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Executives

Denise M. Parent – SVP Chief Legal Office

Vincent L. Sadusky – President & Chief Executive Officer

Scott M. Blumenthal – EVP Television

Richard J. Schmaeling – SVP Chief Financial Officer

Analysts

Marci Ryvicker – Wachovia Securities

Barry Lucas – Gabelli & Company

Brian Warner – Performance Capital, LLC

Lin TV Corp. (TVL) Q2 2013 Earnings Conference Call July 30, 2013 9:00 AM ET

Operator

Good morning, ladies and gentlemen and welcome to the LIN TV Corp’s Earnings Call for the Second Quarter ended June 30, 2013. Today’s call is being recorded. Now, the company will read a brief legal statement.

Denise M. Parent

This conference call may include forward-looking statements that involve risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, those described in the Company’s press release and filings made with the SEC, all of which are available in the Investor Relations section on the Company’s website at linmedia.com and on the SEC’s website at sec.gov. Many of these factors are beyond the Company’s control and the Company undertakes no obligation to publicly update or revise any forward-looking statements unless required by applicable law.

Stockholders are urged to read the proxy statement prospectus, the registration statement and other documents relating to the proposed merger of the Company that have been filed with the SEC. Investors are able to obtain these documents from the Company’s website and the SEC’s website or by contracting the Company directly.

Please also note that the Company and its directors and executive officers may be deemed to be participants in solicitation of proxies with respect to the proposed merger transactions. However, this communication is not a solicitation of a proxy from any security holder of the Company. Investors may obtain information regarding the names, affiliations, and interests of such individuals in the company’s filings.

I will now turn the call over to the Company’s President and CEO, Vince Sadusky.

Vincent L. Sadusky

Thank you, Denise and welcome to our second quarter 2013 earnings call. I’ll begin with a review of results and achievements, then Scott Blumenthal, our Executive Vice President of Television will update you on station operations and Rich Schmaeling, our Chief Financial Officer will provide financials and guidance.

LIN Media increased net revenues by 36% to $164.3 million in the second quarter of 2013, compared to $121 million in the prior year. The Television Station acquisitions we made in 2012 and healthy increase in retransmission fees and the continued growth and contributions of our digital businesses were key drivers that help to offset the lack of political advertising revenue and a sluggish economy.

On a same station basis, net revenues were flat, compared to the prior year. If you factor our political advertising revenues, net revenues increased 5% on a same station basis. The LIN team has been committed to a strategy for years now and as a result, we are less dependent on TV ad sales and our revenue is the most diverse it has ever been.

Increasing subscriber fees continues to be a top priority and we are focused on securing retransmission consent agreements that are more inline with our station superior ratings. During the second quarter, we were pleased that we reached the deal with Time Warner Cable one of our largest pay TV providers. We have worked harder to secure this important dual revenue stream and I believe there is still a lot more room for growth.

In addition, our digital business has made important contributions to our revenue mix. We have invested significantly over the years, acquiring companies that had unique products to our portfolio of industry-leading digital marketing and advertising services, as well as building our own business units such as LIN Mobile that differentiate us from the competition.

After having spent a considerable amount of time strategically evaluating digital companies, we are really excited about having closed not one but two very innovative digital companies during the second quarter. HYFN is a full service digital agency that develops and implements award-winning mobile, social, and web experiences for some of the world’s largest brands, and Dedicated Media a leader in performance-based marketing, data targeting and analytics. To put it simply they have the ability to deliver the right ads to the right users at the right times.

During the second quarter, Interactive revenues which include revenues from LIN Digital, Nami Media, LIN Mobile, Dedicated Media and HYFN increased 98.1% to $20.8 million compared to $10.5 million in the second quarter of 2012. Our Digital Media portfolio provides our sales teams with access to numerous proprietary products and more robust marketing solutions. We are particularly proud of LIN Digital’s advertising network which due to its tremendous reach was ranked as a Top 30 ad network according to comScore’s most recent Media Metrix issued in June.

Today we have more than 250 account executives utilizing our deep relationships to offer diversified suite of marketing solutions for every screen on a national, regional and local level. We are focused on extending the reach of our local brands which drives brand loyalty and in turn attracts advertising dollars.

