Greetings, and welcome to the Sinclair Broadcast Group Inc. Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Amy, Executive Vice President and Chief Financial Officer of Sinclair Broadcast Group. Thank you. Mr. Amy, you may begin.

Oh thank you, operator and good morning, everyone. Participating on the call with me today are David Smith, President and CEO; Steve Marks, Chief Operating Officer of our Television Group; and Lucy Rutishauser, Vice President, Corporate Finance and Treasurer. Before we begin, Lucy will make our forward-looking statement disclaimer.

Thank you, Dave, and 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. Such factors have been set forth in the company's most recent reports on Forms 10-Q, 10-K and 8-K as filed with the SEC and included in our fourth quarter earnings release. Our earnings release was furnished to the SEC on an 8-K earlier this morning. The company undertakes no obligation to update these forward-looking statements. The company regularly uses its website as a key source of company information, which can be accessed at www.sbgi.net. In accordance with Reg FD, this call is being made available to the public. A webcast replay will be available on our website later today and will remain available until our next quarterly earnings release. Redistribution of this call is prohibited without the expressed written consent of the company. Included on the call will be a discussion of non-GAAP metrics, specifically, television broadcast cash flow, EBITDA, free cash flow and leverage. These metrics are not meant to replace GAAP measurements, but are provided as supplemental detail to assist the public in their analysis and valuation of our company. A reconciliation of the non-GAAP metrics to the GAAP measures in our financial statements is provided on our website under Investor Information, Reports & Filings.

Well, thank you, Lucy. Before we go through the results, I wanted to highlight some of our more recent accomplishments. On the acquisitions front, we closed on the purchase of Four Points Media in early January. Our expectation of their results are reflected in our full year outlook. In regards to the Freedom Communications television stations, we received antitrust approval in November and began, operating their stations pursuant by local marketing agreement or LMA on December 1. We expect to close on the Freedom stations late in the first quarter or early in the second quarter, and as such, have included their respective results in outlook beginning April 1. The funding for both acquisitions was raised in the bank market. Lucy will go through the details later, but we understand these acquisitions and the different timing of their closings are complicating your modeling. A lot of your questions on the call, we will answer, but don't worry, if you need to go over any other points, Lucy will be glad to assist you off-line. Anyway, let's turn to our results. Net broadcast revenues for the fourth quarter were $180.8 million, a decrease of 14 -- 4.9% or $9.3 million lower than fourth quarter 2010 due to $22.7 million less in political revenues. Excluding political and the recording of $7.7 million of LMA expense reimbursement and revenues, our core broadcast revenues grew 3.5%. For the year, net broadcast revenues were down 1.2%, but up 2.9% excluding political and the LMA expense reimbursement. Television operating expenses in the fourth quarter defined as station production and station SG&A expenses before barter are $83.7 million, up 12.2% or $9.1 million from the fourth quarter last year. Included in the increase was a $7.7 million of LMA expenses, which relates to the Four Points and…

Thank you, Dave. Total debt at December 31, was $1,206,000,000. Included in that number is $51.8 million as a nonrecourse VIE debt that will require us to consolidate on our books and another $13.5 million that is related to Cunningham debts. During the quarter, we used cash on hand to repurchase in the open market $8.6 million face value of the 8.375% senior notes due 2018. The notes were purchased at a discount to par. There is currently $237.5 million face value outstanding on the bonds. We ended the quarter with $13 million of cash on hand and had $12 million drawn under the revolver at quarter end. Currently, the revolver is undrawn. Even with making almost $60 million in acquisition deposits in the back half of 2011, and despite the absence of political, our credit statistics remained fairly unchanged. At year end, total net leverage through the holding company was 4.18x as compared to 4.10x at the end of the 2010 political year. This excludes the VIE and nonrecourse debt. The first linear debt in this ratio was 1.47x on a covenant of 3.75. The total indebtedness ratio through the television operating company was 4.17x on a covenant of 7.25. And interest coverage with 2.9x on a covenant requirement of 1.35x. As mentioned earlier, in November, we made $38.5 million deposits on the $385 million purchase price for the Freedom stations with the remaining $346.5 million to be paid at closing. In December, we amended certain terms under our bank credit facility, including increasing our incremental loan capacity and television station acquisition capacity. We raised an additional $372.5 million of term B loan commitments and an additional $157.5 million of term A loan commitments. $180 million of the new term B loan was drawn in January to fund the…

