LIN TV Corp. Q1 2010 Earnings Call Transcript

Apr.23.10 | About: Media General (MEG)

LIN TV Corp. (TVL) Q1 2010 Earnings Call April 22, 2010 10:00 AM ET

Executives

Vincent Sadusky – President and CEO

Scott Blumenthal – EVP, Television

Rich Schmaeling – CFO

Analysts

Marci Ryvicker – Wells Fargo Securities

Jonathan Levine – Jefferies

Aaron Watts – Deutsche Bank

Barry Lucas – Gabelli & Co.

Paul Sweeney – Bloomberg Research

Edward Atorino – Benchmark

Bishop Cheen – Wells Fargo

Leo Cole (ph) – Citi

Operator

Good morning, ladies and gentlemen, and welcome to LIN TV Corporation’s earnings call for the first quarter that ended March 31st, 2010. Today’s call is being recorded. Before we introduce the speakers, I will like a read 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 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 website www.linmedia.com in the Investor Relations section or at www.sec.gov, which discussions are incorporated in this release by reference.

LIN TV Corporation 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 will turn the call over to LIN TV Corporation’s President and Chief Executive Officer, Mr. Vincent Sadusky. Please go ahead, sir.

Vincent Sadusky

Thank you, operator. Good morning and welcome to our first quarter 2010 conference call. I will begin with a brief review of our results and highlight the progress we have made during the quarter. Scott Blumenthal, our Executive Vice President, Television will update you on our stations’ operations and Rich Schmaeling, our Chief Financial Officer will provide our financial results. We will close with our current business outlook and then we will take your questions.

We are pleased with our first quarter 2010 results. Net revenue increased 23% to $91.8 million, compared to $74.5 million for the same quarter in 2009. Our revenue growth was driven by a recovery in spending across most of our major advertising categories, especially automotive which was up 54% from the first quarter of 2009.

Political revenues were $3.4 million in the first quarter of 2010, compared to $500,000 for the same quarter in 2009. I expect political to be a strong growth category this year as a result of a large number of gubernatorial races, congressional races and contentious issues, as well as less restrictions on corporate and non-profit campaign advertising spending.

In addition to the increase in TV ad spending, the increase in revenues is also a result of our top performing local US newscasts and unique local programs. In the first quarter of 2010, we launched two new local shows Hampton Roads and Norfolk, and Indy Style in Indianapolis. We are pleased that advertisers are showing their support by investing their marketing budgets in our new programs.

Our additional business continues to deliver great results. In the first quarter of 2010, digital revenues which include Internet advertising revenues and retransmission consent fees increased by 47% to $13.2 million, compared to $8.9 million for the first quarter of 2009. If you drill down a little further, retransmission consent fees increased 16% and Internet advertising and other interactive revenues increased 151% in the first quarter of 2010 compared to the same quarter last year.

Internet advertising also includes incremental revenues from our acquisition of RMM in the fourth quarter of 2009. We delivered 734 million in advertising impressions, 205 million total user actions, and 28 million video views across our station websites in the first quarter of 2010. Time on site was an impressive 20 minutes and 21 seconds. And according to comScore's March 2010 data, 81% of LIN station websites ranked number one for time spent on site compared to all broadcast media competitors.

Mobile impressions which include iPhone and Blackberry applications in each of our markets were $42 million for the first quarter of 2010, a significant increase of a 195% compared to the first quarter of 2009. Also in the first quarter, we launched our proprietary local news and weather computer desktop widget, iPulse. We used Adobe AIR technology to develop custom widgets designed to further enhance the connection of users to our multi-screen local content. Since its launch, our iPulse widget has produced nearly 900,000 page views.

The growth of our digital business and our focus on being consumers’ and advertisers’ number one choice for unique innovative and relevant content on all platforms was a driving factor for our recent rebrand from LIN TV to LIN Media. LIN Media unifies all of our multimedia product offerings and reflects our commitment to watching local television and digital initiatives that engage audiences and provide innovative advertising solutions.

We are encouraged by the recent revenue trends and also our ability to sustain a lean cost structure. General operating expenses increased 4% to $66.1 million in the first quarter of 2010. General operating expenses without RMM which was acquired in the fourth quarter of 2009 actually decreased 2% to $62.2 million in the first quarter of 2010.

