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Executives

Vincent Sadusky – President & CEO

Scott Blumenthal – EVP, Television

Rich Schmaeling – SVP & CFO

Analysts

Tim Schlock – Wachovia Wells Fargo

Avi Steiner – J.P. Morgan

Aaron Watts – Deutsche Bank

Edward Atorino – Benchmark

Bishop Cheen – Wachovia

Stacey Finerman– Goldman Sachs

Jonathan Levine – Jefferies

Ken Silver – The Royal Bank of Scotland

LIN TV Corp. (TVL) Q4 2008 Earnings Call Transcript March 12, 2009 8:30 AM ET

Operator

Good morning, ladies and gentlemen. And welcome to LIN TV Corporation’s earnings call for the fourth quarter and full year that ended December 31st, 2008. Today’s call is being recorded. Before we introduce today’s speakers, I’d like to read a brief legal statement from the company.

This conference call may include statements that constitute forward-looking statements, particularly in the area described as business outlook. But also including any other statements of future business prospects or financial results, including, but not limited to the use of words like believe, expect, estimate, project, or other similar expressions.

Forward-looking statements inherently involve risks and uncertainties, including among other factors, general economic conditions, demand for advertising, competition for audience and programming, government regulations, and new technologies that could cause our actual results to differ materially from the forward-looking statements. Factors that could contribute to such differences include the risks detailed in the company's annual report on form 10-K and other filings made with the Securities and Exchange Commission, which are available on the company's Web site www.lintv.com in the Investor Relations section or at www.sec.gov, which discussions are incorporated in this release by reference.

LIN TV undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, unless otherwise required to by applicable law. At this time, I’d like to turn the call over to LIN TV’s President and Chief Executive Officer, Mr. Vincent Sadusky.

Vincent Sadusky

Good morning. I’ll start with an overview of our fourth quarter and full year results and get right into the significant actions we have taken to improve our financial condition and operating performance during this economic recession. Scott Blumenthal, our Executive Vice President on Television will update you on our station’s operations and efficiency measures. And in front of me, Rich Schmaeling, our Senior Vice President and Chief Financial Officer, will provide our fourth quarter and full year financial strategy and results. We will close with our current 2009 business outlook, and then we will take your questions.

LIN TV’s net revenues decreased 4% in the fourth quarter as the economic recession deepened and the financial distress facing auto makers heightened to unprecedented levels. TV ad sales were down 7% on the fourth quarter despite generating $24.4 million in political advertising. Political advertising was one of the bright spots in 2008. Our television stations generated $47 million in political advertising for the year, a 40% increase over the 2004 presidential election cycle on a pro forma same station basis.

Another bright spot was LIN’s ability to generate significant digital revenues. In Q4 of 2008, digital revenues, which include Internet advertising revenues and retransmission consent fees, continued their tremendous growth pattern, increasing 96% to $9.3 million, offsetting some of the negative TV ad sales results. Digital revenues for the full year 2008 increased 95% to $29.1 million.

Digital revenues continued to differentiate our company and was a major factor in our ability to increase net revenues by 1% in 2008. Compared to our peers, LIN delivered one of our industry’s strongest results. We believe digital revenues will help offset some of the projected TV ad sales decline in 2009.

As we’ve mentioned on our third quarter earnings call, in response to the weak economy, we plan to further rework our cost structure and take a fourth quarter restructuring charge. In Q4, we incurred a $12.9 million restructuring charge for workforce reduction and the cancellation of certain syndicated television program contracts. We anticipate saving approximately $9.2 million per year from this restructuring.

We also took a fourth quarter impairment charge of $732.3 million to reduce the carrying value of our intangible assets. A portion of that impairment charge was for broadcast licenses, goodwill, and broadcast equipment made obsolete by the digital transition. We also recorded a $53.6 million charge for our investment in the NBC Universal joint venture. Rich will provide more details on accounting charges later in the call.

We focus on making smart efficiency changes as well as improving our balance sheet during this unprecedented economic downturn. We’ve taken a number of significant steps, all of which have already been implemented or well on their way to emerge in this downturn a stronger and more efficient company.

First, we have initiated an aggressive cost reduction plan totaling $25 million or 9% of LIN TV’s 2008 operating expense base as part of our plan to significantly reengineer workflow throughout our television stations. Our actions will include moving more LIN stations into our technology hubs, improve content sharing between our interactive and TV products, and changing the way we gather and produce news.

