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Executives

Vincent Sadusky – President & CEO

Scott Blumenthal – EVP of Television

Bart Catalane – SVP & CFO

Analysts

Marci Ryvicker – Wachovia Securities

Kit Spring – Stifel Nicolaus

Aaron Watts – Deutsche Bank

Bishop Cheen – Wachovia Securities

Edward Atorino – Benchmark Capital

Tracy Young – JP Morgan

LIN TV Corp. (TVL) Q2 2008 Earnings Call Transcript August 5, 2008 8:30 AM ET

Operator

Good morning, ladies and gentlemen, and welcome to LIN TV Corp.'s earnings call for the second quarter that ended June 30, 2008. Today's call is being recorded.

Before we introduce today's speakers I will read a brief legal statement from the company. This conference call may include statements that constitute forward-looking statements. Particularly in the area described is 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 risk 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.LIN TV.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 would turn the call over to LIN TV's President and Chief Executive Officer, Mr. Vincent Sadusky. Please go ahead.

Vincent Sadusky

Thank you, operator. Good morning, everyone. And welcome to LIN TV's 2008 second quarter conference call. I'll start with an overview of our second quarter results as well as digital and interactive highlights. Scott Blumenthal, our Executive Vice President of Television will update you on station ratings and operations. And finally, Bart Catalane, our Senior Vice President and Chief Financial Officer will provide second quarter financial information and close with our current 2008 business outlook. After that, we'll be happy to take your questions.

You may have read that Gregg Schmidt, LIN TV's Executive Vice President of Digital Media since 2006, will be leaving the company to become Chief Executive Officer of Global Translation, Inc., a company in which LIN TV has an investment. We wish Gregg all the very best in his new challenge and we will continue to execute on our digital strategy with LIN's excellent new media team.

In addition, Bart Catalane will be moving back to New York where his family is located, to become Chief Financial Officer of Webloyalty.com. We are actively looking for a replacement. In the meantime, I will be acting CFO, so please don't hesitate to contact me with any financial related questions.

Given the state of the economy we were pleased to grow net revenues by 2% in the second quarter of 2008, and deliver one of the strongest performances in our industry. Our growth in net revenues is primarily result of political revenues increasing by $7.2 million versus last year to a total of $8.1 million for the second quarter of 2008, and digital revenues increasing 100% from the same period last year to $6.7 million in the second quarter of 2008. These are outstanding achievements for our company.

The increase in political revenues is largely the result of LIN TV's top performing local newscasts and politicians continued desire to want to advertise in an effective medium like local news. I am also very proud of our digital team and their ability to execute our strategy and continue to grow digital revenues, and I'll talk more about that in a moment.

Partially offsetting our increases in political and digital revenues was a 7% decrease in core advertising revenues, which includes local and national advertising, but excludes political.

Despite the core advertising revenue decline, our local stations are performing well over all in this difficult ad market. LIN TV's total advertising revenue including political revenue decreased by less than 1%, while the industry average reported in the June Television Bureau of Advertising's monthly group time sales survey was down 8% for the quarter.

Scott will talk more about the economy's impact on advertising categories in a few minutes.

Loss from continuing operations increased $219.9 million to $215.8 million in the second quarter of 2008, primarily due to a non-cash impairment charge of $297 million, related to the company's broadcast licenses and goodwill. Right now, we are faced with the reality of a weak economy and a volatile stock price and we expect these economic pressures to continue into 2009, and these were among the key factors driving the second quarter impairment charge.

However, the entire company remains committed to our ongoing cost discipline program and as a result we were able to maintain general operating expenses flat for the second quarter of 2008 compared to the same quarter in 2007, which is another strong achievement for the quarter that helped drive year-on-year BCF and EBITDA growth.

I want to expand a little more on some of the things we're doing and looking at the digital and interactive areas to drive continued growth there. As mentioned in our last conference call, we continue to focus on the fundamentals of selling and maximizing our new business development efforts so that when the marketplace rebounds we will be positioned to capitalize on that upturn.

Gregg Schmidt, Rob Richter, and I recently traveled to the West coast to meet with new media technology companies and venture capitalists that are on the cutting edge of new product development in new media.

The trip was a great networking opportunity and very informative as we look towards expanding our digital offerings. In addition, we are now hosting several internet strategy sessions a week with perspective customers in all of our various markets, and it is truly amazing to see the new business we have earned as direct result of these sessions.

I'm also pleased to report that our activities to successfully negotiate and enter into retransmission consent arrangements is on track. Retransmission consent fees increased 122% in the second quarter of 2008 compared to the same quarter last year. The company reached new retransmission consent agreements for both its analog and high definition channels with Comcast Corporation, DirecTV, and Charter Communications.

The company also successfully implemented its marketing and promotional partnership with Dish Network that offers substantial incentives for customers to switch to Dish if our local stations are removed from a local cable system in any of our seventeen markets.

