Question-and-Answer Session
Operator
[Operator Instructions]. Your first question comes from Alan Gould from Natexis Bleichroeder.
Chris Ferris – Natexis Bleichroeder
This is Chris Ferris on for Alan Gould. I was wondering if you guys could delve a bit deeper into the advertising trends you’re seeing. Are there any particular ad categories that are soft, and when did you really start to see the weakness creeping in? Secondly, Henry, you’ve tackled the programming challenges which is evident from the rating success you’ve seen, and you’ve successfully renewed the carriage agreements. I think the next big issue is for you guys to address the balance sheet. Can you give us some sense as to how you might start to deleverage that balance sheet, especially now that you have this nice free cash flow? And then finally, Brian, you touched a bit on expense trends, and maybe I missed it, but could you talk about the SG&A outlook for the rest of the year?
Henry Schleiff
Brian, I think it was largely financial. I’ll maybe add to your response.
Brian Stewart
Chris, just going through the advertising discussion. As you can see through our results through the second quarter, the impact that we’ve seen in the advertising market really didn’t start taking effect at least in our business until we started getting into the third quarter scatter. The second quarter scatter, as Henry outline, was very, very strong for us, but as we were in the second quarter and beginning to book business for the third quarter and are now in the third quarter seeing some scatter business, but for the fourth quarter, we certainly see softening in those rates. It’s, we believe, substantially less dramatic than what some of the other participants in media and even in the network space have seen, so we think that the downside for us is going to be relatively limited, but we have started seeing softening in the third quarter, and as you’d expect, it seems to impact our direct response piece of our business first and work its way up into the general rate business, but again we think the impact on us is going to be less than the rest of the market, and again, we still think that we’ll be able to get to our middle teens growth for the full year. In terms of the capital structure, that the risk of being somewhat repetitive, it really is the story that we’ve been discussing over the last few quarters, which is what we believe the right approach is for the business today, to focus on improving cash flow, continuing to focus on our operations to make sure that we’re focused on maximizing our cash flow, but also positioning the business for continued growth, and if we continue to establish that track record of substantial growth in cash flow, we think that as we get into the second quarter of 2009, when we begin to have expiration of the J.P. Morgan facility and other events that lead to a natural restructuring of our existing debt, we’ll be extremely well positioned. We’ll have an established track record of laying out expectations, meeting those expectations, substantially growing the cash flow of the business, and hopefully then be in a market place that’s a little more attractive for discussions around refinancing. So the strategy for now is to continue to focus on the operations of the business for 2008 and that will set us up, and in hopefully first half of 2009 to start looking at our options in terms of restructuring our existing debt. The benefit that we’ve got today is that our existing debt, with the exception of the J.P. Morgan facility, is cash-deferred interest as you know, so we’ve got the luxury of some time to wait out a not entirely favourable credit market and continue to focus on the operations of the business.
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