From 2006 through 2009, cumulative workforce reductions will total more than 300 full time employees or 14%. And 70 positions will have been reinvested, primarily in Internet and digital growth initiatives. Those numbers demonstrate our management team’s commitment to making changes that will positively impact our business.

LIN TV’s early investment in state-of-the-art technology equipment enabled our company to automate several labor intensive functions so we have been able to work more efficiently using fewer resources. Many of our studios are fully equipped with robotic cameras that are programmed with hundreds of shots and our master control operations are nearly all automated. In addition, we have eliminated the finance and administrative positions at our individual stations, and centralized these functions resulting in considerable cost savings.

LIN TV was one of the first broadcasters in the country to prepare for the digital transition by investing in our capital infrastructure and new technology. With many of our capital costs relating to the digital transition completed, we are able to significantly reduce capital expenditures in 2009.

Second, we took meaningful steps over the last several months to reduce our debt by taking advantage of the weakened credit markets to purchase $148 million of our 6.5% of our senior subordinated notes at a significant discount. This key initiative eliminated $67 million of net debt, and we also expected to significantly reduce our interest expense. Strong operational efficiency continues to be our top priority in 2009, and our fourth quarter 2008 actions will help us achieve our 2009 goals.

We’re in the process of building out new digital newsrooms that are comprised of video journalists who are skilled in multi-tasking, including video camera operations, writing, and editing. This new integrated approach to news gathering and reporting across multiple mediums is one of the most significant changes ever implemented by our company and is transforming the way we do business.

As a result of careful planning, training, and communication, our station is – our stations are embracing our new culture and are working very hard to produce more local news on a 24/7 real-time basis for our Web, mobile TV outlets using fewer resources.

On the revenue side of the business, we are experiencing unprecedented reductions in consumer and advertiser spending, which is impacting our local and national advertising revenues. To help offset these declines, we are aggressively building new audiences that advertisers want to reach and diversifying our company away from the single revenue stream of traditional broadcasting.

LIN TV plays particular emphasis on expanding local programming in 2008. We launched several new local lifestyle, entertainment, sports, and news programs that are reaching new audiences, capturing market share, and most importantly, distinguishing ourselves from the competition. An important part of the LIN’s strategy is to increase the amount of local programming and to do this with fewer resources. Our local communities and advertisers are excited about being involved with high quality local programs that are customized and unique to our markets.

We significantly advanced LIN’s new media business in 2008. We focused on creating a digital culture at our newsrooms, partnering with innovative companies to enhance the process of integrating our on air and online content and launching local digital initiatives that engage audiences around our market leading brands and generate new revenue opportunities.

Internet advertising and other interactive revenues increased 38% in Q4 ’08, compared to the same quarter 2007, and 61% for the full year 2008. Total page views for the year were 563.6 million, compared to 427.1 million for 2007, representing a 32% increase. Unique viewers for the year were 65.3 million, compared to 47.8 million for 2007, representing a 37% increase. And time on site was an astounding 13 minutes 37 seconds for the 2008 year, compared to seven minutes 14 seconds for 2007, an increase of 88%.

According to January 2009 data released by Hitwise, an online competitive intelligence service for Internet measurement, Lin TV has been the number one or number two local media Web site in all of our markets based on visit time. The amount of time that our viewers are spending on our station Web sites is a critical measure because it indicates how engaged users are with our content, and ultimately, how deep they are going into our Web sites driving loyalty, return visits, and ad impressions. In addition, we serve nearly 2 billion ad impressions in 2008.

During the fourth quarter 2008, we successfully completed the launch of our new local Web sites using Fox Interactive media’s cutting edge publishing services. We believe our station Web sites are some of the best in our local markets and provide visitors with customized interactive features, including a new video player that is user-friendly and engaging, blogging, advanced weather features, map disc programming, social networking tools, and customized news delivery.

We have successfully transformed the culture at our television stations and in our newsrooms so that the top priority is to get it fast and first to the viewer and user through multiple channels. This includes changing our workflow of information that capitalized on our viewers and users receiving information, notices, and overall content in a timely manner.

We have also instituted the use of new camera technology in laptops with editing software in the field to get our content and stories to our users and viewers as accurately and as fast as possible. We are industry leaders in new media and our online business has the potential to continue growing. As well as we’ve done in our online business, today, only 6.5% of the local population visits our Web sites. And we believe there is room for growth in terms of both viewership and advertising revenue.

In addition, we believe mobile deliver of our award winning content is another growth area. We have created mobile versions of our local Web sites that draw about 4 million page impressions a month and we are now focused on selling advertising on this platform.