The LIN Interactive brand also continues to grow and be a driving force for our company's success. During the second quarter, internet advertising and other interactive revenues increased by 65% versus the same time period last year.

Total page views for our station's web sites increased 48%, and were 145.8 million in the second quarter of 2008 compared to 98.2 million in the second quarter of 2007. Unique visitors were 13.7 million in the second quarter of 2008 compared to 11.1 million in the second quarter of 2007, representing a 23% increase.

According to May 2008 data released by Hitwise, a leading internet online competitive intelligence service for internet measurement, LIN TV has the number one television station Web site in 15 of its 17 markets, and the number one overall media Web site in 12 of its 17 markets based on visit time. The amount of time that our viewers are spending on our station websites is a critical measure, because it indicates how engaged users are with our content and ultimately how deep they are going in to our websites.

As of June 2008, year-to-date page views for the LIN station websites have increased nearly 100 million as compared to the same time period last year averaging a 46% increase overall. In addition, time on site has increased by seven minutes, or an average increase of 140%. This is a major accomplishment and is a real credit to our interactive team lead by Rob Richter.

We recently provided some great examples of how our stations lead the market with online news coverage when we announced the Hitwise data. Another good example that illustrates the strength of the LIN Interactive brand was when the Texas governor's mansion burned down, KXAN.com had the story four hours before the local newspaper even had their first headline.

The culture in the news room has changed to get it fast and first to the web. The company's commitment to interactive new media has resulted in high growth and plans to launch a number of new products in the second half of 2008 to continue maximizing interactive and new media content, traffic, and revenues.

In addition to our net revenue and operating costs successes, we also continued to reduce our debt and maintain our strong liquidity. We have paid down another $5.5 million of principal on the company's term loan balances in the second quarter of 2008.

And we also purchased all 125 million of the 2.5% exchangeable senior subordinated debentures on May 16, 2008, by effectively using only $100 million of the company's revolving credit facility at quarter end.

As a result, our total debt net of cash on June 30, 2008, was $774 million, which is $89.2 million less than the $863.2 million balance at June 30, 2007. And lastly, the company had $175 million available for future borrowings under his revolving credit facility at June 30, 2008.

Finally, I just wanted to comment that stress in the U.S. economy continues to negatively impact advertising budgets. Since advertising spending is a discretionary expense line for most companies, it's also a leading indicator for economic trending and momentum.

We actually started to feel the effects of the current economic downturn in the second quarter of last year, and the macro factors of unprecedented gasoline costs, the soaring price of oil, the housing slump, credit crisis, and unemployment has lead to more advertisers reducing their expenditures over this annual time period.

At first, we saw the effects on national revenues, but now local has been impacted for two consecutive quarters, and as a result almost every advertising category is down. Leading research now indicates that there won't be a significant change in the economic outlook until mid to late 2009, and consequently most have marked down their forecast for GDP growth in 2008 and 2009. However, despite the negative outlook, we remain positive.

We are confident in the fundamentals of the television broadcast business, and 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.

And with that, I'll hand it over to Scott.

Scott Blumenthal

Thank you, Vince. As previously mentioned, we're operating in a very difficult marketplace right now. Our core advertising revenues were down 7% in the second quarter of 2008 excluding political, LIN TV's local advertising revenues decrease 5% in the second quarter of 2008 compared to the same period in 2007. Local advertising revenues represented 62% of our total advertising revenue for the second quarter.

On the other side, national advertising revenues, which exclude political advertising, decreased 11% for the second quarter compared to the same period in 2007. National advertising revenues represented 31% of our total advertising revenue for the second quarter of 2008. The decreases in both local and national advertising are a direct result of significant industry wide declines in key categories of ad spending.

For example, at LIN TV, automotive was down 14.9%, entertainment was down 18.4%, and financial services were down 8.7%. Unfortunately, at this point in the year, there is only a few categories that are performing better than last year. These include health and beauty which was up almost 37%, and government advertising which is separate and distinct from political advertising, which grew 36%. Media communications also grew in a few specific markets such as New Haven and Mobile.

Fortunately, our stations competitive abilities and performance are also impacted by ratings, and I'm pleased to report that LIN stations once again delivered strong results in the May rating period. According to Nielsen as it compares to the May 2007 ratings, 88% of our stations gained share for adults 25 to 54 in at least one key time period while maintaining their positions throughout the day.

A good example is with our duopoly in Buffalo, where WIVB, our CBS affiliate, saw a 10% increase in ratings for its weekday newscasts over last May. And WNLO, our CW affiliate's, 10:00 clock news program continued its phenomenal growth trend. It posted a 5.6% household rating, up 17% from last year. Green Bay is also another great example with the second quarter of 2008. The station continued to grow audience share by a significant amount.

