma of phone revenues grew 22.3% mainly driven by 16.1% year-over-year growth in phone customers and to a much lesser extent higher unit pricing. We saw unit growth of 7000 in the quarter versus the 17,000 gain in the prior year period.

Pro forma third quarter advertising revenues were down 15.6% and continued to be hit hard by local automotive advertising. As well, we are now facing in the second half of 2009 unfavorable comparisons with last year with its contributions from political spending. In fact, ad revenues would have been down only 11% if political ad revenue was taken out of last year’s revenues. Compared to the broadcast television market, our Mediacom ad group is still holding its own.

We continue to keep a tight reign on expenses in the third quarter. Our pro forma adjusted OIBDA margin showed improved over last year despite higher programming costs and we moved from 35.9% in the prior year period to 36.1%. Excluding non-cash compensation costs, pro forma third quarter total costs and expenses rose 4.5% for the quarter.

We continue to benefit from reduced service related expenses tied to lower customer activity and scale efficiencies and productivity gains in our call centers. This was more than offset by a 9.1% increase in programming costs which reflected the first-time cycling through of the Big 10 channel as well as retransmission consent renewals than went into effect at the beginning of this year.

Our interest expense line showed some improvement, thanks to lower market rates despite the additional debt we incurred in the Morris transaction. This expense declined 3% from the prior year period; it would have been better but we had some overlap of older 5.25 coupon swaps that expired at the end of the period. Looking forward with additional expirations of high coupon swaps together with new lower coupon swaps that are taking effect late this year and savings from the new re-financings, we expect to see our cost-to-debt to level out to less than 6%, and when the new swaps kick in later this year, our fixed rate debt as a percentage of total debt will settle around 70% versus the 58% we are currently reporting.

Now, let’s turn to our capital spending.

Third quarter outlays fell nearly 30% from the same period last year to $58 million. We saw reduced spending and customer activity, mostly CTU equipment, network upgrades and line extensions, but also made non-recurring investments in our high-speed and phone delivery platforms.

Year-to-date spending represented about 15% of total revenues, well below the 21% we recorded in the same period last year and we are still on track to meet our expectations of a 20% to 25% reduction in capital spending for the full year.

We saw a significant turn-around in free cash flow from the third quarter last year largely fueled by lower CapEx and to a lesser extent growth in adjusted OIBDA. At $20.3 million for the quarter, it was up significantly from a negative free cash flow of $10.6 million for the same period last year.

As I noted, year-to-date we generated $82.8 million of free cash flow compared to just $2 million for the same period last year, and we are on track to meter exceed our guidance of $1.30 per share free cash flow for the full year.

Since closing the Morris transaction in February 2009 which entailed $110 million in bank borrowings to fund the cash portion and when our total debt peaked at about $3.425 billion, we used practically all of our free cash flow to repay debt except for the fees and expenses tied to the new financings we completed in the third quarter; and during the third quarter, these completed financings significantly strengthened our balance sheet and financial flexibility. We re-financed senior notes with a combination of new senior notes and a term loan. As a result, maturities on $625 million of re-financed debt were pushed out from the 2011 to 2013 window to the 2017 to 2019 timeframe. These financings substantially improved our debt maturity profile and now we don’t have any meaningful maturities until 2015, and as Rocco noted, the new financings also provided annual interest expense savings of more than $8 million.

We finished the quarter with total debt outstanding of about $3,375,000,000, representing a $5 million increase from June 30, 2009. Cash financing costs from the new senior notes and the tender offer redemption of the old notes totaled about $26 million, and were mostly funded by free cash flow. The difference between the financing costs and free cash flow for the quarter represented this net change in debt.

Despite the additional borrowings to close the Morris deal, we were able to de-lever a balance sheet relative to the prior year period using annualized adjusted OIBDA and net of our balance sheet cash at third quarter debt leverage was 6.3 times compared to 6.4 times for the same time last year.

Rounding out our financial decisions that we continue to have an abundance of liquidity with $583 million of available revolving credit facilities, and as I noted earlier, very manageable debt maturities over the next several years. This is further supported by more than a $70 million cash balance.