In addition, we capitalized on the current market conditions and successfully sold 200 million of our senior notes, extending our debt maturities. Our priority continues to be debt reduction and Rich will provide more details on the offering later in the call. The positive momentum we experience in the first quarter of 2009 is continuing as pacing for the second quarter is up 20% compared to TV revenue booked last year at this time.

And finally, before I hand it over to Scott, I want to emphasize the strength of our business. We have taken significant measures to improve our operational efficiency, strengthen our local brands, and build new revenue streams. Television is still the dominant medium and it continues to rebound, I am confident demand for our effective multiplatform advertising solutions will grow.

Now, I would like to hand it over to Scott.

Scott Blumenthal

Thank you, Vince. Good morning, everyone. The economy continues to improve in each of our markets and we are realizing the benefits of the strategic plan we implemented more than a year-ago. National advertising sales which exclude political advertising sales increased 29% in the first quarter of 2010 to $28.2 million. National advertising sales represents 32% of our total TV advertising revenues.

Local advertising sales, which again excludes political advertising increased 11% in the first quarter of 2010 to $56.1 million. Local ad revenues represented 64% of total TV ad revenues. The growth in local advertising is a great story. It indicates that our markets are stabilizing and that businesses in our communities that had been lying dormant have renewed demand for our blue-chip inventory.

Our growth is also partially due to the success of our strategy to generate new business. In the first quarter of 2010, the number of new advertisers at LIN stations increased 50% compared to the same quarter last year, generating a 62% increase in new business revenue.

These results demonstrate that our market leading brands, new and better quality local programming and advertiser-focused initiatives differentiate us from the competition and contribute to our solid results.

New business constitutes about 7% of our total local billing. Our core local and national advertising sales combined, which exclude political advertising, increased 16.5% to $84.3 million in the first quarter of 2010, compared to $72.3 million in the first quarter of 2009.

Political revenue was $3.4 million or 4% of total advertising revenues in the first quarter of 2010. Compared to 2008, the last even year, political revenue was up 7%. The value of our local brands, the strength of our local news programming and the footprint for this year’s elections, all provides significant opportunity to capture the political spend this year. For example, WWLP in Springfield, Massachusetts generated $0.5 million alone for the Massachusetts Senate Seat in the first quarter.

The major headline is the rebounding eight of our top 10 advertising categories, especially automotive, which was up 54%. To break it down further, domestic was up 84%, foreign was up 53%, and local dealer advertising increased by 33%. Each of those is compared to the first quarter of 2009. National made up 40% of total auto spending revenue, while local made up 60% in the first quarter of 2010.

Clearly a big driver of the advertising rebound is automotive. However, all categories, almost all categories are showing improvement including financial services, which was up 23% in the first quarter and retail advertising which was up 10%, both are compared to the same quarter last year.

The results we achieved with the 2010 Winter Olympic Games showcased the importance and the power of local television franchises. We earned 1.8 million in incremental advertising revenue across our five NBC stations. Just as importantly, we had some very impressive dealer ratings. WDT in Dayton, for example, exceeded their audience projections nearly across the board in households and demographics. Locally, the Vancouver Games out delivered even the 2002 Salt Lake City home soil games in the Dayton market.

Our stations also delivered terrific results for this year’s Super Bowl. The highest rated program of the year featured the Indianapolis Colts and New Orleans Saints delivering huge ratings, not only on all four of our CBS stations in Indiana, but also our CBS stations in Buffalo, Providence, and Albuquerque, often times outperforming the network averages.

WISC-TV was also the highest rated station in the country for the NCAA Basketball Championship game, which was also held in Indianapolis and featured the local underdog Butler Bulldogs. WNDY, our MyNetworkTV affiliate, in Indianapolis, was the go to station for fans to watch Butler’s televised games throughout the entire season.

As far as our February 2010 Nielsen ratings are concerned, we have achieved growth in news ratings in all of our reporting markets, just further evidence that our strategic approach to localism on all levels is being well received by our local communities. So our plans are to continue increasing our relevance and relationships with our viewers and advertisers in each of our markets. We will do this to local programming and advertising initiatives that will ensure LIN remains at the forefront of the industry.

And now, I would like to hand it over to Rich, who will discuss our first quarter 2010 financial performance.

Rich Schmaeling

Thanks Scott, and good morning, everyone. I am going to first take you through our results for the quarter, then our debt and key credit metrics, and then I will wrap up with the outlook for the remainder of this year and one subsequent event.