Most of the company's CBS, NBC, ABC, and Fox stations were once again ranked number one for adults 18 to 49, and adults aged 25 to 54. This is an important distinction especially during a political year when politicians tend to allocate more funds to stations that deliver high quality and highly rated local newscasts.

Indiana provides a terrific example where we have effectively hubbed our six stations and have marketed our attractive Midwest footprint to several advertisers, and as a result we have secured substantial political revenues from Fort Wayne, Terra Haute, Lafayette and Indianapolis in the second quarter.

The Nielsen data also show that the company's stations outperformed the national networks in the category of household share by an average of 52%.

These are impressive ratings results among the best in the industry. And with continued growth, we believe we will emerge as a stronger company when the economy improves. Starting this Friday, we will air Olympics on five LIN stations.

While our experience from previous years tells us that Olympics don't necessarily grow the market, we still believe that it's an opportunity for us to gain share compared to our local market competitors.

Finally, I want to end by mentioning that the Paley Center For Media, in partnership with the National Academy of Television Arts and Sciences and the Television Bureau of Advertising, recently announced the names of 23 local television programs and reports from across the country that have been selected for inclusion in the Paley Center's permanent national collection.

Eight of these 23 programs were from LIN stations. WIVB TV in Buffalo and WISH TV in Indianapolis had four programs each that were selected to become part of a nation's foremost public archive of television and radio programming. This is a great example of the quality of work we produce, and we are proud to be recognized for it.

To summarize, it was a solid quarter for LIN TV station operations. We have taken numerous measures to ensure that we can achieve growth during this industry wide turndown, and we believe our company is well-positioned to take advantage of several opportunities in the remaining quarters of 2008 including strong advertising from a variety of political races, and of course from the Olympics.

Now I would like to hand it over to Bart who will discuss our second quarter financial statements. Bart?

Bart Catalane

Thanks, Scott. Now, for quick summary of our second quarter 2008 results of operations. Also as a reminder, these numbers reflect the results of Banks Broadcasting, Inc. and our Puerto Rico operations in prior years as discontinued operations for all periods presented, and you can find comparable quarterly financial information in the supplemental financial data that's posted on our Web site.

So first in terms of net revenues, our second quarter 2008 net revenues were $103.7 million, up $1.9 million or 2% from last year's $101.8 million. Again, the major drivers of the increase were higher political advertising, which was up $7.2 million to $8.1 million gross for second quarter 2008, and higher digital revenues including internet advertising and retransmission consent fees which increased $3.3 million or 100% to $6.7 million for second quarter 2008.

Partially offsetting these increases were decreased national advertising revenues which were down 11% or $4 million gross from prior year, and decreased local advertising revenues, which were down 5% or $3.6 million gross from prior year.

As Vincent and Scott just mentioned earlier, these decreases were entirely economic cycle and market driven and virtually all ad categories were impacted with auto continuing to be the most heavily affected.

Moving on to our station operating expenses, which include direct operating SG&A and program payment costs, but excludes stock-based compensation, our second quarter 2008 expenses were flat with last year at $64.1 million.

Increases for employee compensation, contractual costs and the company's investment in its internet business were entirely offset by lower sales variable costs, and benefits expenses and savings from various cost management initiatives.

As a result of these net revenue and station operating expense variances, broadcast cash flow or BCF for second quarter 2008 was up $1.9 million or 5% to $39.5 million compared to $37.6 million in prior year. Again, the increase was primarily driven by the higher political and digital revenues.

Moving to on our corporate expenses, excluding stock-based compensation, these increased by $700,000 or 14% to $5.4 million for second quarter 2008 compared to $4.7 million in the prior year. The increase was primarily due to employee compensation and other operating cost increases.

As a result of the BCF and corporate expense variances, adjusted EBITDA for second quarter 2008 was up $1.3 million or 4% to $34.2 million and that compares to $32.9 million last year. Again, the increase in adjusted EBITDA was again primarily driven by the higher political and digital revenues.

And lastly, free cash flow after debt service was $9.1 million in second quarter 2008 compared to $17.4 million in prior year. The $8.3 million decrease was primarily driven by the impact of the $5.5 million of quarterly principal amortization under our credit facility which began in the fourth quarter of 2007 and by higher capital expenditures for the quarter which were $6.5 million in second quarter 2008 compared to $3.2 million in the prior year quarter.

Once again, for those unfamiliar, we make available reconciliations of our operating income loss, a GAAP measure to BCF, adjusted EBITDA and free cash flow on our company's Web site, in a supplemental financial data link. To access that information please go to LINTV.com, where you will find this information both on the home page, in the latest new section, and also in the investor relations section under financial reports and releases and quarterly and other reports.