Thank you, Lucy, and good morning, everybody. Our net broadcast revenues in the fourth quarter were $180.8 million, and as Dave mentioned, meeting guidance. This reflects a 3.5% growth in the core business. For the year, the core revenues grew 2.9%, which we are really pleased with, considering that the auto is industry was disrupted during the year by natural disasters in Japan and Thailand. Political revenues in the quarter were $4.1 million as compared to $26.8 million in the fourth quarter last year. For the year, political revenues were $8.3 million, which was a record-breaking nonelection year for us. We believe this is an indication of how strong campaign initial ad spending will be in 2012. Local broadcast revenues were up 6.6% in the fourth quarter and up 5.1% for the year. Excluding political, local was up 13.3% and 7.4% for the quarter and year, respectively. The increases were due primarily to higher spending by the domestic auto manufacturers, grocery, medical and retrans. National Broadcast revenues were down 31% in the quarter and down 18% for the year, including political and down 7.4% and 5.9% for the quarter and year, excluding political. The shortfall was primarily due to declines in spending by the telecommunications, fast food, direct response, insurance companies and reduced media spending by other forms of media. On a local-national combined basis, we saw a growth in our key advertising categories of auto, grocery and medical. Auto represented 22.3% of our time sales and grew 11.9% in the quarter. In line with our guidance of low-teen digit percent growth for the year, automotive was up 9.7%. Turning to our outlook. For the first quarter, we are estimating that net broadcast revenues will be $187.6 million to $190.6 million. This assumes $4 million of political versus $600,000 in…

[Operator Instructions] Our first question comes from Bishop Cheen of Wells Fargo.

I think we all have the numbers now. I'm trying to figure out the moving parts. Let me ask you, just overall, you've had your hands on the stations now, Four Points in October, Freedom in December, what is your biggest surprise about what you bought, to the positive and the negative?

Gosh, Bishop. I think the -- I don't think there were any particular surprises because when we did our due diligence on them, we learned what we needed to know to make the decision to buy. So I think it's fair to say that across the board, that the people running those businesses on a day-to-day basis are just very buttoned up professional people and we're happy to have them as part of our group. I think we're going to learn a lot from them because they do a lot of things differently than we do. So I think the opportunity for our best practices extract out of them is a good thing for everybody.

Just to add to the opportunity here in West Palm Beach, I think we got really fortunate. We did the Four Points deal, and then we did the Freedom deal, we've ended up with -- we're ending up with a nice duopoly situation there. The Freedom station has used to be the #1 CBS news operation there when we -- we're looking forward to that opportunity. There's a -- with the difficulties Freedom had in terms of just being able to fund it and stay competitive, that's an unfortunate situation for them, but a great opportunity for us. And you can see that reflected in the comments Lucy was making in regards to the cash spending that we're putting in place and that we're going to be very aggressive in terms of developing and building our competitive positions against -- in all of our markets and West Palm Beach is just a perfect example of the where we think we're going to really experience growth and some great performance getting that back to where they were.

Our next question comes from Marci Ryvicker of Wells Fargo.

I have 2 questions. The first, after these acquisitions are digested, do you have a target leverage ratio that you're looking to meet before you provide incremental capital return? And then the second question is on auto. The pace of low single-digits for Q1, Steve, can you break that out between domestic and international and maybe talk a little bit about GM because there's been a lot of press stating that GM has canceled some of their TV buys given their change in advertising agencies? So anything you're saying with GM would be great, too.