It doesn’t matter what screen people are viewing on they have instant and easy access to our unique local content 24/7 and on any device. On the TV screens 70% of our big four local new stations ranked the number one and number two in the local market according to the Nielsen’s May 2013 ratings report, and on our digital screens 89% of our local websites and mobile properties ranked number one and number two in their markets for total unique visitors versus our local broadcast competitors that are measured by comScore.

According to comScore’s Media Metrix LIN Media’s unduplicated reach was greater than 80 million U.S. unique desktop visitors reaching over 36% of the total U.S. Internet audience. There is no doubt we have embraced mobile as a next big opportunity to target and engage consumers.

During the second quarter, we integrated our newly acquired television stations on to our news touch mobile platform, which utilizes the latest technology to recognize any device and deliver a customized and superior mobile experience to users and advertisers in our local markets.

Looking ahead, the slow economic recovery and absence of political revenues will negatively impact growth for the remainder of 2013. Facing is currently down in the low single-digits, but we are cautiously optimistic about a few near-term catalysts such as the Affordable Care Act.

Finally, in regards to the merger of LIN TV Corp. and LIN Media LLC, in which LIN Media LLC is the surviving Company; immediately after this call, we will hold a special meeting of the stockholders to vote. Presuming that transaction is approved by the stockholders, the Board will continue to evaluate the appropriate timing for completing the merger.

Now Scott, will provide color on the local markets.

Scott M. Blumenthal

Thank you, Vince and good morning everyone. Local revenues which include net local advertising revenues, retransmission consent fees and television station website revenues increased 44% to a $107.1 million, compared to $74.3 million in the second quarter of 2012.

Net national revenues increased 28% to $32.6 million, compared to $25.4 million in the second quarter of 2012. Net political revenues were $1.5 million, compared to $7.6 million in the prior year. 2012 was a record breaking year for LIN and as a result of our duopoly strategy; many of the markets had twice as much inventory to accommodate the high demand. It also minimize political displacement allowing us to be successful in growing core advertising revenue, which is a terrific accomplishment in an election period.

During the second quarter 2013, core local and national time sales combined, which excludes political time sales, increased 30% year-over-year. Sales from our newly acquired TV stations were a key driver of that growth. On a same station basis, core local and national advertising sales combined decreased 1.8% compared to the prior year.

During the second quarter and throughout the reminder of the year, we are cycling up against some tough comps, such as $31 million of pro forma gross political revenue achieved in the third quarter of 2012, as well as $3.9 million an incremental revenue from last year’s successful London Olympic Games. While some of our markets experienced impressive core ad sales growth; the economy is still soft in other markets.

During the second quarter seven of our top 10 advertising categories were down and automotive, our largest advertising category decreased by 3% year-over-year. Looking more closely of the automotive category, domestic was down 8%, foreign was up 7% and local dealer advertising decreased by 11%, compared to the second quarter of last year.

Financial services, media communications, and entertainment experienced gains, while retail stores, restaurants, services, medical, education, and paid programming, declined year-over-year. Despite mixed economic signals, we are optimistic about some near-term catalysts, including the return of political and Olympic revenue in 2014. We also have a solid plan in place to maximize revenues with the Affordable Health Care Act.

Before I hand it up to Rich, I want to comment our stations for earning some of the industries top awards during the second quarter. LIN took home 18 promotions, marketing, and design awards during the June the 2013 Promax Conference. While, WTHI-TV in Terre Haute 14, Regional Emmy’s and WIAT-TV, our new station at Birmingham, took all five State Associated Press Awards. These are just a few examples that illustrate our commitment to excellence.

And now, Rich will discuss our financial performance.

Richard J. Schmaeling

Thanks, Scott and good morning. During the second quarter, our net revenues came in at $164.3 million up 36% compared to a $121 million during the same quarter last year and we’re within our guidance range. On a same station basis net revenues were about flat the decline in political and in core advertising was offset by growth in retransmission consent fees and in interactive revenues. Excluding political same station revenues were up 5%.

Our interactive revenues which include revenues from LIN Digital, Nami Media and our second quarter acquisitions Dedicated Media and HYFN increased 98% to $20.8 million. Excluding Dedicated Media and HYFN, interactive revenues for the quarter increased $2.7 million or 25%. Our total operating expenses for the quarter excluding stock based compensation and D&A increased 58% or $40.9 million to a $111.5 million, $23.4 million of this increase is for stations acquired during the fourth quarter of 2012 and $8.2 million is from HYFN and Dedicated Media.