Our Q1 ’10 net revenues of $91.8 million came in at the middle of our guidance range and were up $17.4 million or 23% versus prior year. This increase was driven by $12 million or 17% increase in core time sales, a $2.9 million increase in political advertising, and continued strong growth in digital revenues, which increased 47% to $13.2 million from $8.9 million in 2009.

Pro forma for our fourth quarter acquisition of RMM, digital revenues increased by 24% in the quarter. Our total station operating expenses for 1Q10, which includes direct operating, SG&A, and program payments, but excludes stock-based compensation, increased by 4% or $2.1 million to $61.4 million. Excluding RMM, our station operating expenses decreased by 2% or $1 million to $58.3 million.

BCF for the quarter was up $15.3 million or 101% to $30.5 million, compared to $15.2 million in the prior year. And our corporate expenses, excluding stock-based compensation, increased by $0.4 million for the quarter to $4.4 million. Excluding RMM, our corporate expenses decreased by 8% to $3.7 million. Driven by the recovery in revenue and the benefit of our ongoing cost reduction efforts, adjusted EBITDA for 1Q10 increased by $14.8 million or a 133% to $26 million, compared to $11.2 million in 1Q 2009.

Our free cash flow after debt service increased to $12.2 million to $7.4 million for the first quarter. This increase was driven by recovery in EBITDA, offset by an increase in cash, capital expenditures to $4 million in the first quarter from $1.9 million in the prior year. And finally, you will see that in 1Q, we recorded a $2.1 million restructuring charge. This charge relations to elimination of 41 positions primarily in the news and finance functions.

Turning to our debt and key credit metrics; at quarter end, we had unrestricted cash on hand of $9.7 million and $33 million available under our revolving credit facility. Our total debt was $667.3 million, down with $15.6 million from yearend with $6.9 million of this balance classified as short term. The average cash interest rate on our debt at March 31st was approximately 5.6%.

Consolidated leverage at quarter end, as defined under our senior credit facility, was 6.4 times, compared to 7.6 times at the end of December. Our total leverage covenant at March 31 was 10 times and it steps down 9X for the second quarter.

Our interest coverage ratio at March 31 was about 2.6 times, compared to our covenant of 1.75 times. In our consolidated senior leverage ratio was about 2.4 times, compared to our covenant of 4 times. Also at quarter-end, we had approximately $339 million of NOLs.

Looking forward for the second quarter based on our current sales order pacings, we expect that 2Q 2010 net revenues will increase in the range of 20% to 26% or $16.4 million to $21.4 million, compared to reported net revenues of $82.5 million for the second quarter of 2009.

In addition, we expect a direct operating SG&A expenses will increase in the range of 11% to 16% for the second quarter compared to reported expenses of $51.3 million for 2Q 2009. Excluding RMM, expenses are expected to increase by 3% to 7% for the second quarter.

For the full year, we expect that 2010 direct operating and SG&A expenses will increase in the range of 7% to 10%, compared to reported expenses of $209.5 million in 2009. Excluding RMM, full-year expenses are expected to be up slightly, compared to 2009 driven by increasing sales commissions.

We had one subsequent event post March 31st. On April 12th, we completed a $200 million offering of 6.38% senior unsecured notes due 2018 and received net proceeds of a $195.3 million after fees and expenses. The proceeds were used for a pro rata pay down of the outstanding balances under our senior credit facility.

Pro forma for this transaction as of March 31st, our total debt was $672.5 million and the outstanding balances on our revolver and term loan were $43 million and $12 million. As a result of this transaction, the remaining commitment on our revolver was reduced to $76 million and the average cash interest rate on our debt increased by about 133 basis points to 6.9%.

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

Question-and-Answer Session

Operator

(Operator Instructions). Our first question will come from Marci Ryvicker, Wells Fargo Securities.

Marci Ryvicker – Wells Fargo Securities

Good morning. My question is on expenses and how much fixed costs you took out of the business in '09, what percent has come back? You are up excluding RMM a little bit and actually 3% to 7% for Q2 and up slightly for 2010. So I just want to figure out how much is variable and how much is fixed.

Rich Schmaeling

Well, going back to 2009, we took out 9% of our expense base, our OE expense base. And little less than 20% of that was put back into our 2010 budget for stuff like our 401(k) match. What you are seeing here, our guidance has evolved is that our variable selling costs are revenue is increasing and our outlook for revenue is increasing are heading up above our budget and that’s what’s driving the up slightly guidance for the full year.

