Cox Radio Inc. Q2 2008 Earnings Call Transcript

Cox Radio Inc. (CXR)

Q2 2008 Earnings Call

July 30, 2008 11:00 am ET

Executives

Robert Neil - President and CEO

Neil Johnston - VP and CFO

Analysts

Jim Boyle - C.L. King

Tony Wibel - Citi

Tim Schlock - Wachovia

Jim Goss - Barrington Research

James Farrant - Morgan Stanley

Michael Schecter - Mentor Partners

Presentation

Operator

Good morning ladies and gentlemen, my name is Abria and I will be your conference operator for today's call. At this time I would like to welcome everyone to the Cox Radio second quarter 2008 Earnings Call.

All lines have been placed on mute to prevent any background noise. After the speaker remarks there will be a question-and-answer session. (Operator Instructions). Before beginning this morning, I must remind you that management’s remarks will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ.

Please refer to Cox Radio's most recent 10-K filings for the list of risks and uncertainties that can impact actual results. Today's conference call will also include reference to certain non-GAAP financial measures in accordance with SEC regulation G. Cox Radio has provided reconciliations of all non-GAAP financial measures and its earnings release issued earlier this morning.

The reconciliations includes station operating income to operating income and free cash flow to net income in each case the most comparable GAAP measure. Thank you. Now it is my pleasure to turn the floor over to your host, Mr. Robert Neil. Sir you may begin your conference.

Robert Neil

Thanks, operator. Kind sounded like my first newscast I ever read on the air there. Good morning everybody and thanks for joining us today and as usual we will start by reviewing our second quarter financial performance and recent developments and then Neil will provide you with a financial overview of the quarter. Then, as always we will open up the call to your questions.

During the second quarter we continue to execute our operating strategy in the face of a difficult advertising market and a slowing economy. We can all argue about what factors determine in official recession but the facts are in a recent poll 70% of consumer said they believe the economy was in a recession.

Radio's biggest customers have historically been consumer driven; auto’s, real estate, home improvement, banking and all of those industries are ailing. As long as they are, every media supported, every ad supported media is going to suffer. Right now radio looks pretty good when we compared that to news papers and television, which is down year-to-date more than Radio is if you take out political and even local cable sales continue to be down.

So compared to other media we are doing pretty well in a difficult environment, and for us, the bright spot is our radio stations are performing well from an audience perspective, they are out performing their peers on the sales side and we are making considerable progress in expanding our digital media presence.

Our sales teams continue to work aggressively to work on attracting new advertisers that traditionally have not advertised on radio. In fact we are in the process of refocusing our sales strategy which is centered on creating our own market place rather than simply reacting to the existing marketplace.

The benefits of creating our own marketplace are numerous and include pricing that is based on solutions and results, relationship with our advertisers and a more predictable revenue base. This is an extension of the sales strategy that we have used for years. We think we have got the finest sales team, and I have got no doubt they are up to the task as we go forward.

Its no secret the radio delivers great results of advertisers and we know that by supporting our brands with compelling content and continuing to deliver sizable audiences to our advertisers that the future for the industry for Cox Radio continues to be very good.

Given the current environment, we remain focused on aggressively watching our costs of course and watching our expenses while continuing to invest strategically in compelling content. As we have noted in the past our balance sheet continues to be a positive especially in this market.

Turning to our results our second quarter revenues were down 8%, better than the second quarter revenue performance of our markets which were down nine. Our best performers in the quarter were our stations in the Long Island, Tulsa and Birmingham. Conversely revenue weakness was notable in our Florida market particularly in Miami, Orlando, Tampa and Jacksonville.

Revenues in our Atlanta stations were down 12% for the quarter but performed much better than the 14% overall decline in the Atlanta market. As we take a look at revenues by category, there were no surprises here; traditionally strong advertisers including some of the categories I mentioned up above continue to lag as they have been hit very hard by this consumer wide recession. Specifically within our top ten categories, eight of our ten categories were down during the quarter with telecom down 17%. That is a year-over-year branding comparison from a year ago when we had a consolidation.

Home improvement down 22%, financial services down 25%. Meanwhile automotive finished down 9% for the second quarter. Strongest categories during the quarter were Insurance up 39%, grocery and convenience stores up 14%, and hotels and resorts up 61%. Second quarter political dollars were negligible in both the second quarter of 2008 and 2007.