Now, turning to our two bond assures; at the end of the third quarter, Mediacom LLC had total debt of $1,537,000,000; its adjusted OIBDA was $61.4 million inclusive of its quarterly cash investment income from Mediacom Broadband of $4.5 million. Interest expense and CapEx for the quarter were $23.4 million and $21 million respectively. Unused bank lines totaled $296 million, all of which was available. Our other bond assure, Mediacom Broadband LLC had total debt of about $1,838,000,000; its adjusted OIBDA was $74.4 million, interest expense and CapEx for the quarter for $29.7 million and $32.0 million respectively. Unused bank lines totaled $287 million, all of which was available.

That concludes my part, and now I’d like to turn it over to John for his remarks.

John G. Pascarelli

Good morning. Our unit performance this quarter was not at the levels we have seen in previous years or frankly at the levels we had wanted. As a whole though, our operatives results were solid across the board. I will go into more details about the impact of the economy and competition on those results in just a minute, but let me start by saying we remain focused on executing our business plan and staying focused on the things we can control. We’re trying to make smart decisions regarding how we compete, getting the appropriate balance between revenue generating units and free cash flow, and continuing to make the investments in innovative new products and services, which our customers want.

Two major factors impacted our performance this quarter. First, was the continuing consequences of the national recession which in many ways impacted the Mid West later than the other parts of the country. Consumers are being more value conscious in general and are shopping harder for immediate savings. Our returning students were not at historical levels, particular in video, and we saw the highest level ever customers connecting to our HSB service owned.

The second factor is competition. We faced another round of heavy marketing and significant price competition from satellite services. Dish Network continued their $24.95 promotional rate available since early this year and DirecTV introduced a deeper discount with the rental including five months free for their most expensive package. Given the cost of marketing and programming, we know they cannot be making much money on these offers and are essentially buying market share. They’re attracting our video link customers; in fact, over 90% of our video customer loss in the third quarter was analog video only customers. We made a strategic decision not to play the pricing competition game with them on video only services. Our experience has shown us that this particular segment will churn out at high rates at the end of the special and look to an alternative provider for a new special discount program.

While we’re not pleased with the overall RGU numbers, it’s important to look a little deeper into the mix. Digital, HSD, and phone all show healthy unit growth given the fact as I discussed earlier, and are equally important our concentration of customers, recognizing the value of our bundle services, and taking multiple products continues to increase. At the end of the quarter 55% of video customers would take in at least two products and nearly 19% of our customers took our triple-play bundle.

Digital penetration is nearing 53% in which selling rates to new connects continue to run in excess of 80%, we expect to continue to see steady growth. Ongoing content enhancements to our on-demand and HDTV services remind our customers of the value of the product, and we now have 37% of our digital customers taking one of our advanced digital service offerings. Our commitment to have between 40 and 50 HD channels launched by year end is on track. We’ve also successfully lab tested a multi-room DVR service offering and will begin field trials later this month, and if the trials go well we expect to be offering this service company wide in early 2010.

We provide over 765,000 customers with our high-speed data service, a penetration of homes passed over 27%. In September we completed the previously announced increase in the speeds of our flightship online in the IP internet services. These upgrades ensure Mediacom customers continue to enjoy the benefit from the fastest internet connections available in their communities.

Now, let me give you some details on our upcoming DOCSIS 3.0 product launches. Our plans called for a December launch in 11 different markets, 9 of which will have a 50 meg product and 2 markets will have a 100 meg service. These speeds will keep us well ahead of our competitors. As I started earlier in calls, this service will be available to 25% of our footprint by year end and we have another 25% of the footprint DOCSIS 3.0 head-end capable for extended launches in 2010.

Both our residential and commercial phone service continues to show stead progress. We’re excited about these two areas of business given the relative size of the revenue base today and the potential market opportunities for each. We’re on track to meet our commitment to reduce capital expenditures compared to 2008 levels, we’ve made these reductions without sacrificing our ability to provide first-grade products to our customer base. The third quarter capital included an investment to bring inhouse our customer email platform. This change will result in meaningful operating cost reductions beginning in 2010.

On the operating side we continue to aggressively manage all controllable expenses. As I have mentioned in some previous calls, our primary focus for 2009 has been on all customer transaction points to ensure the highest quality service, whether on the phone, in our offices, or in the customer’s home. The metrics we follow in the phone centers continue to show improvement demonstrating that we’re moving towards our ultimate goal of providing a higher level of customer service. On the field operating side, a combination of overall lower activity levels and improved employee productivity has allowed us to reduce contract labor cost helping us to hold overall labor cost increases to a minimum for 2009.