The remainder was largely driven by increases in programming fees paid to networks, costs of sales tied to interactive revenue growth and compensation and benefits. BCF for the quarter was up 5% to $52.9 million compared to $50.4 million in the prior year. Corporate expenses excluding stock-based compensation and non-recurring charges were $5.1 million compared to $5.3 million in the prior year.

Adjusted EBITDA for the quarter was $47.8 million up 6% year-over-year and free cash flow was $22.3 million down 54% compared to the $48.7 million reported last year primarily due to an increase in cash interest and due to the impact on this comparison of the $23.2 million of proceeds recognized in the second quarter of 2012, from the sale of WUPW in Toledo.

Turning to LIN’s debt and key credit metrics at June 30, 2013, we had unrestricted cash on hand of $19.8 million and $75 million available under our revolving credit facility. Our net debt was $925.1 million up $81.2 million from the end of last year’s largely due to the $100 million payment during 1Q in connection with the NBC JV sale transaction.

Our consolidated leverage at June 30, as defined under our senior secured facility, was 3.8 times, compared to 3.3 times at the end of 2012 and our covenant of seven times. Our consolidated senior secured leverage ratio was 1.8 times, compared to our covenant of 3.75 times.

Looking at the outlook for the third quarter, we expect that net revenues will be up 22% to 25%, compared to net revenues of $131.1 million in the third quarter of 2012. On a same station basis, we expect that net revenues will be down 10% to 11%, compared to the prior year. Excluding political, we expect that same station revenues will be up 4% to 6% during the third quarter.

Our expenses, we expect that direct operating and SG&A will increase in the range of 59% to 61%, compared to expenses of $66.5 million for the third quarter of 2012, driven largely by the operating expenses of acquired TV stations, as well as increased cost of sales tied to interactive revenue growth and an increase in programming fees paid to networks.

On a same station basis, we expect that direct operating and SG&A expenses will increase in the range of 11% to 13% compared to the prior year, which will be driven primarily by increases in network programming fees, cost of sales tied to interactive revenue growth and compensation and benefits.

In regard to cash income taxes, as a result of the NBC, JV sales transaction in our current stock price, we expect to fully utilize our NOLs to partially sell through the tax bookings triggered as a result of this transaction. Excluding consideration of the cash income taxes associated with the JV transaction, we expect that cash taxes related to 2013 operations will total about $5.5 million. Looking out beyond this year for 2014 and 2015, excluding consideration of discrete items, we estimate that our effective cash income tax rate relative to book PBT will be about 27%.

I will now hand it back to the operator for questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we’ll take our first question from Marci Ryvicker. Please go ahead.

Marci Ryvicker – Wachovia Securities

Hi, thank you. Couple of questions first, post the LLC Conversion is there any reason why you would not be able to engage an M&A either seller or a buyer, any regulatory issues?

Richard J. Schmaeling

Hi, Marci, Rich. Nope, none.

Marci Ryvicker – Wachovia Securities

Okay. Second question is the expense growth. Can you just tell us how much is from New Vision and maybe how much is from Digital?

Richard J. Schmaeling

Yeah, from acquired TV stations in the second quarter about $25 million is related to those stations including the ACME stations, so MBT plus ACME, $25 million in 2Q.

Marci Ryvicker – Wachovia Securities

Okay, and then what about for Q3?

Richard J. Schmaeling

When you asked for digital, but HYFN and Dedicated in 2Q was about $8.2 million.

Marci Ryvicker – Wachovia Securities

Okay. Do you have the same numbers for Q3?

Richard J. Schmaeling

Yeah, for Q3 for NVT, just shy of $25 million and HYFN and Dedicated were about the same.

Marci Ryvicker – Wachovia Securities

Okay, great. And then you commented in the press release that the rest of the year is going to be difficult. How much of visibility do you have at this point for Q3 and Q4?

Scott M. Blumenthal

Yeah, I think it’s an important point. When we look at our piecing right now, the piecing projection last year clearly people booked earlier in advance political and September is hard to call right now. We’re hoping it could break a little bit stronger than our piecing report currently suggests, but beyond this current quarter, Marci, we don’t have a lot of visibility rest of the year from a core perspective.