Marci Ryvicker – Wells Fargo Securities

So is it that you are forecasting is just variable?

Rich Schmaeling

Yes, what’s driving the guidance moving from about flat to up slightly is increasing variable selling costs, primarily commissions which as you know are 10 or 11-ish percent of the – our time sales.

Marci Ryvicker – Wells Fargo Securities

Okay, and then I just have one follow-up quickly for Q2. You gave us the expense impact for RMM but not the revenues. So can you give us what you expect the revenue impact to be?

Rich Schmaeling

No, we haven’t provided that.

Marci Ryvicker – Wells Fargo Securities

Okay, thanks.

Vincent Sadusky

Yes, and I think another quick note on the expense side as well is our – the majority of our restructuring actions took place in 2009, but we have ongoing restructuring actions, certainly a smaller impact than our efforts in end of 2008 into 2009. But those efforts are allowing us to continue to reduce our cost base in 2011, which is giving us the guidance that Rich described and allowing us to restore our benefits and still end up in a very good place on overall expenses.

Marci Ryvicker – Wells Fargo Securities

Thank you for the color.

Operator

Our next question today comes from Jonathan Levine, Jefferies

Jonathan Levine – Jefferies

Thanks. I was wondering if you could give a little bit of color in terms of the JV's performance and an update in terms of the cash requirements?

Rich Schmaeling

Yes, the two joint venture stations, the San Diego and Dallas combined, had a great quarter. Revenue was up 42% versus prior year including Olympics and political, and their operating income increased by over 400%. In terms of the cash requirements, as you know, we accrued $6 million at the end of 2009, our view was that balance is still sufficient for our probable shortfall patients to the joint ventures through April 1, 2011.

Jonathan Levine – Jefferies

Okay. And then just a question, in terms of any contracts that you have of your affiliation contract expirations, do you have any coming up this year and next year?

Vincent Sadusky

Yes, we have got – we have got kind of constant conversations going on with the networks around – I assume the issue that you are thinking is the potential for reverse re-trends for subscriber fee sharing. And we are pretty actively involved in all of the affiliate boards, so we are in the middle of all these conversations.

Jonathan Levine – Jefferies

Yes, I was just wondering in terms of the contract expirations, do you have any coming up this year or next year?

Vincent Sadusky

Those are disclosed in our 10-K. I think for what I recall, the first one up is ABC in 2011.

Jonathan Levine – Jefferies

Okay. Great. I will hand it off. Thanks.

Operator

Next up, we will hear from Aaron Watts, Deutsche Bank.

Aaron Watts – Deutsche Bank

Good morning, guys.

Vincent Sadusky

Hi, good morning, Aaron.

Aaron Watts – Deutsche Bank

A few questions from me. Starting, it is obviously encouraging to see the ad trends heading in the right direction here. Any sense for how pricing feels out there? Is that perking up a little bit along with the demand?

Scott Blumenthal

Yes, actually it is. And certainly demand is one of the cause and effect issues there. It is driving pricing. But clearly, we are seeing some dollars transferred from other media that is coming into the television market, making substantial investments, driving price also. So we are pleased with the response from the advertisers right now and clearly they seemed to be getting the response from the advertising and television as the renewal rate has been very good.

Vincent Sadusky

Yes, I think the key takeaways, you kind of think about the long-term prospects for the business is the share really hasn’t recovered significantly for all of, all media outlets. And I think what we are seeing is Internet certainly and television has had the strongest recovery coming out of the recession. And so I think a lot of the efforts that at least we have seen internally, the things that that we focused on in 2009 being very, very serious about business development and actively going out and soliciting those scarce ad dollars from other media, we think is part of the driver going into 2010.

So to Scott’s point, I think it’s been a combination of certainly ad market’s better, our industry fill as much or more than others given kind of the situation with political going away in 2009, kind of the perfect storm in autos going away as well. But we are seeing as Scott described a bunch of different categories, we are seeing across the board increases to television and we think it’s – it’s a combination of things, combination of the ad market getting better, but the ad market hasn’t gone better for all medium or at least to the extent it’s gotten better for television and for Internet. And the fact that there has been – there’s certainly been share shift in our local markets from other media to television.

Aaron Watts – Deutsche Bank

That is helpful and it kind of leads into my other sort of two questions, which is I guess first you talked about new advertisers, which you were able to bring on over the last year. And I was curious, I think probably some of those advertisers were lured in by lower pricing. Do you feel like they have sort of had their fix here and they are going to be sticky as prices start to rise?