Finally, we believe our emphasis on more target marketing strategy included increased direct sales efforts, re-training our customer service representatives and field service agents, and more narrowly targeting direct mail offices the right strategy. We have recently modified a promotional offer to improve the value to our customers taking our triple play package and to help increase sales activity. We’re taking advantage of a weak broadcast television advertising situation by exceeding previous advertising levels without significantly increasing our costs. As I mentioned in the beginning of my remarks, while we don’t want to play the pricing competition game on video, we do want to entice customers to stay with us and our services by offering them bundle packages with incremental value at a competitive price.

That concludes my remarks and let me turn it back to Mark.

Mark E. Stephan

Nick, we’ll open it up for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question will come from the line of Michael Pace - J.P. Morgan.

Michael Pace - J.P. Morgan

I guess, these are mostly for John; John, I apologize; it was tough keeping up with you there and writing everything down. As far as the DBS competition in the quarter goes, you may have said this, but was it really a pick up in churn that you saw, all those guys taking away customers, or was it certain of your market segments that you weren’t getting on the gross sets, such as college students, or such, and then I have a followup to that.

John G. Pascarelli

We actually saw the both sides, but then the college students did not come in the historical levels. So, we did see a decrease in connect levels in the quarter over prior periods, but we also saw an acceleration of voluntary disconnects, which we believe, was associated with the satellite complication.

Michael Pace - J.P. Morgan

The next question; another MSO recently raised CapEx to do some investments in bandwidth, and I guess, you went through HD channels and DOCSIS 3.0, but can you remind us where you are; you’re offering HD to the majority of or 90% plus of your customers base, and if and when you ultimately decide to increase the offering to 75 or 100 channels, is that going to require more capital spending; and then on DOCSIS 3.0, can you get that 75% plus, and what I am really getting at is, is there any reason why CapEx would need to go back to 2008 levels in order to get you where you want to get?

John G. Pascarelli

Mike, 85% of our net customer base right now is served off what we call One Network, and what we’ve done is we’ve consolidated all of the head-ends into two different facilities, but really they could be served out of one; the second one is actually there for redundancy, but that has allowed us to go in to add HD channels very cost effectively to these markets. That’s where most of the cost is, it is really at the head end, and we’re in pretty good spot to be able to cost effectively continue to increase it. We’ve made a decision right now and that is to stay focused on providing customers with HD channels that people are watching. Right now with 40 to 50 channels, it’s 90% of the viewership; that’s a significant percentage of the total. Now, that doesn’t mean we don’t want to go beyond there and we want to have it, but we want to manage that flow so that we don’t go putting our networks that in the long run, once we get them there, we can’t get them off. So, we’re just trying to be disciplined in our approach and adding channels. As far as DOCSIS 3.0, we’ve got head-end capabilities right now for 50% of the footprint; we’re not on the same competitive pressure as some of the big guys. Right now, we’re going to be going on with this products, and we really decide a couple of small pieces in the footprint, and we don’t have any competitors out there with anything close to it. For us right now, waiting a little hopefully will provide us benefits and savings on capital costs as these costs continue; we’ll be able to learn more from the experience, we’re watching it from the industry; so we’re not rushing. If we had competitive pressure, we could do it very quickly. Even the DOCSIS 3.0, we don’t see it as a huge capital hit as we expand. For us, we like the position we’re in right now.

Rocco B. Commisso

Mike, let me just say that we talked about the telephone switch out, and if anything, that may provide a blip, but we’re not providing yet guidance for next year, but the one-time hit; the return on that investment will be significant as I had mentioned in the last quarter conference call.

Mark E. Stephan

Mike, the other thing to consider too is that we continue to deploy DTAs in all markets and we’re rolling out that low-cost digital device, and CPE equipment as a whole continues to come down. So, that has always been one of the lion shares of our capital needs.

Operator

Our next set of questions will come from the line of Jason Bazinet - Citi.

Jason Bazinet - Citi

I don’t think you said this in the prepared remarks; has there been any change in the FiOS U-Verse over Lab, and second, are there any restrictions related to the Morris transaction regarding share repurchases or is this just a voluntary decision to use the cash while you have to de-lever; and then third, maybe an odd question, but have you guys ever estimated the cost to remain a public company, if you have to estimate what that cost would be?