For the long term, we know our spectrum has value beyond traditional television channels, and digital technology enables us to separate a portion of that spectrum for incremental services. We have been active in exploring use of that spectrum and have partnered with the Open Mobile Video Coalition to launch new technology that will provide live local and national over the air digital television to consumers via next generation portable and mobile devices.

We have now successfully negotiated with every major pay TV provider in our local markets, enabling our company to participate in and receive a fair share of subscription fees. In the fourth quarter of 2008, Lin TV’s retransmission revenue increased 128% from the same period in 2007. For the full year 2008, retransmission revenues increased 114%. We look forward to the full year impact of those retransmission agreements in 2009.

Before I hand it over to Scott, I want to emphasize the strength of our business. We’ve taken significant measures to improve our operational efficiency, strength in our local brands, and grow new revenue streams. In addition, television is still the dominant media, and only growing stronger. I am confident in the fundamentals of the TV broadcast business, in our core product, and in our ability to expand digitally. We expect to operate a very healthy and cost efficient business now and well into the future.

However, it will be critical to significantly change the historic television business model. Our team at LIN has the technology to plan and the determination to do this. Now, I’d like to hand it over to Scott.

Scott Blumenthal

Thank you, and good morning, everyone. As Vince mentioned, our business is facing unprecedented challenges right now. During the fourth quarter 2008, we continue to experience significant pull back from a number of national and local advertisers. In response, we are even more focused on intense training and development for our sales, Internet, and news personnel.

The recently held company-wide sales in news seminars focused on training the trainers in order to achieve more productivity and efficiencies as they relate to not only traditional positions, but also newly developed rules across all platforms, including broadcast and new media. Our ultimate goal is to produce more local news and information for our Web, mobile, and TV outlets with better quality using fewer resources.

We continue to redefine job descriptions and reengineer the workflow process. Through the use of new technologies, we’ve been able to consolidate jobs. Thus, creating a more productive and efficient environment with fewer positions. We’ve also recently finished remodeling our Grand Rapids in Green Bay newsrooms in the multi-platform digital operations. These are excellent examples of our efficient use of technology to minimize overhead and to streamline labor intensive tasks.

In addition, we are reevaluating all variable expenses based upon their ability to deliver a maximum return on investment. We are renegotiating all program contract renewals as well as cost with third party suppliers in a serious effort to achieve our aggressive cost reduction plan. While we are focused on efficiency, at the same time, we’re committed to investing in our core broadcast product.

In the fourth quarter, we expanded our morning news on all of our Fox stations and developed new local programming ideas that would allow sales integrations. Notwithstanding the strength of our local TV franchises in the infusion of political spending in this election year, we were not able to fully overcome the ongoing softness in numerous ad core categories, which included automotive, restaurants, retail, and financial services. The auto category, which has historically been LIN TV’s largest advertising category, fell in the second place, with auto revenue down 40% in Q4 of ’08.

Our core local and national advertising sales combined, which excludes political advertising sales, decreased 26% in the fourth quarter of ’08 and 11% in the full year of ’08. Local advertising sales, which excludes political advertising, decreased 24% in the fourth quarter of ‘08 and 9% for the year. Local ad revenues represented 51% in the quarter and 59% for the year of total TV ad sales. National advertising sales, also excluding political, decreased 30% in the fourth quarter and 16% for the year. National advertising sales represented 26% in the quarter and 29% for the year of total ad sales.

Only two categories of our Top 15 were up in Q4, home improvement and travel and leisure, this of course excludes political. And I can assure you that we fully maximized each and every political opportunity on all of our multiple platforms. For example, with just days left in George Bush’s presidency, our NBC station at KXAN in Austin, Texas was one of only four television stations in all of Texas and the exclusive station in Austin to be granted an exit interview. KXAN TV news and new media teams provided the entire interview from the White House, unedited through LIN TV’s centralized content management system. Then, all of the LIN TV market Web sites simultaneously streamed it immediately following the conclusion of the interview. This is just one example of how we focus on important content that has a local angle and is a benefit to all of our stations.

Another performance measurement that we’re very proud of is that our ratings were just terrific in the fourth quarter. This is despite having 15 of our stations’ signals removed from Time Warner Cable’s lineup in 11 markets for nearly a month. 56% of our stations gained audience share, with adults 18 to 49 and 25 to 54 in the morning news day part. This, of course, is the fastest growing time of day in terms of viewers and advertising revenue.

