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Executives

David B. Amy - Chief Financial Officer

Steven M. Marks - Chief Operating Officer

Lucy A. Rutishauser - Treasurer

Analysts

Victor Miller – Bear, Stearns & Company

Marci Ryvicker – Wachovia Capital Markets

Bishop Cheen – Wachovia Capital Markets

Leland Westerfield – BMO Capital Markets

Edward Ontario – Benchmark

Sinclair Broadcast Group (SBGI) Q1 2008 Earnings Call May 7, 2008 8:30 AM ET

Operator

Greetings ladies and gentlemen. Welcome to the Sinclair Broadcast Group First Quarter 2008 Earnings Release. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Amy.

David B. Amy

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, Treasurer.

Before we begin Lucy will make our forward-looking statement disclaimer.

Lucy Rutishauser

Thank you, David. Good morning everyone.

Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors and 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 first quarter earnings release, which we furnished to the SEC on an 8-K earlier this morning. The company undertakes no obligation to update these forward-looking statements.

In accordance with Reg FD this call is being made available to the public. A webcast replay will be available on our website later today and will remain available until our next quarterly earnings release. Redistribution of this call is prohibited without the express written consent of the company.

Included on the call will be a discussion of non-GAAP metrics, specifically television broadcast cash flow, EBITDA, free cash flow, and leverage. These metrics are not meant to replace GAAP measurements but are provided as supplemental detail to assist the public in their analysis and valuation of our company. A reconciliation of the non-GAAP metrics to the GAAP measures in our financial statement is provided on our website, www.sbgi.net, under Investor Information, Reports and Filings.

David B. Amy

Thank you, Lucy. Turning to the financial results, net broadcast revenues for the first quarter were $160.9 million, up 8.5%, or $12.6 million, over first quarter 2007 and in line with our prior guidance. Increase is driven by growth in both our local and national core time sales, $2.6 million in higher political revenues, and higher revenues from multi-video programming distributors.

Television operating expenses in the quarter defined as station production and station SG&A expenses before barter, were $73.5 million, up 6.2% from first quarter last year. The increase was primarily due to additional news programming and higher sales costs.

Our television operating costs came in lower than our prior guidance of $75 million due to lower bad debt expense and production costs.

Corporate overhead in the quarter was $6.7 million, an $800,000 increase as compared to the first quarter last year, due to increased salary costs. This was slightly lower than our prior guidance due to lowers worker’s compensation and insurance expenses.

Operating income in the quarter was $46.2 million, an increase of $8.6 million from last year’s first quarter results of $37.6 million. The primary driver was our higher revenue, offset in part by the higher television operating expenses as explained earlier.

Film payments for the quarter were $20.9 million. Net interest expense for the quarter decreased 23%, or $6 million from first quarter last year due to the refinancing of the 8% notes with lower cost bank debt and convertible bonds, as well as higher free cash flow generations. We had diluted earnings per common share of $0.19 as compared to a ($0.03) in the first quarter last year.

Television broadcast cash flow in the quarter was $68.1 million, $7.8 million, or 13% higher, than first quarter last year’s BCF, and exceeding the $64.4 million-$66.77 million implied by our February guidance.

EBITDA was $62.1 million in the quarter, $8.1 million, or 15%, higher than the same period last year. And exceeding the $58.2 million-$60.5 million range implied by our prior guidance.

The BCF margin on our net broadcast revenue was 42.3% and the EBITDA margin on total revenues was 33.3% in the quarter. During the quarter we generated $36.2 million of free cash flow, a $10.9 million increase over first quarter of last year. At our quarter-ending stock price of $8.91 per share, our trailing 12-month free cash flow yield on our market cap was an impressive 21%, with another 9% in dividend yield.

Lucy will now take you through the balance sheets and cash flow highlights.

Lucy Rutishauser

Capital spending was $5.9 million in the quarter and cash programming payments were $20.9 million. We had $12.6 million of cash on hand at March 31, 2008, and $1,370,100,000 billion of debt. And that includes $46.1 million of non-recourse and BIE debt, which we are required to consolidate on our books and that will need to be excluded from your leverage calculation purposes.

In March the counter-party of $300 million of no-show amount of interest rate swaps that hedged our 8% bonds exercised its option to terminate the swap. The effective early termination is to increase our 2008 interest expense guidance as the swaps were annualized to us and therefore favorable to our interest expense. In part of the termination the counter-parity paid us an early termination fee of $8 million in cash.

It is noteworthy to mention that during the past six years that these swaps were in place, they netted us over $46 million in cash interest savings, and that is before the $8 million termination payment.