We generated $25.9 million in free cash flow during the quarter with this cash flow we purchased an additional $18.6 million worth of our common stock while still sustaining the strength of our balance sheet. On the ratings side its very early, spring ratings have just begun to come in so far but we have got strong performances especially in Tampa, Atlanta and Miami today, and Tampa Bubba continues to rank number one in every major demo this is his second book. Morning drive WHPT just continues to be very dominant and is number 1, 25 to 54 overall.

In Atlanta our strength continues and we just added long time Atlanta morning show, Steve and Vicky did a line up at WSB-FM in early July. So we continue to make those investments I mentioned earlier in programming and marketing. As we look forward, third quarter I am sorry, I skipped a little too far ahead here.

To update everybody on our auction to acquire a six station cluster in Athens, Georgia, which we exercised back in January, that closing is going to be on track to close in the third quarter. With regard to our digital initiatives late in the quarter we began converting our station websites to our enhanced version 3 digital platform. The new sites feature innovation and enhance the users experience including optimize search, speech text capabilities, enhanced video content and song lyrics among other features.

Our new websites are also compatible and fully functional on mobile and wireless devices, that is another feature. As we look forward third quarter business pacing continue to be volatile as we see business placing very late. July looks end down in the mid single digit range, but the good news is that local revenues are positive for July up about 2%.

Unfortunately, national business is weak and placing very late at this point. Given the week-to-week volatility in the late placing business predicting the third quarter finish at this point is nearly impossible. So with that we would like to turn it over the Neil and then we will take your questions.

Neil Johnston

Good morning everyone. I will begin as usual by reviewing the numbers on this mornings earnings release and now I will go through some expense guidance for balance of this year. For the second quarter total revenues decreased 8% to $108.2 million, local revenues decreased 6% while national revenues were down 18%, internet revenues were up 2% for the quarter.

As a result of a challenging revenue environment we continue to focus on controlling our costs for the second quarter, operating expense decreased by 5%. We reduced costs in the areas of sales commission and marketing offset slightly by higher programming cost. Station operating income for the quarter was down 13.6%.

Additionally during the quarter we adjusted the valuation of our performance units issued under our long-term incentive plan. This resulted in a net credit to compensation expense during the quarter of $4.1 million versus an expense of 2.3 million during the second quarter of 2007.

We had an operating loss for the second quarter of $109 million. This is due to a non-cash write-down of intangible assets of $147.6 million following the valuation analysis pursuant to FAS 142. We reduced the carrying value of intangibles assets in 10 markets to the estimated fair values.

Excluding this non-cash write-down our operating income during the second quarter would have been $38.5 million, an increase of 1% over the second quarter of 2007. Our net loss for the quarter was 75.4 million or $0.88 per share versus net income of $20.3 million or $0.21 per share a year ago.

On an after-tax basis our FAS 142 write-down was 96.8 million or $1.13 per share. If we adjust net income for the FAS 142 write-down, our net income would have been $21.5 million, that is up 6% and above the second quarter net income of $20.3 million a year ago.

Our earnings per share would have been $0.25 per share versus $0.21 per share a year ago. Our effective tax rate for the quarter was approximately 33% including a current effective rate of negative 6% and a deferred rate of 39%. Excluding the tax effect of the FAS 142 write down our normalized effective tax rate would have been 40% in total that is 20% current and 20% deferred.

Capital expenditures for the quarter where $1.9 million versus 2.4 million in the second quarter of last year. At June 30th, total net debt of $359 million and our leverage ratio as defined in our credit agreement was 2.4 times. We continue to believe that the most compelling use of our cash is to repurchase our shares while sustaining a moderate amount of leverage.

During the second quarter we repurchased 1.6 million shares for an aggregate purchase price of $18.6 million. As of June 30th, 2008, in aggregate we have repurchased 16.2 million shares at a total cost of $210 million. That leaves $90 million remaining authorized for further share repurchases.

Now on to our expense guidance for the balance of 2008, excluding non-cash compensation expense we expect station operating expenses to increase in the low single digit range. Corporate G&A expenses will be approximately $19 million for the year. We expect our expense under the long-term incentive plan to be approximately $4 million for the year.