We're seeing saying but nothing but steady stock from GM. I know that, that question has arose, but the business is stable there, they changed agencies, but things are going well. There are no cancellations that we are aware of presently. In terms of the automotive category, I think you have to take into consideration that we had so many Super Bowls last year. We enjoyed so many Fox affiliates and obviously, we only have one NBC station. In terms of the pace, as it pertains to foreign and domestic, there's nothing that's unusual. They're both doing okay. As we go into first quarter, again, when you extract that Super Bowl number, the pace the first quarter in the category, as a totality, is actually pretty impressive. I think as you go into -- further into the year, you're going to see some increased spending, which we're already witnessing from Hyundai. You'll see Toyota come back where they were devastated last year beginning in second quarter and they've already started spending significant dollars. We'll enjoy that throughout the remainder of 2012. And I think the category will continue to be a very positive force for us throughout 2012. So a very critical category, as you could tell by our performance in the fourth quarter. It was strong and in the first quarter, when you extract the Super Bowl, and all you had to do is take a look at all the Super Bowl ads and in this past weekend to get a feel for how much the automotive category participates in the Super Bowl. When you take that into consideration, our pace the first quarter was pretty decent and that we expect to continue throughout the year.

Dave, to Marci, you saw that we just declared another $0.12 dividend and it's just comparable to what we've been doing over the last year or so. You're right to look at that question in terms of the implications of our free cash and how that's growing and just where do we come out in terms of our dividend policy. I think it's prudent of us to absorb the stations -- we haven't have yet to close on Freedom. And it is a question that we're looking at and measuring in terms of what the -- what steps to take in regards to our dividend policy. Certainly, that's the -- when you take a look at your model, you see where our debt leverage is going and it's, as we have mentioned and talked about on previous calls that we expect to see the leverage rise as we close, but then with the '12 and the performance of '12 that in the free cash flows that we're generating, we're -- we will be getting back close to where we started. So in our balance sheet, it looks like it's going to continue to really -- to strengthen as we go through the year. Free cash flow will rise with the acquisitions. So that's -- it's a question we have to and will be looking at further as the year goes on.

Our next question comes from Aaron Watts of Deutsche Bank.

One operational one to start with. Maybe this is aimed at Steve. Just curious in looking at the gap between local and national performance right now, is it really just kind of the nature of the recovery from the recession? Or are there certain categories that are just kind of stalling right now on the national side? Just some thoughts on that.

There's actually -- each and every year, there's accounts that from national to local. We have some of those interested as well and first quarter this year. Some of that is in the automotive category. I think national has been just a little bit sluggish, but as we look at first quarter, we're pretty much right exactly where we thought we were going to be on both local and national. So the market is really meeting expectations in terms of where we thought we would be in the first quarter and we're right on the doorstep of where we thought first quarter would shakeout. So both categories, whether it's national or local, are coming in pretty much as expected. National, a little bit behind the local performance, which is actually pretty strong for us. So there's nothing really that sticks out that's dramatically different than what we witnessed. In the fourth quarter, we're still seeing a little of a sluggishness in the telecommunications category. But the key is that automotive category and that continues to be strong for us. So nothing really all that unusual.

Okay. Now it's helpful. And then 2 more big picture ones. First, I know you guys have your finger on the pulse on this, so from where you sit right now, today, any update on kind of the spectrum auction process.

Oh, that's a big question. We've been participating and getting out there and looking at the whole spectrum issue, not just the auction itself. And, hold on a second.