Scott Blumenthal

Now, one of those situations that television has always had is it because of prices were a little bit higher than other medium, it was a little bit more difficult sell for the smaller advertiser. But as you properly state, they didn’t have the opportunity to get involved in television when the economy was a little softer, but they have seen results, and that’s the important thing that we are seeing a very high level of continuation with these advertisers if we get down the road. And while an individual cost for a spot maybe a little bit higher than they have been used to paying in other medium, they are recognizing a much greater return on their advertising investment and that’s what I think is part of what’s driving the value in television.

Rich Schmaeling

And it’s also different too about where we are today is that we have other platforms to offer these advertisers that may have different pricing for CPM and what they are paying on television. So we can extend their campaign online and that’s different from kind of past recoveries.

Vincent Sadusky

Yes, and I think it’s different from to differentiate us from some other television groups as well where if you have a – let’s a single CBS television station in the market and your sales team has gone out and done a good job to bring in those incremental advertisers that that perhaps don’t have the same budget as kind of the incumbent advertisers on TV.

A lot of – and since it is hard to keep them, when rates are going up and demand goes up, there is only so much inventory to sale and that’s the way the business has worked for 60 years.

For us, most of our markets have a second outlet where we can get folks in lower rated television programs and give them another outlet through our MyNetwork channels, our CWs, we had these fledgling digital channels in certain markets and certainly our online products as well.

So I think it was really important for us to convert these clients over and bring them over to our side, give them a taste for the product and they may not be able to advertise on the Super Bowl, but we think we can given them enough frequency through these multiple platforms with the relatively small ad budget that they can still have a pretty effective advertising campaign with the LIN products.

Aaron Watts – Deutsche Bank

Okay. And then last one for me, and I again a shoot-off of your answer before. It was just trends heading in the right direction, but obviously comping to last year where auto, for instance, down 40% plus, and every category was getting hammered. Between stealing share from other media in your local markets and perhaps going after these new advertisers, do you feel like you can get back to pre-recession type levels given all the media fragmentation that’s going on for viewers, whether it is cable or Internet? I am just curious how you think about getting back to prior levels. Thanks.

Vincent Sadusky

Yes, it’s a great question. Nobody has a crystal ball, nobody knows where we are going to end up two, three, four years out. But based upon taking from other media, based upon the resurgence in demand for television, it’s clearly viewed as an still a very, very attractive and very effective outlet, coupled with I think the new media products that are obviously very valuable to advertisers and continuing to work on building of that platform, we are really in the second inning.

Granted, we have had good relative success on our Internet products, we are really in the second inning here of building out a real interactive business and giving advertisers what they really need. I do think that there is a runway for growth. I mean the good and bad of this gigantic reset that took place in 2009 is we can see ourselves growing, we can see the core revenue certainly not having these types of incremental growth numbers going on to the future.

Once you get through ‘010, given your point of the soft comps in ’09, but even if we end up doing as an industry, high double digits, 20% plus revenue this year, we are still several billion dollars behind just a few years ago. And so I think that there is going to continue to be fragmentation of media, but certainly dollars follow activity. And dollars also follow effectiveness in medium as well. And we all know beyond surge, the web has not gotten it’s fair share in terms of consumption, viewer consumption relative to the ad dollars. And will that gap close, I don’t know, only time can tell. And because the medium is kind of in its infancy, it's going to take a lot longer and a lot more marketing research to determine how effective video pre-roll, banner ads and online advertising is.

What’s clear is that advertisers are going to continue to experiment. And we have got to be incredibly innovative online and make sure and we believe that that we do have that with our television station websites, our local media websites, we have done some research, so we think the engagement is higher and the impact is greater than kind of placing a bunch of ads across a broad network. So I do think kind of the long and short of it is I do think we can have core growth in the industry for many years. And I am not sure if we get back to the level of revenue we ran a couple of years ago.

I don’t know if it exceeds that, if it’s below that. But I do think television is very, very effective and very encouraged by the resurgence of advertising back to the medium. And I think a lot of the fragmentation at least on the cable side, taking a look at this year’s ratings is clearly slowly as most of the cable networks are fully distributed now.

And as the digital is pretty well dispersed across the country, there is not a lot of growth coming from increased distribution if either the primary cable channels or the shared number of channels. And I don’t see that being as much of a fragmenting force as it’s been over the last 30 years.