Nielsen data also showed that our stations outperformed the national networks in the category of household share by an average of 30%. For the 2008 full year, we operated the number one or number two local news stations in 81% of our markets. On average, LIN TV stations have grown 25% across all local news day parts in household ratings year-to-year.

To illustrate a few key station growth examples from our last rating book, WLUK Good Day Wisconsin weekend morning increased 283% since its launch last year in Green Bay. WTHI news at 6 p.m. increased 56% in turn out. WANE night cast at 11 p.m. increased 40% at Fort Wayne. And WTNH Good Morning Connecticut at 6 a.m. increased 29% in Hartford and New Haven. These are just a few of the results we have achieved with our plans to continue increasing our relevance and relationships with our viewers and advertisers in each of our markets.

And now, I’d like to hand it over to Rich, who will discuss our fourth quarter 2008 and full year 2008 financial performance.

Rich Schmaeling

Thanks, Scott, and good morning, everyone. I have a lot to cover. I am first going to take you through our results for the full year and the fourth quarter, including the special items we’ve recorded. Then, I’ll focus on our debt and key credit metrics at year end. And finally, I’ll discuss the outlook for 2009 and describe the significant actions we’ve put into play to address this challenging economic environment.

Our 4Q ’08 net revenues beat the high end of our guidance range and came in at $104.2 million. Compared to last year’s $108.6 million, net revenues for the quarter were down $4.4 million or 4%. For the full year, net revenues increased 1% to $399.8 million. The decline in fourth quarter net revenues was driven by a lower local and national advertising sales of $82.4 million, compared to $111.6 million during the same quarter in 2007. This decrease was partially offset by higher political advertising sales of $24.4 million, compared to $3.2 million for the same period in 2007 as well as strong growth in our digital revenues, which increased 96% to $9.3 million from $4.8 million in the same quarter of 2007.

For the full year, the 1% increase in net revenues was driven by political advertising sales of $47 million versus $6.1 million in 2007, and by the strong growth in digital revenue, which increased from $14.9 million in 2007 to $29.1 million in 2008. The strength in political and visual revenue was offset in part by an 11% decrease in local and national advertising sales, which declined from $415.9 million in 2007 to $368.6 million in 2008.

Our total station operating expenses for 4Q ’08, which includes direct operating SG&A and program payment costs, but excludes stock based compensation, decreased by 1% or $0.6 million to $66.5 million. For the full year, our total station operating expenses increased 1% or $2 million to $259 million, compared to $257 million in 2007. This increase was primarily due to increased contract costs.

As a result of the decline in 4Q ’08 net revenues, BCF for the quarter was down $3.8 million or 9% to $37.7 million, compared to $41.5 million in the prior year. For the full year, BCF was up $1.8 million or 1% to $140.8 million, compared to $139 million in 2007.

Our corporate expenses, excluding stock based compensation, increased by $0.3 million to $4.8 million for 4Q ’08, compared to $4.5 million in the prior year. This increase was largely due to legal and retransmission negotiations costs. For the full year, our corporate expenses decreased $0.4 million or 3% to $17.4 million, compared to $17.8 million in 2007.

Largely driven by a decline in revenue, adjusted EBITDA for 4Q ’08 declined by $4.1 million or 11% to $32.9 million, compared to $37 million in 4Q ’07. For the full year, adjusted EBITDA grew $2.3 million or 2% to $123.4 million, compared to $121.1 million in 2007, driven by increased net revenues of $3.9 million and partially offset by increased costs of $1.6 million.

And finally, free cash flow after debt service increased to $3.7 million in 4Q ’08, compared to $0.4 million in the prior year. This increase was primarily driven by reduced capital expenditures of $4 million, reduced debt amortization payments of $2.1 million, a decrease in cash interest payments of $0.9 million, and offset by a $4.1 million decline in adjusted EBITDA. For the full year, free cash flow after debt service fell from $35.2 million in 2007 to $26.3 million in 2008, driven largely by the amortization payments on our debt of $22 million versus $7.1 million in 2007.

Now, moving on to the discussion of the special items that were recorded in the fourth quarter. First, as a result of the company’s annual experiment testing, we recorded a non-cash charge of $732 million related to our broadcast licenses, goodwill, and certain obsolete analog broadcast equipment. This charge is primarily as a result of the recession, financial credit crisis, and the current distressed market value of TV stations.

Second, due to a continued decline in the operating profit of our NBC Universal joint venture stations, we determined that there was an other than temporary impairment of our investment. And as a result, we recorded a non-cash charge of $54 million to write off our carrying value. I will adjust the outlook for the JV later.