Marci Ryvicker – Wachovia Securities

And then my last question, I don’t know if you mentioned this already. Do you have a year-to-date cost related to the LLC conversion?

Scott M. Blumenthal

We’re taking that out Marci.

Marci Ryvicker – Wachovia Securities

Okay. That’s all I have.

Operator

(Operator Instructions) We’ll move next to Barry Lucas. Please go ahead.

Barry Lucas – Gabelli & Company

Thank you and good morning. Just a couple, Rich if the shareholders approve the conversion to the LLC and you decide to go ahead today, what would that tax might be? The cash tax liability?

Richard J. Schmaeling

About $57 million.

Barry Lucas – Gabelli & Company

Okay, thank you. You really did a good job on political. So I’m just wondering if you have the pro formas for possibly for 12 and maybe even for eight, so we look at into 2014, which from our way of viewing this situation suggests that 2014 certainly for a non-presidential year should be a [born burner]. So you got an idea what that, what we would be competing against for the even years?

Richard J. Schmaeling

Well, we gave that in the third quarter of this year, we’re up against about 31 pro forma political. And if you go back you’re asking if you go back and look at pro forma 2011, I’m sorry.

Barry Lucas – Gabelli & Company

12 total or eight total?

Richard J. Schmaeling

Yeah, I think we gave that on fourth quarter, it’s over $100 million. But I’ll pick it out from the transcript and send it to you Barry.

Barry Lucas – Gabelli & Company

Okay. Any reason why you wouldn’t think again in a non-presidential year with the number of issues that fairly high-profile whether it’s First Amendment, Second Amendment, Fourth Amendment, Affordable Care Immigration that you wouldn’t think you could do better than that?

Scott M. Blumenthal

Yeah, Barry, this is Scott. We’re very optimistic about what’s ahead of us in 2014 with the political year, as you said it’s going to be a lot of gearing up in the house to get ready for Presidential election two years later they want to swing their vote. So we are anticipating not only money from the issues, you have already indicated, but we think it’s going to be a lot of money spent on individual raises, we try and take control house back.

Barry Lucas – Gabelli & Company

Right exactly, Scott. Thank you. Last item, when you responded to Marci’s question about potential M&A down the road nothing in the conversion that would tell you, what about prices? I mean just looking at Sinclair’s comments in the Allbritton stations and the Tribune purchase, it looks like whether you go pre-synergies, post synergies prices are up a couple of turns in the last year as more people have jumped into the pool. So how do you view, one, the availability of stations and maybe what do you think about sellers expectations these days?

Vincent L. Sadusky

Yeah, it’s a great question. The industry is consolidating very rapidly and you’re seeing these chunkier deals get done. If you look across the landscape, there is fewer and fewer deals that potentially will be available in the future of scale. And so I think you’ll see more stations swapping and you’ll see more smaller groups recognized that there is sub-scale and a nice arbitrage and re-trans from the larger operators versus some of the smaller operators on that front.

So I think that’s kind of where it’s going as far as the values go, we really can’t speak to the kind of the deals that have been done from the kind of buyers’ perspective, from our perspective. We like to look at all this, which gives us great insight to kind of benchmark our own stations performance.

But we got a pretty strict ROI hurdle rates to get over that we kind of just impose on our sales. And this is a pretty heady time driven by, I think cost and re-trans arbitrage that are absolutely real, and a strong view from certain operators that scale going forward is increasingly valuable and there is some synergy value to be placed against that.

For us it’s been the perspective of, I think we were pleased to get the New Vision stations a little less than a year ago, quite frankly we view those as stations with a lot of just pure operational upside and we’re very excited. It’s been a lot of hard work. But we’re very excited about the new very talented people, we’ve been able to bring into those television stations are processes, our sales and news gathering and digital expertise and infrastructure.

So, that was a nice opportunity for us, but I think to do things that are kind of chunkier are increasingly harder and harder, as we’ve seen all the deals you just mentioned. There is plenty of folks out there with much larger balance sheets than us that are willing to take a pretty big swing, kind of in the name of scale and we just have been very value conscious and obviously focused on digital and looking at in-market opportunities as well. So, I think we’ve got a little different view on M&A than some others have had.