We do continue to look full ways to reduce expenses on maintaining the long-term strength of our business. So you may see that expense number come down slightly as you move through the back half of the year. Interest expense for the year is expected to be in the $13 million to $15 million range and our effective tax rate for the third and fourth quarters should be approximately 40% in total, that is 22% current and 18% deferred.

Capital expenditures for the year will be approximately $15 million. That concludes the financial review. At this point, Bob and I will be happen happy to take any questions. Abria Are you there?

Question-and-Answer Session

First question is coming from Jim Boyle from C.L. King.

Jim Boyle - C.L. King

What happened in Q2 to the NTR, other internet revenue? Was it timing or just the soft internet increase?

Neil Johnston

Really a question of timing. As we look and we go through the year, one of the things we are very focused on is our key events and what's happening on the event side of thing. Sometimes events happen and sometimes they don't. We’ve tended to eliminate those events that are not profitable.

Jim Boyle - C.L. King

If the radio industry has been lessened disciplined in its commercial unit inventory choices as you have repeatedly commented on, how do you think the industry will manage adding HD radio inventory?

Robert Neil

Good question, Jim. I think, one of the concerns about HD going into was what kind of commercial inventory was going to run most of the HD-2 stations launched with no commercials. I think in the short term the reality is those HD-2 channels don't have any audience to speak of. So until they do, they're not really capable of being used or monetized much of anything. So I guess any inventory that sits there sort of becomes a bit of a non-issue. In other words, there's a big difference between having the inventory on a station that doesn’t have a lot of audience or no audience, and adding inventory against the station, that's again very powerful in a marketplace. So I think, it’s a good long-term question but short term I don't think it really affects us at all.

Jim Boyle - C.L. King

Neil, the SOI year-to-date are 37.6%. In 2005, your SOI margins were 41.5% or about 400 bits higher. If you go back 2000 they were 40%, 1995, [pre-D Re, pre-cluster] consolidation, Cox Radio's SOI margins were 27.2%. If you take kind of a potential conservative economic projection and conservative radio industry forecast, can you see Cox's SOI margins at least holding the line in the high 30’s or will mid-30s be prudent long-term thinking?

Neil Johnston

Jim it’s very difficult to set a forecast exactly where the margins will go. We are constantly working on insuring them that we maintain the margins we’ve got. We are very focused on what expenses as we cut go, as Bob mentioned in his remarks and I did to. We are still investing in product and programming to make sure that we address the news of our listeners and provide a really strong product and maintain our audience.

But we are able to cut cost and become much more efficient in the back office, so I would hope to maintain margins at or above the current level. It does depend on what happens to the top-line a large part of our costs are salaries. So there's less stability there than certain other costs but we certainly aim to maintain or grow our margins in the long term.

Jim Boyle - C.L. King

Okay. Thank you.

Our next question is coming from Tony Wibel from Citi.

Tony Wibel - Citi

Good morning. I know visibility has been challenged in this environment and you made some comments earlier about it. Has visibility incrementally improved or is it still the same as it was a quarter ago? Or is it getting worse?

Robert Neil

I actually think it is getting worse. The placement of business, later has been a trend that has been in place now for a few years; but it just continues to accelerate, and so you can be looking at pacing and it might look particularly poor four weeks out of the month and then by the time you get to the month, suddenly they start to look better. It is just very volatile. Aain part of it makes sense, I mean think about the categories that I mentioned earlier on the call, automotive, retail and those businesses are operating on a week-to-week, month-to-month basis based on how many cars they're selling or how many sofas and chairs they're selling.

They're making their decision at the last minute and as they make them at the last minute,.. I think when you deal with a slowing economy; people become much more tactical with their advertising instead of strategic. Strategic would say I am planning for the long term, I'm trying to do some brand building or whatever. Tactical advertising goes more about sales, it is s more about goosing demand in the short-term to make some specific goals. So I think a lot of advertisers are on a tactical mode right now rather than strategically. And it will get placed later.

Tony Wibel - Citi

Understood; thank you. The second question is I was hoping to get just a little bit more detail on the FAS 123 reversal this quarter. If you can go through a little more detail what assessment kind of led to that revaluation?

Neil Johnston

Sure, Tony. Essentially we do our impairment testing once a year in late December. However as we look at the deteriorating macro economic factors that are out there, you know, including industry revenue declines and contracting radio station multiples. We felt that it was prudent to take a look at our FAS 142 valuations. The guidance actually says do it annually or more often if you feel it warranted. We just felt that prudent given the fact that multiples had contracted in the industry that we take a look at our FAS 142 valuations.