During the first quarter we repurchased $15.4 million par value of our 8% Senior Subordinated Notes in the open market, bringing the outstanding balance down to $248.00 million.

Leverage in the operating company was 2.61x at quarter end. If we had a leverage test at the holding company it would be estimated at 5.22x, and that is derived from total debt on the balance sheet, net of cash, excluding the $46.1 million of

BIE and non-recourse debt and divided by the trailing 4-quarter EBITDA of $251.1 million.

Steve Marks will now take you to our operating performance.

Steven M. Marks

As Dave pointed out, we grew our net broadcast revenues by 8.5% this quarter on the strength of our FOX stations, the Super Bowl, political revenues, and payments from multi-video program distributors. Local revenues were up 6.1%, national revenues grew 6.4%. To give you a sense of how good these numbers are, we were able to grow our total market share by a full percentage point, going from 18.3% to 19.3% share of revenue.

This was driving by increased spending by the automotive media and service categories, off set in part by lower spending by retail and paid programming. Auto, which represents about 20% of our time sales, was up 2.6% in the quarter, primarily due to the Super Bowl. The Super Bowl, which aired on 20 of our FOX stations, generated almost $5 million in incremental revenues for us as compared to last year when it aired on just two of our CBS stations.

Our FOX stations were up 15.4% due to the Super Bowl and strength of our local news and network programming. Our ABC stations were down 3.3% in the quarter, due primarily to the writers’ strike, which caused the network to pull some of their programs that were gaining momentum. We are confident that as the shows return, stations will improve. Our MyNetworkTVs were basically flat and our CWs were down a minimal 1.6%.

Political revenues were $3.2 million in the quarter versus $600,000 in the same period last year. We are still expecting record levels of political spending for the year.

Turning to our second quarter outlook, we are seeing strength in travel and leisure and foreign auto dealerships, but weakness in domestic auto dealers, retail, and schools. Second quarter 2008 political revenues are estimated to be $3.7 million versus $1.1 million in the same period last year, with almost half of that amount coming from our North Carolina stations. Our FOX, CW, CBS, and NBC stations are pacing up. MyNetworkTVs are flat, and our ABCs are down.

For the second quarter we are forecasting net broadcast revenues to be up, between 3.6% and 4.9% from second quarter last year’s $159.2 million. This equates to an increase of $5.8 million-$7.8 million.

On the expense side we are forecasting our TV production and SG&A expenses to be approximately $74.9 million in the quarter, a 3.6% increase to second quarter of last year’s $72.3 million. The increase is due primarily to higher news and sales costs. For the year we are estimating TV operating expenses to be $302.5 million, including the Cedar Rapids stations.

Second quarter film payments are estimated to be $20.7 million and $81.2 million for the year. For our other expense guidance for the second quarter and full year, please refer to our earnings release, which we issued this morning.

With that, I would like to open it up for questions.

Lucy Rutishauser

Operator, before we open it up for questions, I understand there are several people that are trying to dial in but unable to get in or getting static on the lines. Maybe you can check that for us.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Victor Miller with Bear, Stearns.

Victor Miller – Bear, Stearns & Company

I am very struck by the ability of you to grow the revenue as strongly as you did in the first quarter, relative to what we’ve heard for the rest of the industry, which has been fairly dour. Especially at your CBS and NBC stations. Can you talk about what you’re seeing in the mid-market scene and whether you think it’s just a better positioning being a media company in the mid-markets as opposed to the pressure we’re maybe seeing in the national side, in the larger markets? It does seem like there’s a difference between the mid-market and large-market performance.

Secondly, David Amy, with a 21% free cash flow, 9% dividend yield, etc., at what point, given the stock at $9 and given how you’re doing relative to the rest of the industry, at what point does the conversation come to reigniting your repurchase program instead of maybe putting it into other operations at this point?

David B. Amy

Well, Victor, in terms of the sales performance and your reference to the mid-markets, what’s interesting is our biggest market, Columbus, has been soft, actually. Even though our revenue shares of what’s available has been enormous. Being a FOX affiliate in the first quarter, having the Super Bowl, and then also having some of the college championship games, which we enjoyed the year previous, really boosted us.

But when you take a look at this performance, which clearly we hit it out of the ballpark, we have showed that we’re really, really performing. Two and a Half Men, for argument’s sake, in syndication and Family Guy, are two shows that we did not have at this time last year and they’re both legitimate hits. We have not seen a sit-com hit, probably, in 8 years and these two shows are just huge home runs for us. That will allow us to increase our revenue shares throughout the remainder of the year.