John G. Pascarelli

FiOS; really no change, really with a small footprint, it’s about 35,000 past right now in two small markets. AT&T has shown some expansion; we have seen indications that they are ready to expand in Missouri, in our Springfield operation; we’re also seeing signs that they’re potentially going to launch down in the Florida operations, combination of Alabama and Florida, but at this point, they’re not aggressive; you see some ads and billboards saying they’re coming, but we have not seen a real expansion. The only place really they’ve been active is in Indiana.

Rocco B. Commisso

On the sale, that’s a good question on the sale; we don’t have any restrictions with the Morris thing, but we feel that on de-leveraging the company it adds up to that. I am glad you raised the question Jason because another analyst that rarely comes into this conference call asked this question, pretty much round about the fact that our free cash flow was thought to be; what was the word that we used in that call; misleading; I don’t know what’s misleading about the fact that we’ve done a great job in generating, as I have mentioned in my press release, 22% of un-levered free cash flow after tax to revenues; there are few industries, by the way a few companies in the US, say they deliver that. I would say, this is before leverage, when the top 1 % or 2% or 3% or 5% in the US say across any industry; when you’re able to deliver after tax 22% of un-levered free cash flow. She seemed not to believe in our cost of debt, but as if we’re raising this capital; we raised this capital from one of these banks that she works for, and we seem to have done a very good job on the cost of debt. A combination of our ability to generate significant un-levered free cash after tax because we don’t pay taxes, and the pleasure run is, in conjunction with the free cash flow or with the interest costs that we have divided by the shares that we have, which resulted by our smartly buying the shares in the open market, generating what is for us, the share, $1.30 per share, and I think amongst the companies that we follow, we’re by far the highest yielding company with the lowest multiple on a free cash flow basis that we try. We don’t understand that, but it’s okay, because as I’ve mentioned earlier, at the right time when we go in and buy some more stock, to the extent that people don’t believe in our stock. I don’t know if I answered your question Jason, but that was the answer to your question.

Jason Bazinet - Citi

I think I got it; no restrictions?

Rocco B. Commisso

Right.

Jason Bazinet - Citi

And the cost to be a public company; did you guys ever size this?

Mark E. Stephan

Jason, it’s hard really. You sit down your itemized things, whether it’s audit, legal, external reporting, etc., etc., etc., it’s not a huge number, but I am not measuring the amount of time that we spend to stay public; it’s management time.

Operator

Our next question comes from the line of Richard Greenfield - Pali Capital Research.

Richard Greenfield - Pali Capital Research

A couple of questions; Rocco, you sounded somewhat distressed about the RGUs, and I guess I am just wondering given competitors are being so ultra-aggressive or the economy on top of it is so weak; the fact that you’re growing revenues in EBITDA, notably above your peers, why should it be distressing to have slower RGU growth in this environment; why not just focus on the cash and let the RGUs be what they are; just from a high level how do you think about that trade-off and what’s wrong with being at a lower RGU level if you generate this type of cash; and then a followup on Jason’s question; I guess, the issue that we’re looking at is, your stock is trading at $4.50, and the market clearly doesn’t seem to like these results for whatever reason; you’re at three times next year’s free cash flow or less; at what point or what stock price do you just start buying the stock because it’s simply to cheap, either at a corporate level or even personally.

Rocco B. Commisso

Firstly, I don’t have the cash. I am not one of those guys that puts a lot of cash on the business; you follow me, and let the chips fall wherever they may fall; I don’t have that kind of money personally. In terms of the company, we have done it in the past and we may do it in the future, I’ll leave it at that, without specifying the right dollar amount or not, Rich; if you don’t mind. In terms of the RGU, RGU growth is the thing; sooner or later your RGU is going to catch up to your revenues, you just can’t put pricing reasons to deflect your growth in your units. I think we will re-grow our units, we had some blips, but I guess the point that I was trying to make in my comments is here we are 13-1/2 years after we bought our first system, we’ve never had a dull quarter in terms of revenues, but it’s not pleasing when I start comparing it. I didn’t know this for sure, I had one of the people that worked for me, said don’t look at the stock, and I was amazed; pretty high-quality Dow 30 type of company, to not have this record of performance that we have had. Even during the time that we did not make our decisions like in the last seven years, we feel we’re able to increase our revenues, year-over-year, all these quarters, which talks about our business, and frankly even comparing it to the phone companies, Rich, these guys are generating, losing subs, losing revenues, they’re losing cash flow, yet they are trading on the multiple free cash, multiple EPS at a much higher level than we’re trading, and it doesn’t make sense. Be it as it may, I know that some people like to compare us on an EBITDA basis, but what they fail to include in that EBITDA is exactly the taxes that other companies, you can’t look at EBITDA if we don’t have any taxes to pay on as opposed to a company that pays taxes.