Tony Wibel - Citi

Okay. And the guidance that you provided for FAS for the full year, obviously that includes this reversal that we saw this quarter?

Neil Johnston

That. I'm sorry I may have misunderstood you. I was talking about FAS 142. You were talking about the long-term incentive plan?

Tony Wibel - Citi

Yeah, the long-term incentive plan in addition to the FAS I guess 123 that you had this quarter, I think you provided some guidelines. Does that also contemplate the reversal I guess we saw this quarter?

Neil Johnston

Yeah. There was a reversal this quarter in our accrual that really counts for the prior year in each of the plans going forward. You will see expense. You won't see a reversal like that. We don't expect in the next couple of quarters. We expect expense for the full year to be about $4 million related to the long term incentive plan.

Tony Wibel - Citi

Great. Thank you.

Neil Johnston

Sure.

Operator

Thank you. Next question is coming from Tim Schlock with Wachovia.

Tim Schlock - Wachovia

Good morning. I just got a couple of quick questions. The first one re political revenue. I know you said it was minimal. Have you seen any bookings for Q3 or Q4? And then second one. is whether you feel this recession is worse than the last two recessions in 2001 and 1991?

Robert Neil

On the political side, political seems to be placing late. Really haven't seen much right now for third quarter. I think a lot of this will fall into place as we get into September and beyond, and it’s too competing for local parties really kind of see what the landscape looks like. It gets a little early for them to make any determinations. Same thing is going in television; television isn't really seeing a lot of political either yet in the third quarter.

So I don't think we're in any kind of unusual position from that standpoint. This is a different kind of slow down, and I think, again since I am not an economist, I have to be careful here. When you study the current economic trends, technically under the technical definition of the recession, so far the economy is not in a recession. But the industries that are doing well are export related, farming, and mainly industries that are not consumer connected. The weak dollar has helped some of those export industries. So, when that all gets translated, stronger exports versus the slow down in consumerism then the -- slow down for consumers is not consumerism. Slowdown for consumers put together then you end up with an economy that kind of flat or growing a little bit.

But as I mentioned early in the call, radio, television, newspapers, all media really including internet have typically relied on some big categories of business and those businesses are struggling. Automotive is struggling, and it doesn't matter at this point now whether you are domestic or import. Even Toyota is struggling.

So, those are things that weigh back on the economy on this slowdown. The 2001 slowdown really, that was a bit of a pull back. I won't consider that a big recession, I don't think that gone historically, we consider big recession in the 1991 was more or like this one. It was more consumers driven.

Of course the difference, in the early 90s and the economy and in the world political situation -- big difference there. There are quite as many uncertainties in the early 90s as there are right now. I think a lot of people are comparing this lot more to the slowdowns that occurred in the 70s and early 80s at this point.

So these are all things that we've been through before, they're frustrating and when you are trying to run a business because in our case as I stated early, our ratings are doing well, our stations are doing well, our sales teams are out performing the marketplace. We just need more revenue in general from the economy I think we'll do just fine.

Tim Schlock - Wachovia

Okay. Thank you very much.

Operator

Thank you. Next question is coming from Jim Goss from Barrington Research.

Jim Goss - Barrington Research

First question is related to the write-downs, this is the third in the past 2.5 years, several of these markets I think have popped up in each of the markets, in each of the write-downs a couple of new one San Antonio, Miami I think made it into this version. You mentioned multiples contracting. As you look at the evaluation of the properties are you looking at multiples in terms of the public market value of the radio stocks or are you looking at the station broker type information? How exactly are you driving that process?

Robert Neil

Jim, it’s a combination. The one thing I will say is, it is not driven by factors we are seeing in any particular market. The write-downs that we’re seeing in individual markets have driven by historical book values more than anything we’ve seen in a particular market.

We, the evaluation is done based on long-term, it is based on long-term cash flow projections and multiple in the industry. It’s done by a third party appraiser. It’s difficult to get private transaction multiples because there haven't been a lot of transactions that are of any significant size very recently. So I think the public market values do play into the valuations. It is really a combination of both. As we look out the discrepancy between what we see in terms of the valuations we have in the books and what the public market values are. I think that is probably the key driver of these write-downs.