Aaron Watts – Deutsche Bank

Okay. Helpful, insight as always. Thanks guys.

Scott Blumenthal

Sure.

Operator

Next up, we will hear from Barry Lucas, Gabelli & Co.

Barry Lucas – Gabelli & Co.

Thanks and good morning, Vince. One question. Just to maybe drill down a bit on which direction the numbers are going. If Scott could provide what the decline in 2Q in auto was, and maybe out of the pacings that you described, how is auto pacing in 2Q?

Scott Blumenthal

We don’t – I don’t know if we said that we have our auto pacing number for the second quarter.

Vincent Sadusky

Yes, we are a couple of points behind what we did in the first quarter. But it seems financially ahead of where we were last year.

Barry Lucas – Gabelli & Co.

Okay. But you don't have the decline for last year, Scott?

Scott Blumenthal

I don’t have that in front of me, I believe it was down just around 40% last year.

Barry Lucas – Gabelli & Co.

Okay, that sounds about right. And maybe higher level then, coming out of the NAB and Chairman Jankowski's comments, maybe you could talk a little bit about spectrum and the efforts on mobile distribution that are being formed?

Vincent Sadusky

Yes, I mean as we have talked about on past calls, we have been real involved in the spectrum conference. And since our last call, the broadband plan has been discussed pretty extensively.

As you have said before, we support the government coming up with a broadband plan. And the same way, we have a long-term strategic plan and most businesses in America have a long-term strategic plan. Having a long-term plan for spectrum for the US is very, very important.

We think the right starting point is the inventorying of spectrum. Nobody really knows how much spectrum has been utilized by every consumer out there, it’s a very, very complex band and a very complex chart and it’s dynamic. So we think that’s a really good start.

As far as the plan goes, I will kind of leave it at it, it really raises more – I think questions than answers. And we would like to see more work done in the area, especially given divergent use within the Telco industry alone about what the real need and the projected need for bids is going to be going forward for mobile.

Barry Lucas – Gabelli & Co.

Great, thank you.

Operator

Our next question today comes from Paul Sweeney, Bloomberg Research.

Paul Sweeney – Bloomberg Research

Thanks very much, good morning. Vince, just a follow-up on Barry's question. If you could just talk a little bit about your thoughts regarding the mobile TV initiative, why you chose not to participate and kind of what your thoughts are there? And maybe just again following up on the spectrum, just get a sense of how you value your spectrum. There is clearly a lot of interest in your industry spectrum. So just some thoughts on how you value and maybe how you think about how you might develop it going forward. What are some of your thoughts?

Vincent Sadusky

Sure thing, Paul. On the mobile initiative, we have been supportive of the open mobile video coalition and the establishment of the standard. We thought that was absolutely critical was to have uniformity of a standard as the driving first step. That took place less than a year-ago.

We have been big proponents of evolving the business into a for profit business as the ONBC (ph) was essentially established to set the standard and have conversations with chipset manufacturers, with device manufacturers and technology companies on the distribution side of the transmission standard. So I think the organization has done a very good job of that.

The evolution to a business, I am very happy to see it’s gotten into out of the not for profit world into a for profit enterprise, so we can – so the group can start to address question such as rights, pay, free, et cetera. And as you know, we have invested our scarce capital in new media initiatives that directly benefit LIN.

I think that this initiative is a very, very big potentially game changing initiative. But I think it is potentially going to take some financing certainly and some large players like NBC and Fox that are kind of founding members of this for profit entity to get to the next level where it has the potential to be a successful commercial enterprise.

And when we think about our spectrum and it kind of ties into the question around mobile. We think our spectrum clearly is very valuable. How you value it is very challenging given the current transmission standard requirement that we have in our industry.

And when I talk to the FCC, I talk in terms of deregulation not only of kind of local media outlets, but also of the technical standard which would I think drive the capital decisions smartly into the industry and we certainly have a lot of spectrum in that. We have got again two and in some cases three channels in the majority – vast majority of our markets.

So we like that there is kind of a conversation around spectrum value. We liked that there is a focus on it. But I think there is – there is a lot of things that have to take place before we can potentially realize the value of that spectrum. And I just don’t know if it’s the best highest and best uses broadband or multicast or mobile. But I am glad to see mobile evolve into kind of the for profit enterprise column, so it’s got a legitimate shot at creating a revenue stream and becoming the business.