Richard Greenfield - Pali Capital Research

You also have a very attractive cost of capital.

Rocco B. Commisso

As if I have to be apologetic for it; part of the reason why companies with our leverage don’t generate the kind of free cash flow that we generate is because they don’t pay the kind of capital that we did. One of those companies actually filed for bankruptcy because of that.

Richard Greenfield - Pali Capital Research

Could we just pop one last question on Sinclair; it’s obviously been three years since the battle brewed, it appears to be up at the end of this year; it would seem like given the fact that your EBITDA is $100 million higher and you’re now substantially free cash flow positive versus negative three years ago; it seems like you’re in a very different negotiating position, but could you give us any clarity of how you approach this this time versus last time.

Rocco B. Commisso

Let me say it my own words that I have written down here. I think Sinclair has taken advantage of the market, has accumulated by stretching or breaking what I believe are SEC rules. It is fine to take advantage of our customers even though we’re in the middle of a horrible recession and many of our customers are struggling to make ends meets. It’s interesting that Sinclair will not be providing any new programs or any other new benefits to our customers that would justify the significant price increases, but they’re demanding. It’s just a power grab motivated by greed and they believe that the law and the SEC is on their side. So, now over the past five years Sinclair SEC filings show that they’ve collected $154 million in re-trans fees and paid a $168 million in dividends. Meaning that none of the re-trans money has been reinvested to produce more local news or other program as Congress had originally intended when they passed the law. In any even, we cannot stand by it, with certain outliers, but then the broadcasting committee can demand double or triple-digit increase in their re-trans fee every three years. Some analysts in your community, Rich, have already estimated that re-trans could cost the American consumers about $10 billion per year.

Richard Greenfield - Pali Capital Research

Whether or not the government gets involved, I don’t have any way of forecasting, but how do you approach the negotiation this time. Obviously last time ended up losing subs and ended up doing a deal that you didn’t like doing. Do you simply do a deal sooner this time to avoid the pain or do you think the government will be your savior in this situation.

Rocco B. Commisso

The government will be savior of public interest, it’s not my savior; let’s be clear about that. Two, I think we have proven that we do the deals, we just signed in just the last 12 months 225 separate station deals represented by different people. The issue is really Sinclair and a few others out there that I call outliers. We just cannot go on and outfight the interest of our customers, employees, and investors; to go out and pay what their demand is if it’s above, way above, what other people have done deals with. You mentioned the government and so on; the SEC commission just a few days ago mentioned that times have changed; I am quoting it, new leadership has come to Washington and the public interest once again gets favorable mentioned, and there is now a chance to correct things that have gone badly already. Maybe Sinclair hasn’t figured that out yet based on their remarks that they’ve made to date; you know that rational people will make rational decisions; we all know our rationale, Chairman Martin was the last time around, not just on that decision, by another decision, and we’ll see whether the new chairman of the new SEC would behave the same way. I think we owe it our investors and our employees and our customers to fight the fight based on the existing laws of our country. I’m not very much impressed by the statements that Sinclair has made. They seem to be certain about everything except for their own performance. Once I remember reading that one quarter they were the most bullish starters out there talking about how strongly financed they were, no fears, no risk their balance sheet, and soon the next quarter they went on and told the world that they were going to be in bankruptcy, so we know what kind of statements they have made in the past and the way they delivered those statements. The other thing that I want to mention because a lot of this has to do with the market power they accumulate with these law police is that there seemed to a situation here where they are either lying to the FCC or they are lying to the SEC. They can’t go out and tell the FCC that they don’t have control of these law police, and they have many of those, while at the same time being forced by the accounting treatments and report to the SEC that they have control, but the mere fact that they consolidate the financial statements of these lawful markets.

Operator

The next question comes from the line of Tuna N. Amobi - Standard & Poor’s.