Jim Goss - Barrington Research

Looking at some of the adjustments to the sales incentives, I recognize some of it is based on the lesser success being achieved in these markets. But are you seeing an issue with morale among your sales staff that can come back to bite you a little bit in terms of the future sales you might get? And the --

Robert Neil

Just a --

Jim Goss - Barrington Research

Okay. Go ahead.

Robert Neil

Go ahead, Jim.

Jim Goss - Barrington Research

And the other thing I was thinking you made a very interesting point about tactical versus strategic advertising. It strikes me I think this morning Ford indicated they were not going to have leases on SUVs or trucks. And it seems like the automotive category which is probably the biggest advertising category for every media is probably falling into what you were just describing and maybe a comment on that a little bit?

Robert Neil

Okay. Just to clarify on the cost question, this is just simply sales commissions coming down, Jim. It is not a, it is not a reduction in commission. It is not a reduction in sales incentives. It is just a difference in actual commissions paid out versus where we thought the budget would be.

Jim Goss - Barrington Research

Okay.

Robert Neil

So that's where the costs are coming from. There aren't any, we haven't cut commissions; we haven’t reduced sales incentives or anything like that. In fact some markets it is just the opposite we are trying to work on specifically targeting new kinds of business. So, going forward, we really want to incentivize people to do that. I don't think it is really a morale issue. If it is a morale issue, everybody selling ad time right now because there isn't any sales person out there in the world selling ad time right now that's expecting to have a great 2008 year, I don’t think. So, it wouldn't matter what media you were in.

I think as always you work with your sales teams through these things. Historically I think its proven that we take pretty good care of our people and I believe as I said early in the call, I look at the overall performance that we have historically had with our sales teams and it’s real easy for me to [pretty unbashingly] say, I think we have the best sales team and the best sales managers in the business, and we appreciate that. Believe me, I tell them we appreciate it. It is not a lot of fun right now going out on the street trying to sale time, but they do a great job.

And a lot of the success that we’ve seen in the moving away from some of these traditional agency based approaches and moving more toward working directly with businesses have been very successful for us and those things have come at the station level. They haven't come from some kind of huge top down thing. They have just gotten down and said this is what we need to do, and in fact those ideas have germinated from the bottom up and a lot of those ideas are the things that we’ve talked about early in the call about trying to roll some of those ideas out and to other markets.

The automotive business it is just a tough, tough world for those folks right now. There is a larger issue at work here, and that is, it’s a complex issue that has to do with their leasing. As you know, they lease the cars for a certain number of months, those cars come off lease, and there's an accounting issue for them about what those vehicles are on their books for the beginning of that lease period and then what the residual value of those vehicles really ends up being at the end.

So, it is creating heart burn forum from a financial standpoint, because if I leased an SUV five years ago or three years ago, and now that vehicle is coming off lease, well they made some assumption about what that vehicle was going to be worth when it come off lease three years ago, five years ago, now we know that SUVs are not going to be worth now what they thought they were going to be three or five years ago.

This creates an economic overhang for them, and I think part of what they're talking about doing on these lease issues that you mentioned with SUVs and trucks is they don't want to be in that position. So this kind of is a way to solve that. I think a lot of the dealers have been, very smart in their advertising about focusing on fuel efficient vehicles. You see more and more of that and all of the marketing that's out there right now.

So it is just a very, very frustrating time for automotive business too. I think -- they don't control gas prices. I think a lot of them made their plans with the long-term assumptions that gas was probably going to be around $3 a gallon and then in the last 12 months those assumptions have kind of been blown apart as in the airline industry.

So, they're having to think short-term tactically which is how do I move these trucks, how do I move these cars and then the long-term strategic issues that they face, what kind of mix of vehicles are we going to work on for the future.

Jim Goss - Barrington Research

Thanks very much.

Robert Neil

That was a long and probably more involved answer than you wanted. But hopefully gives you an idea of what we face and what the auto dealers face right now.

Jim Goss - Barrington Research

Okay.

Operator

Thank you. Next question is comes coming from James Farrant of Morgan Stanley.

James Farrant - Morgan Stanley

Thanks. Can you give us a sense of just given your market mix -- expect the back half political dollars to sort of be incrementally and by which you saw in 2H '06 and 2H '07?