So we are kind of standing by and basically cheering leading the organization as they go through all the difficulties of addressing these issues and starting up a business. But I would really like to see and I just think it would facilitate the freeing up of spectrum if there was a relaxation of the transmission standard, that would effectively get the FCC out of the business of this extremely heated debate that’s only just begun over kind of picking and selecting which industry should have a certain amount of spectrum. I would rather see kind of market forces take over.

Paul Sweeney – Bloomberg Research

Great, thanks very much.

Operator

Our next question comes from Edward Atorino, Benchmark.

Edward Atorino – Benchmark

Hi, good morning, I have got three questions. One, you talk about responsible debt reduction, number one? Number two, was the redistricting charge, is that an after-tax or pretax charge? Thirdly, RMM, did that add much to the quarter, the acquisition?

Rich Schmaeling

First with regard to debt reduction, we expect to be comfortably within inside our 6X consolidated leverage recovered covenant by yearend and that is our focus and we are focused on delevering as rapidly as possible. And so we are looking forward to the political season and a lot of free cash flow to further retire debt.

The $2.1 million restructuring charge is pretax, 41 FTE over $2 million of annual ongoing cost saved benefit as a result. The third point on RMM, in the first quarter, we really ramped up our investment to drive the synergies that envisioned as rapidly as possible. So it cost us a little bit on a net basis in the quarter.

And just to make a point for everybody on the phone, we have given very clear breakout through our guidance and through out comments in these calls, what RMM look like in the fourth quarter and in the first quarter. We don’t intend to keep breaking it out going forward, because we are scrambling the egg as we further integrate that organization with our multiple platform selling teams.

Operator

We will take our next question from Bishop Cheen, Wells Fargo.

Bishop Cheen – Wells Fargo

Thanks for taking the question. Let me just go back to timing, kind of discipline versus growth. You have been – you have said it many different ways. Your focus is debt reduction. You only have 55, if I count Red McCombs, $60 million of non-bond and bank debt – of non-bond debt to take out. And it implies from where you think your leverage ratio is going to be, you can do that with free cash flow. So it's a then what story of the best way for you to achieve growth and add value once you get that balance sheet down to your comfort level. Is it acquisitions? Is it dividends? Is it stock buybacks, all of the above? What you do for an encore?

Vincent Sadusky

Yes, it’s a great question, and it’s a problem we are really looking forward to have it. The focus has been on debt reduction for so long for our company and a reminder to that is we were assembling our annual report and look at the five-year chart of disposing of non-core assets using virtually all of our cash flow to paying debt down over the last three or four years, it’s been – that’s been a really significant effort.

And given the scare of 2009, I think our view towards leverage and probably every company’s view towards leverage ought to be much more conservative than it has been in the past. So we will continue to pay down debt. Once we get beyond the – once we get out of our credit facility in terms of repayment, then – obviously there is some more financing options opened to us. And in 2013, we have got the 6.5% notes maturing.

So we will be – the short answer is we don’t really have an answer other than it’s a great problem to have, building up cash in the balance sheet is terrific, give us a little bit more flexibility if we do see things that are terrific accretive transactions or we think our nice little opportunity is on the digital side to continue to get expertise and grow that business like RMM. But otherwise we are cognizant of the fact that the 2013, 6.5% will be – will need to be refinanced at some point in the future, and you can envision that being refinanced with the decent bank market, at least some pre-payable debt presumably at a lower rate.

Bishop Cheen – Wells Fargo

Yes, it is an uptown dilemma for sure. Okay. Thank you. Great color.

Vincent Sadusky

Okay.

Operator

(Operator Instructions). Our next question comes from Leo Cole (ph), Citi.

Leo Cole – Citi

Hi, thanks for taking the question. Looking at the guidance you provided, can you back out what political – what you are expecting for political in 2Q for the net revenues?

Rich Schmaeling

A little under $5 million.

Leo Cole – Citi

A little under $5 million? Okay, thank you. And if I may, one quick question. Can you quantify the impact of Olympics on 1Q10 results?

Scott Blumenthal

The Olympics were about $1.8 million on incremental.

Leo Cole – Citi

Thank you.

Operator

And gentlemen at this time, there are no further questions. I will turn the conference back over to our speakers for any additional or closing remarks?

Vincent Sadusky

Okay. Thank you, operator, and thank you all for your continued interest in LIN TV. We will look forward to updating you in the second quarter.

Operator

And ladies and gentlemen, that does conclude today’s conference. We would like to thank you all for your participation and have a great day.

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