Third, as part of our cost reduction program, we recorded a restructuring charge of $12.9 million. This charge includes $4.3 million for our workforce reduction, which impacted 144 employees, and $8.6 million for the cancellation of a number of syndicated programming contracts. As Vince mentioned earlier, we expect to save about $9.2 million per year as a result of these actions.

And finally, in the fourth quarter, we took advantage of the dislocations in the credit market and purchased a notional amount of $26 million of our 6.5% senior subordinated notes for $12.3 million, and recorded a net gain after charging off related deferred financing fees of about $13 million. We continued this plan into the first quarter of this year. And I will summarize the full results in just a few minutes.

Turning to our debt and key credit metrics. At December 31, 2008, we had cash on hand of $20.1 million, with $90 million available under our revolving credit facility. Our total debt was $743.4 million, with $15.9 million of this balance classified as short term based on our projected quarterly term loan amortization. We have repaid $42 million of our term loans during the fourth quarter using balances available under our revolving credit facility and excess cash on hand. The average cash interest rate on our debt at 12/31/08 was about 5.4%.

Consolidated leverage at year-end, as defined under our senior credit facility, was 5.7 times, compared to 6.5 times at the end of 2007. Our covenant at 12/31/08 was seven times, and it stays at this level through the end of 2009.

Our interest coverage ratio at 12/31/08 was about 2.6 times, compared to our covenant of two times. In our consolidated senior leverage ratio was about 1.5 times, compared to our covenant of 3.5 times.

Lastly, at the end of ’08, the company had approximately $264 million of net operating loss carry forwards.

Looking forward to 2009, in light of the credit crisis and the impact of the recession on the demand for advertising, the company recently undertook a number of significant and difficult steps to improve its financial condition and operating performance. As noted earlier, during the fourth quarter, we initiated a plan to purchase our 6.5% senior subordinated notes on the open market. Cumulatively, under this plan, which expired based on its terms on February 24th, we purchased $147.8 million or 26% of our outstanding 6.5% notes at an average discount of 45.4%, and extinguished $67.1 million of net debt. We funded these purchases using capacity available under our revolving credit facility and cash on hand.

At the end of February, after fully accounting for the impact of this program including charging off the weighted deferred finance fees, our total debt balance was $700 million, and the average cash interest rate on this debt was about 4.9%. Over the last 14 months, we have reduced our debt by $133 million, from the $833 million outstanding at the end of 2007. We estimate that this action will reduce our cash interest expense by an excess of $7 million over the next 12 months, and that it will reduce our consolidated leverage at the end of 2009 by over one-half term.

At the end of February, we had cash on hand of $24 million and we also had $24 million of capacity remaining under our revolving credit facility. The cancellation of debt income, realized as a result of this plan during 2008, was sheltered from tax by our net operating loss carry forwards. And the gain realized in 2009 will be deferred and recognized equal installments during 2014 through 2018 based on tax relief recently enacted into law as part of the American Recovery and Reinvestment Act. If conditions are right, we may execute another such program during the latter part of this year.

As discussed earlier by Vince also during the fourth quarter, we initiated an aggressive cost reduction program that aims to reduce our base operating expenses by $25 million or 9%. Over 80% of the dollar value of our planned actions have already been put to play and all other actions are well underway. After investments in our digital operations and to strengthen our programming, along with normal cost escalations for items such as medical benefits, we expect to reduce our operating expenses at 2009 by about $20 million or more.

Further, based on our current financial projections we expect to remain in compliance with our bank covenants. But given the state of the economy and the level of advertising revenue uncertainty, we have to find a series of further cost reduction actions that we could enact and largely realize during the remainder of this year, if necessary.

Focusing on the outlook for the first quarter of this year based on our currents sales order piecings [ph], we expect that 1Q '09 net revenues will decrease in the range of 20% to 25%, compared to reported net revenues of $93.1 million for 1Q '08.

In addition, after factoring in the benefit of our cost reduction actions, we expect that stations' direct operating and SG&A expense will decrease in the range of 9% to 12% or about $5 million to $7 million for the first quarter, compared to reported expenses of $58.6 million for 1Q '08. As a result, we provided the expected ranges of revenue, expense, and cash flow items from 1Q '09 that you saw in our press release earlier this morning. Looking at the full year we expect stations' direct operating and SG&A expense will be down between 7% and 11% versus 2008.