FOX in particular just put out a piece this morning that for the 17th week in a row they have won the adults 18-49 contest. Obviously we’re very top-heavy with FOX stations. Though we’re also not only enjoying being a FOX affiliate, I need to mention our affiliated product is also doing very well. So, we’re fortified for the remainder of the year to grow our revenue shares.

Victor Miller – Bear, Stearns & Company

What about some of the like CBS, NBC you have in particular. That’s not where you normally see Family Guy or Two and a Half Men, but . . . ?

David B. Amy

We only have a couple of those stations, and CBS in particular, if you took a look at our ratings, we’ve grown that news operation substantially over the last 12 months. We were also a strong competitor in news but if you take a look at our ratings success, specifically in areas that generate the most money in areas that we have direct control over, like news, specifically in Portland, Maine, we’ve grown those news numbers substantially and that’s where you see the increase from.

Victor Miller – Bear, Stearns & Company

MyNetworkTV and CW, do you feel that’s finally bottomed out?

Steven M. Marks

Yes, I do. And I think though both networks continue to try to find prime-time programming that is more competitive than what they have on the air now, our success, again, has been on the programs that surround the network. Most of our MyNetwork and CW stations have been lucky enough to run Family Guy or Two and a Half Men and in some instances run both. And we have taken time periods that were literally doing next to nothing, between 5-7 and 6-8 pm, to ratings that are extremely competitive in those time periods.

Literally going from .5s to 3s. So by instance, we’ll take an average unit rate, it may have been $100, and every time we sell a spot now, we’re getting $300. As the announcement spoke to, we’re grown our revenue share by a full point. And that’s with having 17 MyNetwork stations and 7 CW stations, that’s quite an accomplishment.

David B. Amy

Thank you, Victor, that’s a questions that comes up all the time and I really think and believe, and the company believes, that that course of action, in terms of trading shareholder value is exactly what you’re seeing here in terms of the performance of our operations. There’s just no doubt about it in terms of the percentage returns you’re seeing on the free cash flow that anybody that’s looking at the Sinclair stock today would have to say there’s a tremendous amount of value that now they can see in the investment.

So from our standpoint, it breaks down into a couple of different areas. Certainly going private is a discussion that we’ve had, or buying back our shares has been discussed over the last two and three years simply because for whatever reason, the valuations just don’t show up from a market standpoint in our equity. Hopefully that will change over time and we’ll start getting more and more credit for the results that we’re producing. But that all remains to be seen.

And the best way that we can take that free cash flow in regards to returning to our shareholders, has been through our dividend policy. And you can see that the cash that’s coming back to you, from your investment, you’re looking at a 9% return today in that regard, so it’s a very, very strong statement on our part as to how we want to treat our shareholders.

And finally, as far as any kind of moves that we would make, if we wanted, we have spent the last five to six years really building a very strong balance sheet and that is so important to us as far as continuing the strength of our balance sheet and not taking any unnecessary risks that would at all create a problem for us in that regard.

And of course, we’re all familiar with the situation with the credit markets today. So even if we wanted to make that kind of move, today’s market, the cost to go into the market and to get financing to make these kind of moves are just about, they’ve really become uninviting, I guess is the best way to think of it.

Operator

Your next question comes from Marcie Ryvicker with Wachovia Securities.

Marci Ryvicker – Wachovia Capital Markets

I just wanted to dig a little deeper into the auto segments for the second quarter. I think Steve said domestic is down but foreign is up. Can you give us the overall piece, can you talk about the different tiers in terms of the manufacturers, the dealers, and the local dealerships?

Steven M. Marks

First of all, for first quarter, on the strength of the Super Bowl, as we mentioned, we were successful in growing the auto category in the first quarter. Second quarter it looks like we’re going to be down slightly. And some of that, quite frankly, is because of the tremendous volume in certain markets that were getting on the political end, knocking out some of our advertisers.

But we’re a little bit lighter on the national side than we are on the local side, so the local side of our automotive business for the second quarter is actually doing quite well. Whereas the national side of our business is not doing well.

As far as the foreign auto stuff, makers like Honda, Suzuki, BMW, Audi, which are not really the largest of spenders, but they’re showing substantial increases, which is offsetting General Motors, which is probably the biggest culprit in terms of our decline.

Marci Ryvicker – Wachovia Capital Markets

Any update on the Open Mobile Coalition?

David B. Amy

I think we’re nearing the end of the technical analysis process and my sense is that sometime in the immediate future the coalition will pick a standard and forward it to the ATSC Standards Committee for further technical revue and adoption over time.