Barry Lucas – Gabelli & Company

Great, thank you, Vince.

Vincent L. Sadusky

Sure.

Richard J. Schmaeling

Hey, Barry your question about 2012 local and political was a $103 million.

Barry Lucas – Gabelli & Company

$103 million, okay.

Richard J. Schmaeling

And Marci, June year-to-date, we’ve spent about $3 million on the LLC conversion transaction.

Operator

And we’ll move next to Eric Stuart. Please go ahead.

Unidentified Analyst

Good morning. I’m wondering if you could give a little more color on categories compressively you had 5% positive same station growth, ex-political given that seven year top 10 categories were down, maybe you could give a little more color there? And then with regard to your re-trans agreements, maybe you can discuss what percentage of your distribution agreements have as acquire causes associated with them?

Vincent L. Sadusky

Well, yeah, thank you. We’re pleased with some of the growth we’ve seen also on our categories. It’s a mixed bag market-by-market. And as you know biggest category automotive was down slightly and that’s not the production that generally looks bad. I will secondly ask your question here and suggest you that a minor deficit on automotive categories is probably due to the fact that we are victims of our own success.

As we indicated in 2012, we were very fortunate with that duopoly strategy to minimize any kind of preemption loss we would have had on displacement and we were able to put a lot of money that was being displaced by our competitors in our markets.

So in 2012, we actually achieved an extraordinarily high share of business. In 2013, now that the inventories available and political is growing that money is spreading back out again. So that would constitute a little bit of share loss for us. And it’s one thing in terms of share, but in terms of actual dollars for automotive, our Q2 on a legacy stations is up 21% over Q2, 2011. So we think the performance is on target and we think that the work and the sales strategies and philosophies that we put forth. And our legacy stations are going to be beneficial within the development of division acquisitions also.

Richard J. Schmaeling

And then specifically it’s a mixed bag, we mentioned auto retails down little over 1% restaurants were down between 5% and 6%, financial services are up little over 10%. So it’s as you kind of go down the list it’s a mixed bag and autos are the most significant category for sure. So that really drove a lot of that the overall performance when you add all the numbers up. As far as after acquired clauses, that’s a very important provision for us. We don’t quantify what percentages have it, but it’s very important and it’s an important driver in our evaluation of certainly of M&A.

Unidentified Analyst

And would you say that you have a majority of your MSO agreements have as acquired or can you give us any color around on that?

Vincent L. Sadusky

Yeah, it is indeed a majority.

Unidentified Analyst

Okay. All right thanks gentlemen.

Vincent L. Sadusky

Well thank you.

Operator

We’ll take our next question from Brian Warner with Performance Capital. Please go ahead.

Brian Warner – Performance Capital, LLC

Hi, just one question, could you give us a sense of really the qualitative or quantitatively some color on the Affordable Care Act advertising and whether you’re starting to see anything near and so how big do you think it’s going to be and when do you think it’s going to flow in?

Vincent L. Sadusky

Well we’re not in a position right now to actually project real numbers. It’s all a rumor and hear say. But we have seen some grand money in three of our markets coming through. And I know they are all getting geared up to present for the future. In the conversations we’ve had with the agencies that are representing those dollars, they are suggesting that it could be substantial but we have not seen actual numbers yet, except for a few orders.

Brian Warner – Performance Capital, LLC

Thank you.

Operator

(Operator Instructions) We’ll go next to Barry Lucas with Gabelli & Company. Please go ahead.

Barry Lucas – Gabelli & Company

Yeah, thank you. Just one quick follow-up Rich, and what was the percentage of the renewal of on the Time Warner Cable that is what percent – what portion of footprint in terms of households might that have represented?

Richard J. Schmaeling

Between 20% and 30%, I can’t remember the number exactly, but it’s between 20% and 30% of our sales.

Barry Lucas – Gabelli & Company

Great, thanks very much.

Richard J. Schmaeling

Sure, thanks.

Operator

And I would like to turn the conference back over to our presenters for any closing remarks.

Vincent L. Sadusky

Okay. Well, thank you all for participating and we look forward updating you throughout the third quarter.

Operator

That conclude today’s conference. You may now disconnect and have a wonderful day.

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