In regard to the outlook for the NBC Universal joint venture, because of the depressed advertising environment, we estimate that the cash available to the JV may fall short of the amount needed to service the GECC note during 2009 in a range between 1$ million and $5 million. To avoid a potential event of default under this note, NBC Universal and LIN have agreed for 2009 to share in any such shortfall on the basis of our economic interest in the joint venture. As LIN holds about 20% of the JV based on our current estimate of the likely shortfall range, we would be required to fund between $200,000 and $1 million of this shortfall. Because of this agreement with NBC-U and because the GECC note does not contain any financial covenants, we believe it is unlikely that there will be an event to default during 2009.

And finally, before I hand the call back to the operator to take your questions, I would like to touch upon a notice we've received from the New York Stock Exchange on January 8th stating that LIN was not in compliance with the average market capitalization continued listing standard. We have submitted our business plan that demonstrate our ability to regain and sustain compliance with – with the standard within the prescribed 18-month cure period. This business plan will be reviewed for final disposition by NYSE's Listing and Compliance Committee and we expect to receive feedback within the next month.

I'll now hand it back to the operator.

Question-and-Answer Session

Operator

(Operator instructions) We'll take as many questions as time permits and we ask that you please limit your questions to one. (Operator instructions) And we'll go – and we'll go first to Marci Ryvicker with Wachovia Wells Fargo.

Tim Schlock – Wachovia Wells Fargo

Good morning, this is actually Tim Schlock for Marci, I just got a couple of quick questions. The first one, have you guys seen the level of cancellations increasing and have you increased your bad debt at all? And then the second one is, were you hearing from advertisers with regard to how they are looking at 2009 and where they plan on spending their money?

Vincent Sadusky

I think on the – on the bad debt piece of it, we have this part of our plan for 2009, we have significantly increased our bad debt expense, just assuming that was a prudent thing to do given where the economy is at. We feel very comfortable with the level of bad debt that we've budgeted for 2009.

With regard to where they are putting their money, we have actually spent some time over the last couple of weeks with our advertisers out on the field, some of our largest advertisers. And it's interesting, they – of course, the absolute number of ad dollars have been significantly reduced in concert with this recession. But the folks I've spoken with have cut back on their advertising on many mediums but have kept their allocable share to television. And actually in most cases, most of the folks I've spoken with they've actually increased their amount of television advertising budget as a percentage of their total budget.

I've talked to auto dealers. I've talked to heads of agencies, retailers in our markets, and their ad budgets are largely television, a little bit of radio, and interactive as well. So it’s giving us comfort that in this worst of times, they are sticking with what works and disproportionately that's television and, also to a lesser extent, interactive as well.

Tim Schlock- Wachovia Wells Fargo

Okay, thank you very much.

Operator

And we'll go next to Avi Steiner with J.P. Morgan.

Avi Steiner – J.P. Morgan

Thanks a lot, guys. I'll ask one question with a couple of parts here if you don't mind. I missed this, but if you give us the pro forma revolver balance at the end of February, maybe where cash was post bond buybacks? Part two of that question, I think you said you planned on being on compliance for the full year, and I just want to make sure I heard that right. And I thought I heard Rich say that as a result of the actions, you're going to reduce leverage by about half a term from previous expectations. I don't want to misquote you. I'm trying to get a sense of where you thought you would end the year.

And maybe lastly, on the joint venture and the funding that you're going to make, in 2010, assuming things get back to normal, and then maybe it's the wrong word, but things turn out what political, is it safe to assume that money will be sent back to LIN? And I'll go back in the queue for more. Thank you.

Rich Schmaeling

Okay. So let me start with the buy back program, Avi. At the end of February we had $24 million of cash on hand and $24 million of capacity remaining under our revolver. And yes, I did say that the – we expect that the buyback program will result in about $7 million reduction in our interest expense and we'll reduce our consolidated leverage at the end of 2009 by over half term..

Moving to your question about the NBC-U joint venture, that is the view, that in 2010 as things get back to normal, or whatever the new normal is, that if there is a shortfall that those shortfall loans will get paid back after first re-establishing the cash reserve within the joint venture.

Avi Steiner – J.P. Morgan

So if I could follow up on that, so there is a shortfall from the cash reserve? And I think with that number $15 million, so that has to get back to $15 million is that right?

Rich Schmaeling

That's correct.

Avi Steiner – J.P. Morgan

Okay. I'll jump back in. Thank you.

Operator

And we'll take our next question from Aaron Watts with Deutsche Bank.