I think everything is on track that we’ve been talking about for quite a while and it is just a little long, which it is. I think once we’re done we’ll be ready to go to the marketplace and talk about business models.

Operator

Your next question comes from Bishop Cheen with Wachovia Securities.

Bishop Cheen – Wachovia Capital Markets

David Amy, I think you touched on it when talking about stressing your balance sheet being so important. When I see 21% free cash flow yield, I have to think it’s not because of this one quarter, but years of Sinclair arbitraging its balance sheet. You bought back $15 million of bonds in the market. Given the conditions now, do you think you’re going to be able to keep arbitraging it, up to a point where you just might take out the whole issue? Is that cost arbitrage [inaudible] in this market?

David B. Amy

That’s a challenging question, Bishop. I would answer that with a general we remain opportunistic in that regards. And the cost, I mentioned financing today, to go in and say let’s just take out the remaining balance of the 8%s, right at the moment, there really is no advantage to it relative to what it would cost to go into the market and open up our bank deal and issue new bonds to replace what’s out there. So, generally speaking, I would say that time is what we’ll have to wait this out and see how things move in regards to the credit market.

Bishop Cheen – Wachovia Capital Markets

You continue to increase your local share. Where do you think your, I think it’s tickling 67% of advertising revenue, where do you think your local share should tap out?

Steven M. Marks

Well, we just grew one, first quarter local share, overall we grew one point. Local grew more than one point. We had a tremendous amount of emphasis on local because that’s where the business is going. Obviously the national spot business continues to decline.

We’ve made a conscious effort for five years now to take a look at our local efforts and that’s where primarily in our operations we make the most of our concentration. So we haven’t bottomed out. We have got room to grow, obviously, on the MyNetwork and CW side. As soon as they enjoy more success in prime time you’re going to see continued revenue share growth on the MyNetwork and CW stuff.

We’ve grown the FOX stations over the last five years by a huge amount, especially our new operations, which have gone from third and fourth rated stations in their respective markets to in some cases one and two, on the strength of the network.

So we have very much focused on the local for the last five years, knowing that the national business is going in the wrong direction. And it’s a good reason why we’re successful. And we have not bottomed out in terms of increasing our local share. There’s still upside and I believe, as we go forward, we will realize that upside as CW and MyNetwork continue to develop.

David B. Amy

Just one thing, Bishop, that we would like to say. At some point national will stop its decline. Right now the dynamics are local, it continues to grow. National continues to decline. But at some point national will not continue to decline, it will bottom out and we will see it at some there where national will start to grow again. So it’s all theoretical at this point but certainly it makes sense to us here that that lies in our future, not just for us but for all television broadcasters.

Operator

Your next question comes from Lee Westerfield with BMO Capital Markets.

Leland Westerfield – BMO Capital Markets

Really two areas of questions. The first, if I can get a little more detail in the sources of revenue growth in the first quarter and during the second quarter in your guidance. What were retransmission and network compensation as factors to the first quarter in terms of revenue growth. In the past you have outlined some detail in that area. I wonder if you can help us with a better understanding so we can drill down into the time sales performance in the quarter?

And the second questions relates to investments in the quarter. I appreciate that you outlined $44 million of investments in the quarter, $6 million to [inaudible], roughly $38 million to real estate consisting of equity and loans, what fraction of that to loans and to what assets?

Lucy Rutishauser

The network number, we were about $2 million in the first quarter last year and that was about $1.4 million this year.

Steven M. Marks

Again, in terms of the spot, the most impressive thing was obviously having a lot of Super Bowls, but we clearly did better than we had anticipated.

Steven M. Marks

Basically, again, if you take a look at the overall look at our markets and the growth that we enjoyed in the first quarter, it came really two-fold. Super Bowl, Two and a Half Men, Family Guy. And quite frankly, we just outsold everybody. As we do most of the time, quite frankly. If you take a look at our performance. To grow the revenue shares as I made mentions, with having 17 MyNetwork and 7 CW stations, is a tribute to what we’re doing here. Basically, we just outsold everybody; we had the ratings, we had the shows, we asked for the money.

David B. Amy

As far as the retrans, Lee, what we had was we had an increase in the overall retrans from about $11 million the first quarter of 2007, $10.9 million, and a total in the first quarter of 2008, all in it was about $19.7 million.

Leland Westerfield – BMO Capital Markets

Should I be treating the retransmission as a portion of your time sales in your broadcast revenue? Because that would seem to be implied in the calculations of growth in the first quarter.