Robert Neil

That is a hard one -- because its -- the race is pretty neck in neck right now on the presidential side. We have a lot of stations in Florida, different polls have shown McCain either comfortably ahead or closer than they expected. As we get closer to the election, a lot of what happens for us will be whether or not Florida is in play just because of our big presence in the state.

We -- obviously we just have gated in Ohio, Georgia right now doesn't look like that's going to be in play. So, I think a lot of it will hinge on Florida and where the election looks as we head into September and October. I don't think these guys make long term plans. You know what I mean I was just talking about tactical versus strategic. I think their marketing is very, very tactical based on what they're seeing in the polling.

James Farrant - Morgan Stanley

Okay. Just one follow up. You mentioned the pacing in July and that local was actually up and you haven't seen many sequentially positive local [business] points across the market but is there anything to read in a category or a market perspective or is it just a build than the larger decline or was there anything you really thought that was maybe interesting that you can read through the rest of the quarter?

Robert Neil

Again I can't speak any larger, economic trends in our industry. I do know this, okay. Our teams are very focused that local business that they can take control. We really can't control national business. We don't have the sales teams out doing the national business. That's done by the rest. But we can control stuff locally and we can, do that in a number of ways. And so, I think the teams focus have been on we don't know what's going to happen with national, so we got to try to get it done locally.

There's just a lot of focus on you know a lot of new business calls and, working on local markets as best we can. There's a lot of new categories out there that -- our folks are out calling on that they didn't use to because they didn't have to. This is a different kind of environment and again I just think the lion share of focus from the local management teams is on local business.

James Farrant - Morgan Stanley

Okay

Next question is coming from Michael Schecter of Mentor Partners.

Michael Schecter - Mentor Partners

Can you go back and it looks like your buy back slowed down a little bit in the quarter versus the last two. If you can go through some of your reasoning given where the stock prices and also on the (inaudible) write downs really related to public market values and not private market values?

Robert Neil

Michael, I think on the stock buy back plan, there are a number of variables about how those plans work. There are limits on how much stock we can actually buy or from a volume level. There are different levers in terms of price targets. The other thing is that the values have particularly started to -- all the public mark value have contracted here starting in early July.

Again I can't really speculate on what activity we are at it any given time. There are just a lot of different factors in it. So I don't think I would read too much into any individual quarter whether it was up or down, one way or the other. It's a plan in place -- we continue to be opportunistic about when we take advantage of it but there is also some one that's on just how much and when we can do.

So what's your second question again?

Michael Schecter - Mentor Partners

In looking at the write down of the goodwill -- it was more public market than private market valuation.

Robert Neil

It is because there aren't a lot of private market valuations that you have access to right now that you can look at, that are closed and that you can reasonably say well all this, there are lot of private market transactions and here is what they are going at. Cox has always been historically a conservative company from the standpoint of, we are very transparent with our financial information.

We've never played any games with it and when you look at the contraction in multiples in the industry, we just felt that it was the right thing to do, that’s part of what we do. We look at the valuation. We are required to do it once a year but we are also, if you look at that rule, we are required to look at it more often and if we think there are significant changes and there have been significant changes in the public multiples. So, that's why we did it. Again there's no hidden agenda here, we think it is just a good prudent conservative financial values to look at this kind of stuff and do it the right way.

Michael Schecter - Mentor Partners

Appreciate it.

Operator

Next question is coming from Zev Nijensohn from Pine Cobble Capital

Zev Nijensohn - Pine Cobble Capital

I have a question on stock buy backs. In light of the contracted multiples across the industry a deteriorating economic environment can you talk about the corporate finance decisions to use free cash for stock buy backs versus dividends?

Robert Neil

Well, I will take part of this Neil and you can feel free to jump in. We have a stock buy back in plan. We tend to, re-evaluate these things periodically. We often get questions about because our balance sheet is strong what should we do with that. In the particular case of Athens we just bought some radio stations, so a lot of it depends on where we are at any given time. We are always looking at it and we have just right now believed that the stock buy back plan that we have in place is the best way to deploy the capital.