I think the spectrum auction, based on what I've seen on the hill, it's conceivable that there'll be no auction anytime in the near future because I'm not sure it ever gets in any kind of final legislation because there's fundamental disagreements between Democratic side and the Republican side as to what the bill has to say. So I think if it ever gets into legislation, it gets finalized, then the 64-dollar question is, is anybody going to want to come and sell their businesses. And I think you've heard an enormous amount of broadcasters come out and very publicly say, we have nothing for sale. So I don't think we're any different to that. We certainly have nothing for sale because I think the idea that the government wants to take spectrum space and sell it for what could be $25 billion and then the net of that to the government is about $6 billion based on the recent numbers I've seen. It is so immaterial as to the, almost -- it's sad to think that the government wouldn't want to even contemplate, disrupting a massive business like the broadcast industry over a few billion dollars. So I don't -- I can't certainly can't sit here and tell you positively what's going to happen, nobody can. But it certainly it looks like, right now, that the auction or the notion of an auction getting into legislation is up for grabs and then when anybody shows up, there's even more up for grabs. So I think that the whole auction aspect that what's going on right now in Washington is so overblown in terms of this necessity. And the reality of the effect that it’s going to have is just -- it's out there. Believe me when I tell you, it is out there. The fact of the matter is, there is no spectrum shortage and this is just all about a few nickels and dimes for the government to go do what they need to deal with. It has nothing to do with spectrum issues at all.

Okay. Now -- so it sounds like you don't think it's a 2012 event.

I can -- look, if they promulgated the law tomorrow, based on history, it might be 2 to 5 years before they even draft the rules for the auction.

Yes. Efficiency, not a strong suit.

No. So, I -- it's not something that we're even worried about right now, so...

All right. Now that's helpful. And then last one for me. Just as the dust settles on the 2 acquisitions you just made, and you consider some potential opportunities that may be coming up for further M&A activity, a lot of privately held station groups out there. Can you maybe just give us a sense for your wish list to -- for different priorities? Aside from price, whether it's certain markets you want to be in based on size or location or certain affiliations you want to kind of grow within your portfolio? And that's it for me.

I don't -- look, we'd certainly like to have anything that's characterized as a big four. We'd certainly like to have it in the markets where we are. We don't have a particularly great interest in markets above $125 million, $130 million because there's already plenty of folks in that space that have -- do a great job at it, whether it's Nexstar, Grays (sic) [Gray] or whomever. We think it's prudent for us just focus on the bigger markets or middle markets, as we refer to them. And if we see opportunities out there to go make acquisitions, then we'll certainly consider them the same way we considered Freedom and Four Points. So I don't think there's any rocket science in this. I mean, we're sensitive to what's going on the marketplace right now. And I think we're observant as to what's going on and if we think the opportunity is right, we'll certainly take advantage of it.

Our next question comes from Barry Lucas of Gabelli and Company.

A couple of items. One, maybe Steve, could you just come back to the national-local issue? And if you could handicap, not the category sense, but weakness in network scatter and its impact on your national business? Has that been a contributing factor?

I don't really think so, Barry. Again, I think the numbers are just a pinch behind what I anticipated. And when you go into a quarter, you -- typically, you got a handful of categories that are going to be up a handful of categories that are struggling a little bit. The economy is clearly rebounding, but I don't really view the national spot business as problematic. It's 1 point or 2 below where I thought it would be at this point, but I still got time to catch up on it. There are some categories that are appearing, that haven't appeared before in the positive side. I know you have specifically said to not getting into categories, but the fact of the matter is, that's what we deal with here. The scatter business on the network, I don't really think it's had any real direct effect on us, one way or the other. The national pattern that we're seeing is really no different than what we usually experience. It could be a pinch better, but we still got 1.5 month to go. So I think overall, it's going to be a pretty decent year. It's going to be your typical year where the political is going to be huge. And it's going to affect certain categories, both nationally and locally, with people that are trying to get in. We're experiencing some very interesting stuff with the political. There was nice information yesterday with Santorum winning a couple of primaries, that bodes well for continued dollars and an interesting race. So all in all, I think national will be fine throughout the course of the year. And early indications are a little bit sluggish, but not overly concerning.