Aaron Watts – Deutsche Bank

Hey guys, good morning.

Vincent Sadusky

Good morning.

Aaron Watts – Deutsche Bank

I know it's probably hard to tell, but could you give us a sense now that we're sort of halfway into March and does it feel like the advertisers in your market have stabilized their spend or does it still – are you still feeling pull backs? Just trying to get a sense for whether does it feel to you we've hit a bottom or does it feel like there's more way to go?

Scott Blumenthal

I think, actually we're going to see a little bit of both. I think our biggest category of automotive we've hit a bottom. Most of those dealers that are in jeopardy have survival or in fear, those guys have already stopped spending. The ones that are still operating many rooftops the market still needs to sell cars. And although, as Vince indicated, they have lowered their budgets, they are increasing their percentages towards television. And I think we're going to see that to continue. It's a little bit hard to guess in a lot of the other categories because business is coming in so late as if determining advertising budgets against their prior quarter sales. But so far, we're fairly comfortable that we're starting to see things stabilize in most categories.

Aaron Watts – Deutsche Bank

Okay. And any range or guidance you can provide on what to expect for re-trans in ’09 versus ’08?

Richard Schmaeling

Yes, re-trans is about 70% of our total digital revenues, and we expect it to be up in the low 40’s.

Aaron Watts – Deutsche Bank

Low 40%?

Richard Schmaeling

That’s correct.

Aaron Watts – Deutsche Bank

Okay. And then the last one, I know your program to buy back bonds ended. Is it safe to say, going forward for the year, most likely use of your cash would be to repay the revolver balance? Is that the right way to think about it?

Richard Schmaeling

We said that if conditions are right, we may come back and execute another similar program during the latter part of this year.

Aaron Watts – Deutsche Bank

Okay. Thanks guys.

Richard Schmaeling

Thank you.

Operator

And our next question comes from Edward Atorino with Benchmark.

Edward Atorino – Benchmark

Hi, would you remind us what your debt covenant requirement is?

Richard Schmaeling

It’s the consolidated leverage covered in, is seven times –

Edward Atorino – Benchmark

That’s what I thought, yes.

Richard Schmaeling

through the end of 2009.

Edward Atorino – Benchmark

Right. Okay. And anyway, the other questions I had are pretty much answered.

Richard Schmaeling

Thank you.

Vincent Sadusky

Thank you, Ed.

Operator

And our next question comes from Bishop Cheen with Wachovia.

Bishop Cheen – Wachovia

Hi, thanks for taking the question. Let me go back to the balance sheet a second because it’s a lot of moving parts. So I know you’ve given us some clues, but let me just run it down. Pro forma end of February, I understand the 24 cash, the 24 available on the 275 revolver, what’s the revolver outstanding pro forma.

Richard Schmaeling

$201 million.

Bishop Cheen – Wachovia

$201 million? Okay.

Richard Schmaeling

$201 million and the available is now $225 million, not $275 million.

Bishop Cheen – Wachovia

Well, because it’s a reducing revolver, right?

Richard Schmaeling

No, I think it was reduced as part–

Vincent Sadusky

Our amendment back in – this past summer brought it down to $225 million.

Bishop Cheen – Wachovia

Okay. $225 million capacity, $201 million outstanding. Then we have a term, roughly $120 million at September 30. What’s the term now?

Richard Schmaeling

Our term loans outstanding at the end of December was about $78 million. And during the course of 2009, we’re going to advertise about $16 million of that balance.

Bishop Cheen – Wachovia

Right. Okay. All right. And then it gets us to the most moving parts. You’ve done a great job arbitraging your funds and setting your ratios. So when I do the quick math, I get about 4 – 4 something outstanding on the – what have you got outstanding on the bonds pro forma. I sort of have $408 million.

Richard Schmaeling

Yes. I think it’s a little bit higher than that. Maybe like 4 – yes, it’s in that ballpark.

Bishop Cheen – Wachovia

At $408 million?

Richard Schmaeling

Yes.

Bishop Cheen – Wachovia

Okay, so that gets us roughly where we do it to the – you said 700. So there’s something open there somewhere?

Richard Schmaeling

You mean the revolvers? Down 20–

Bishop Cheen – Wachovia

$201 million, $78 million, and $408 million.

Richard Schmaeling

That’s right.

Bishop Cheen – Wachovia

Okay. All right. So I was just trying to get to that. And then let’s close, just quick session with that. (inaudible) leverage, because you do get some carve outs from the covenant leverage. Roughly, it tends to be about three-tenths of a turn between the actual map and the covenant map. What’s in that covenant map?