David B. Amy

Part of the retrans is included in our time sales and the question that has come up in the past is the retrans cash or is there barter or whatever, but we just want to be clear here that all of our retrans is cash. Part of it is advertising that is being purchased by the NBPDs and the other part is the grouping of whatever you want to call it, whether it’s video, on-demand, or what have you. But there’s a number of other categories that that falls into that would not be considered by us as time sales.

Leland Westerfield – BMO Capital Markets

And the investments in the quarter, the real estate in particular.

David B. Amy

Yes, we had a really terrific investment that we made during the quarter. It was a resort that we acquired in the eastern shore of Virginia and that was a terrific investment because we were able to strategize throughout this process. It took us a number of months to get there but we were able to work through and get this taken care of at tremendous discount to where we see the real values are in that location. So that was our biggest move and that was about $35 million that we put into that particular investment during the first quarter.

Leland Westerfield – BMO Capital Markets

Do you own a consolidated stake in that eastern shore resort?

David B. Amy

Yes, we own about 50%.

Operator

Your next question comes from Edward Ontario with Benchmark.

Edward Ontario – Benchmark

Couple of questions. On the other, the non-broadcast revenues, $11 million and change, just remind me sort of what’s in there. And there’s another expense line. Is that sort of the offset to the other revenues, number one. Number two, talk about Idol, what that means to you. I know it’s a network station but it’s got to be having a tremendous impact on your adjacencies. And third, you mentioned news on the FOX stations, could you discuss the trend of your news ratings sort of across the group?

Lucy Rutishauser

Companies that are in the other operating divisions are G14-40, Aphrodyne, Triangle [inaudible], the commercial warehouse, the commercial building, the alarm funding and the resorts that Dave just talked about. And so you’ll see all those companies all up into the line called other operating division revenue. The extensions associated with those companies is the other operating division expense line.

Edward Ontario – Benchmark

That’s what I thought. In terms of forecasting, just use the Q1 run rate or is there any way to forecast that?

Lucy Rutishauser

We have an EBITDA number in the press release that we’ve given to you but we haven’t broken that out to be on the revenue and expense side. I don’t want to give guidance as to what rate you should use, but you should look to our guidance.

Steven M. Marks

In terms of Idol and the news, I’ll take the news first by example. I think I could best illustrate it by using this example. In Columbus, Ohio, our FOX affiliate, WTTE, for the first time in the history of us owning that television station, we actually have more viewers watching our 10 o’clock news than the Dispatch WVNS has viewing their 11 o’clock news. For me to make that statement, that’s an incredible achievement. If anybody knows the history of Columbus, Ohio, and the strength of WVNS and the Dispatch, they are now in second place. Sinclair’s in first.

To give you an idea of how strong the news has become. And that story is not unlike other stories that have propelled us, 10 o’clock and 9 o’clock, depending on what time zone you’re in, we’re enjoying huge gains in our late news efforts, especially on the FOX stations. And you can only imagine what that means to us in terms of revenue in a political season. A lot of politicians like to go into the news cast. We’ll be increasing our shares on political advertising quite a bit, because of the strength and success of the news operations growing ratings.

In terms of Idol itself, you may be reading in the trades that the show is down year to year. Make no mistake, it’s still the most powerful show on television and people are still watching it in droves. And it literally making stations stand up, if you have a FOX affiliation, and take notice.

Obviously it has helped those news casts tremendously. It has brought new viewers into those news casts and people like our product and they are staying, which is evident by our ratings.

So Idol has really turned around quite a few FOX affiliates, and Sinclair, which is so deep in FOX affiliates has really benefited by that show over the last handful of years. And will continue to benefit from it.

Edward Ontario – Benchmark

Can you talk about some of the other categories? You talked about auto and I think you said travel. What are some of the pluses and minuses?

Steven M. Marks

We had a big first quarter on the finance end. A lot of insurance companies, Nationwide Insurance for argument’s sake, came in and dropped just a busload of cash on us in first quarter that did not take place the year previous. That category, in particular, was up, quite a bit.

Edward Ontario – Benchmark

Retail?

Steven M. Marks

Not bad.

David B. Amy

I just want to make a point of clarification here in regards to our FOX affiliate, WTTE as we call it, in Columbus, Ohio. We don’t actually own that station, it’s under an LMA. Just a point of clarification for you.

Operator

There are no further questions in the queue.

Steven M. Marks

Thank you everyone for joining our call. See you next quarter.

Operator

Thank you for participating in today’s conference call. You may now disconnect.

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