Great. Two more if I may. On the M&A front, that was great color, David. Are you getting a sense that there were more sellers out there that the market is freeing up now that we've got 2.5 deals put to bed.

Well, I think that's probably more true than not true and I think it may be driven more by, not people’s desires to exit the business because of any fear, but more related to the time in which they held the assets. So the extent to which people feel compelled to monetize and move on to the next whatever, then that's their call. We're fortunate that we don't have to buy anything. We're huge already, we're certainly prepared to get bigger if need be. And we see the benefits in the leverage associated with it. So I think it's really just kind of a coincidence of timing that a number of folks out there, who may be contemplating the sale, are just doing so because they've held these assets for long, and it's time to move on.

Okay. Last area, kind of the sidebar to the earlier spectrum question. Mobile TV, is 2012 the year that we really start to see product and some sort of business evolve?

I know the Fox NBC folks are working diligently to kind of move in that direction. I can't tell you, with any certainty, whether there's going to be anything of any consequence out there that the public could get their hands around yet. I like to think there is, but I'm not positive it's going to happen just yet. It will come, I'm just not sure what day it's going to come. But when we think it's going to come, we'll be the first to tell you.

Our next question is from Michael Meltz of JPMorgan.

I have, I think 2, maybe 2.5 questions for you. The -- can you just clarify for me the guidance for interest expense and expenses for the full year? I just want to -- when you talk about the acquisitions, are they on the same basis where you're saying you're assuming essentially 4 quarters of Four Points and 3 quarters of Freedom?

That's right, Mike. So for all the guidance that we put out in the press release this morning, Four Points is in for the full year, 12 months. Freedom, we assume that we buy beginning April 1 and so they're earning in for the back 9 months of the year.

Okay. And then the $85 million of expenses for the -- on that basis, those LMA costs are going to essentially go away? Is that the way to think about that, what a run rate expense will be for the -- adding the 2 stations?

So what happens is, in the first quarter, you have the LMA expense related to Freedom. That goes away after the first quarter. And then beginning with the second quarter, they're in fully for all the line items of the expenses.

Okay. And then second question for you, Lucy. You had given the programming costs assumption and I think, correct me if I'm wrong, I think it seems to even be trending down better than you had talked about a year ago x the -- or even probably with the acquisitions. Can you talk about the expectation for programming costs over the next few years?

Yes. I would say for -- with the acquisitions in there, if you budget somewhere in -- around that $73 million to $75 million range for the next 3 years, you should be safe there.

Okay. And then last question. David, this is perhaps for you. On the retrans front, what's -- do you get a sense that the DeMint bill has any traction. What are your views there?

I don't think it ever gets any traction in the grand scheme of things. This is just all, I think, just background noise on the part of the cable folks, trying to get government come and do their work for them. And it's just -- it's unfortunate that the cable monopolies think it's necessary for them to go to the government to get a relief to -- from a little bunch of toy [ph] broadcasters, as I've said. But they'll do what they got to do, we'll do what we got to do. Not to worry.

Our next question comes from Doug Arthur of Evercore.

Just a follow-up on political for 2012. With the -- obviously, the sort of huge surge in Super PACs, it's kind of a somewhat of a new element to the game here. I mean, any thoughts on how big political could be. And does it get to a point where you don't want to squeeze out too many of your regular advertisers from prime time programming?

They'll always come back, Doug. It's the strongest force on the face of the earth. So we'll take the political money while we can and it's going to be enormous. The PAC money that we've witnessed so far is more than interesting. It's really an eye-opener. So we're only one month into it, but it's very interesting what's going on. It's clearly different than what we've experienced before and we're really not dealing with a lot of volume yet, being that it's just the beginning of February. But January was very interesting and a huge eye-opener. And if it's a taste of things to come, it's going to be a very interesting year, so...