Neil Johnston

I think that the one other thing that’s important to remember is the stock repurchase gives us much more flexibility. We are able to buy back stock if we see that's the right thing to do, and if we don’t feel like it is the right thing to do, as we watch our balance sheet, we are able to stop, where as with the dividend I think it becomes much more difficult to stop and start or to really change it, I think once you make a decision that your going to start paying a dividend, I think investors unless its a one time dividend expect that dividend payment to continue and I think we just very mindful of the balance sheet. We want to make sure that we maintain a very strong balance sheet in our guidelines of 2.5 to just under 3 times, that's important to us. And so the share repurchase gives us the most flexibility and the maximum return for shareholders.

Zev Nijensohn - Pine Cobble Capital

I appreciate that. Thanks.

Operator

Thank you. Our next question is a follow up from Jim Boyle with C.L. King.

Jim Boyle - C.L. King

Hello again. Bob

Robert Neil

Hello Jim.

Jim Boyle - C.L. King

Well, we are just trying to keep the crowd looking a little more crowded than thin. Cox has 86 stations. If Cox Radio had to react to long-term change in media and consumer landscapes, would Cox bulk up or streamline its 86 station portfolio?

Robert Neil

I don't think at this point moment it would be smart to answer is that either way. I think, the great news for us is this has been our balance sheet. We are not way levered up, so it gives us a lot of options to look forward on what we might like to do. I think it’s that classic situation that you find yourself in this environment and which is, which would you rather do with your capital? Would you rather buy back your stock at multiple turn that it is right now or you know, buy more radio stations and my own opinion right now is that there continues to be a disconnect right now about where the public multiples are and the expectations of sellers about the multiple that they want to get back for their radio stations.

I think what our company has historically shown you and anybody else is that, we are not committed to any strategy forever. We will adjust that strategy as we go, if we think there are opportunistic things to buy, we would buy them. If we think it is more prudent to buy back the stock we would do that. I don't think it is ever start to commit yourself to a long term strategy and say this is what we are going to do when you really don’t know a lot of specifics about how things are going to come down in the future. I think it’s a little more prudent to say we are flexible and our balance sheet allows us to be flexibility. We are not under any huge pressures or uncomfortable situations with banks or covenant or any of those kinds of situations. We have our debt down at a very, very manageable level. So we can afford to say to you we will take a look at the situation as it arises and we have the able to be flexible.

Jim Boyle - C.L. King

Let me turn it on its side then. Have you ever done an analysis or do you have a view on is all else being equal given market variables, is the optimal cluster size four stations, six stations, eight stations?

Robert Neil

I don't think there is any optimal cluster size Jim. You know very well. You have operators like Jerry Lee in Philadelphia with one radio station and he runs it really well. He makes a lot of money and has a good business going there with just one radio station, okay. There is other markets where you can have six or seven radio stations and they could all be in the tank. I think at the end of the day, I still believe that there are synergies and advantages to operating lots of stations in a market, but may be your answer needs to be as long as the stations are all good in the cluster or most of them are good, then as many as you can have.

But I don't think that anybody has proven it one way or the other right now that there's any, necessarily optimal size cluster. It all has to do with which radio stations are in the cluster and I will tell you this, and again this is just off the [cuff] but I think if you have a cluster of five or six radio stations and they're all not very good, then may be that's a market that you would rather trade out with somebody, even if you are only going to get a good station or two in another market. If the stations are just all of them are historically way, way, way, way down, then it's pretty hard to get six or seven radio stations all in the top let's say eight or ten, if they haven't historically been there. So that's pretty tough task.

Jim Boyle - C.L. King

Okay thank you.

Robert Neil

I don't think that anybody has proven that any one size of clusters is any better than the other.

Jim Boyle - C.L. King

That's why I thought I would ask the radio [major].

Jim Boyle - C.L. King

Thank you.

Operator

Thank you. At this time, there appear to be no further questions. I'd like to turn the call back over to Robert Neil for any closing remarks.

Robert Neil

All right, thank you, operator. We appreciate everybody being on the call today and as always, Neil and I are available to answer any of your off line questions. We will see you a quarter from now.

Operator

Thank you. That does conclude today's Cox Radio conference call.

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Comments

[dictatortot:]

Cox Radio has no heart. Neal Boortz ridiculed a disabled child on WSB in March, and Cox has refused to do anything about it. This kind of behavior should be punished, not rewarded. A lawsuit is reportedly in the works, and if there's any justice in the world, Cox will wind up paying a few million.

2008 Aug 04 06:01 PM