Richard Schmaeling

Well, in years prior, distributions from the NBC huge joint venture were part of bank compliance EBITDA. We don’t expect distributions during 2009 from the joint venture.

Bishop Cheen – Wachovia

Right.

Richard Schmaeling

And going back to your math on the 6.5% notes, I think the bridge between the $700 million and your math, I think there’s a little bit more outstanding on those six and a halves.

Bishop Cheen – Wachovia

But more than the $408 million?

Richard Schmaeling

Yes, more–

Bishop Cheen – Wachovia

Whatever it is to get us back to 700 (inaudible) outstanding.

Richard Schmaeling

That’s right.

Bishop Cheen – Wachovia

Okay. And then, so do we expect, as you go through ’09’s covenant map, because it’s going to be tight under the covenant, I would think. That – It’s going to be that three-tenths of a turn is going to shrink in ’09 when you take your actual debt divided by your adjusted EBITDA. Will that approach the covenant map a lot more? We won’t see but maybe more than a tenth of a difference?

Richard Schmaeling

Yes I haven’t done that math, to be honest with you. So I really couldn’t comment on that. I hear your point, but I think I’ve given you the key information is that – what accounted for the difference in the past is directly was the distributions from the NBC huge joint venture, and we don’t expect any distributions during 2009.

Bishop Cheen – Wachovia

Got it. All right, and then the last thing that helps us get towards the, where we think you’re going to be in ’09. On the restructuring cost, and you’ve given us a lot of color about that on what you’re going to save. But as a percentage, you also run through the P&L, for one time restructuring charges. You’re going to match against the cost savings per headcount reduction, severance, et cetera. In your targeted $25 million of cost savings, that you have, what percentage of that might be restructuring charges that we’ll see run through the P&L.

Richard Schmaeling

Yes. The restructuring charge was taken in the fourth quarter. So that, the 25 we told you, call that, think about as the gross cost saved that we’re aiming to achieve. We said net of – kind of spend that for investments in digital and to strengthen our programming that we expect the net save for 2009 to be about $20 million. And if you think about our bank compliance EBITDA, the restructuring charge – if we have further charges in 2009 we have a carbel [ph] in our amendment for such items up to a maximum of $20 million. So none of that is going to hit bank compliance EBITDA.

Operator

And our next question comes from Stacey Finerman with Goldman Sachs.

Stacey Finerman– Goldman Sachs

Thank you, my questions have been answered.

Operator

(Operator instructions) And we’ll go next to Jonathan Levine with Jefferies.

Jonathan Levine – Jefferies

Yes. I just have two questions. When do you expect to hit your run rate in terms of the savings, what quarter? And in terms of the RP basket, how much do you have available at this point?

Richard Schmaeling

We probably will hit the full run rate for our cost saves during the third quarter. The lion share of the saves, we said about 80% have already been put into play. So yes, we really think exiting out of the first quarter we’re going to be about 80% there, and the rest of the targeted saves are going to trickle in as we execute our remaining actions during the course of this year.

Jonathan Levine – Jefferies

Okay. And in regards to the RP basket?

Richard Schmaeling

Yes. Well the RP basket was refreshed at $150 million and we spent about $81 million against executing our buyback program.

Jonathan Levine – Jefferies

Okay. Great. Thank you.

Operator

And we’ll take our final question from Ken Silver with The Royal Bank of Scotland.

Ken Silver – The Royal Bank of Scotland

Hi, two quick questions. Did you give a CapEx budget for 2009?

Vincent Sadusky

It’s in our guidance range. We gave a range of $12 million to $14 million. We’re working toward the low range numbers. (inaudible).

Ken Silver – The Royal Bank of Scotland

Okay. And then on the re-trans, are you finished with re-trans for this go around or are there more deals being negotiated right now for ’09?

Vincent Sadusky

We’re finished. We have a couple of real small operators, but the amounts are (inaudible) compared to our total.

Ken Silver – The Royal Bank of Scotland

Okay. Thanks.

Operator

And with no more questions on the queue I’d like to turn it back to our presenters for any additional or closing remarks.

Vincent Sadusky

Very good, well thank you everybody for your continued interest in Lin TV and we look forward updating you throughout the year.

Operator

Ladies and gentlemen, this concludes today’s conference. We thank you for your participation and have a great day.

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Source: LIN TV Corp. Q4 2008 Earnings Call Transcript

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