But I think the challenge is going to be that the Super PAC money probably isn't going to start to kind of bump and fall into the marketplace until the decision is made as to who the candidate is going to be. That's when the blood's going to start letting. And the further into the year that happens, the more interesting it's going to be from the standpoint of all broadcasters to manage their inventory for the benefit of local advertisers, as well as the money that's going to be standing there trying to work its way into our shelves. So it's, as Steve said, it's just going to be fascinating to watch because we've never seen anything like this before.

Our next question comes from Andrew Finkelstein of Barclays Capital.

One, Steve, in your remarks, you were going through the expense outlook, trying to pro forma and strip away some of the one-time items. Could you just maybe elaborate a little bit more on what you're seeing and expecting in sort of just the core expense side.

I'll take that one, Andrew. So for the first quarter, there's a couple of things that you need to adjust for in order to get back to a same station basis and this is actually true for the full year. If you back out the corporate expenses that we are allocating now down to the stations, and if you back out the acquisitions, you would come up with the -- and the stock-based compensation, which is a noncash expense, you'd come up with the core expenses on a same station basis, being up about 8.1% in the first quarter and about 13% for the full year. Okay, so that's backing out the corporate allocation, stock-based compensation and the acquisitions. And as Steve mentioned, whether it's first quarter or full year, the increases are really being driven by the same categories. That's the network programming license fees, the commissions on the higher revenue, the salaries and compensations to the staff, higher health insurance and digital interactive cost.

Okay, all right. And then one other question. I know it's not broken out anymore. But I don't know if you could give us a sense if retrans and digital growth is outpacing both the local national time sales number. How is this sort of this year stacking up? Or maybe going into 2012 against standard spot sales?

For retrans, we obviously can't chat about but...

One thing we have said in the past is that -- Lucy was talking about the growth in the expense and a lot of that is driven by what she's calling network programming fees, which is a nice way of calling it, reverse retrans. And what we've talked about in the past is that we expect to see that retrans number to be able to grow on our revenue side to grow in a way that really offsets that kind of expense. I think that's about as much color that we can provide in terms of details. So take it from there.

What about on the digital side? Anything happening there?

We continue to try to develop that business for us. It's obviously a business where broadcast is jumping in. We're no different. We play pretty conservatively, but we are a full boat in trying to develop everything on the digital side. And clearly, 2012, I think, will be a building but yet breakthrough year for us. So you can't go throughout a day with hearing something along the digital side. We work feverishly on it, but we still view it as a developing process, so in terms of revenues and how we're going about selling it.

Okay, great. Last one for me. Do you guys expect any change in the other -- the non-broadcast business mix, either be buying maybe or selling as you guys look forward?

Well, we talked a lot about the alarm business, I guess, last call in terms of what our strategy was there. So we continue to support that direction. We have growth plans in place. So, yes, we'll see money is going into that. Those are pretty much sequestered, though, often to our subsidiary that cost for investment group and those money, although they show up on a consolidated basis on the balance sheet, they're really kind of out there and separate from our core business and in terms of our television business. And that's kind of a self-funding project that we have in that regard. So we have some optimistic beliefs there in the alarm business, and the sign business has -- had suffered a bit over the past couple of years with the decline in the -- with the recession and the decline in retail storefronts. Business is picking up on that end, so you know we're expecting to see a nice growth here in '12, not getting back to where it was than necessarily, but that's certainly improving. So we're seeing a lot of positives that way. And in terms of the real estate investments themselves, the strip malls in those buildings, the rental levels are very positive, very strong. So they're doing well. So we're -- that part of the business is doing fine and I like I say, it's pretty much self contained.

[Operator Instructions] Mr. Amy, there are no further questions at this time. I would like to turn the floor back over to you.

All right. Well, thank you, operator. We had a great 2011 and we're looking forward to those prospects of -- that are offered by 2012. We thank you for participating on our earnings call this morning. And again, if anyone has any follow-up questions because of the complexity of the acquisitions that's adding to your model or any other questions for that matter, please give us a call and we'll be glad to answer them. And thanks again.

This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.