Moving on to our second quarter 2008 impairment charge as required by SFAS 142, the company tests the impairment of its broadcast licenses and goodwill whenever events or changes in circumstances indicate that such assets might be impaired.

The events that trigger the need for the impairment analysis at June 30, 2008, included the decline of the price of the company's Class A common stock, the decline in selling prices of television stations, and the decline in advertising revenue at some of the company's television stations.

This testing resulted in a $297 million non-cash impairment charge for the second quarter ended June 30, which related to both goodwill, that was about $111.3 million for the goodwill portion, and broadcast licenses, which that portion included $185.7 million of impairment for that.

However, as Vince mentioned earlier, we feel very good about the fundamentals of the TV broadcast business and are confident in our digital strategy and our stations abilities to generate additional revenue and future cash flow growth once the economy rebounds.

Moving on to our balance sheet and other stats, our total debt at June 30, 2008 was $782.8 million with $21.9 million of this balance classified as short-term based on our projected quarterly principal amortization.

We paid $5.5 million of our term loan balance during second quarter 2008 and again we purchased all 125 million of the 2.5% senior subordinated debentures, using $100 million of the company's revolving credit facility and available cash balances.

Our average cash interest rate on our debt at June 30, 2008 was approximately 6.2%. And then lastly we had $175 million of our revolving credit facility undrawn and available, and our cash balances were $8.8 million at June 30, 2008.

Our consolidated leverage at June 30, 2008 is defined under our senior credit facility with 6.3 times compared to 6.5 times at December 31, 2007, and our covenant at June 30, 2008 was 7.75. Again, this covenant steps down to six times on October 1, 2008 and stays at that level through the remaining term of the facility which is November 4, 2011.

As we have said several times on previous earnings calls, our stated goal is to stay at least one turn below our required covenant level for total leverage. Our cash interest coverage at June 30, 2008 was 2.4 times compared to our covenant of 2 times and our consolidated senior leverage at June 30, 2008, was only 1.8 times compared to our covenant of 4.5 times. Lastly at June 30, 2008, the company had approximately $234.3 million of federal net operating loss tax carry forwards.

Finally, regarding our business outlook, again this information includes forward-looking statements and is subject to risks and uncertainties, anyone relying on this information should refer to the forward-looking statements heading in our press release in the item risk factors in the company's SEC filings. The company assumes no obligation to publicly update its business outlook or any forward-looking statements due to new information, future events or otherwise.

So based on current sales order pacings, which reflect the continued challenging economic environment and market decline for both national and local advertising spending, the company currently expects that third quarter 2008 net revenues will increase in the range of 3.5% to 6.2% or plus $3.3 million to plus $5.8 million compared to reported net revenues of $93.7 million for third quarter of 2007. All of this expected increase in third quarter of 2008 is attributable to projected political and digital revenue growth.

In addition, due to sales variable costs as well as political, Olympics and other news coverage expenses, the company expects that its station direct operating and SG&A expenses will increase in the range of 6% to 7% for third quarter of 2008, that's plus $3.2 million to $4.2 million, compared to reported expenses of $55.9 million for third quarter of 2007.

As a result, we provided the expected ranges of revenue, expense and cash flow items for our third quarter 2008 and the 2008 year you saw in our press release this morning.

Before I hand it back to the operator to take your questions, I want to say it has been my pleasure to work with Vince and the management team here at LIN TV and with all of you, and I appreciate the support you've provided to the company and to me and I want to thank you very much. And operator with that, we'll take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And we'll take our first question from Marci Ryvicker with Wachovia. Please go ahead.

Marci Ryvicker – Wachovia Securities

Hey, Bart, first I just want to thank you for your service and wish both you and Gregg luck in your new endeavors. And I have a couple of questions. Vince, you mentioned that local is now feeling the impacts of the economy. Is that to mean that local and national are pretty much pacing on par with each other in the third quarter? Or is local still doing better than national, although it's still pretty weak? And then secondly, you talked about how the increase, Bart, in the third quarter is due to political and digital, what about the Olympics? And how have Olympic sales been? We heard from one of your peers last week that the sales have been a little bit tougher to make than in the past years.

Vincent Sadusky

Yes. Good morning, Marci. With regard to local revenue, it was – I would describe it as kind of the second scenario that you mentioned. Local is clearly pacing better than national. It's been pacing better than national year and that continues in to the third quarter as well, but it's weak, and its again as Scott mentioned we're seeing it in all categories, but now primarily with the automobile dealers, it's also impacting the dealers as well as the national automotive dollars as well. And as far as the Olympic sales go, our Olympic sales have done very well in the third quarter, same as they have done in previous years, but rates are a bit lower, as the economy is tough right now, that's I think to be expected. But the other thing kind of keep in mind with the Olympics is, we do well on our NBC stations, but we think it's the right strategy to have a good diversity of network affiliations. So we actually have more stations that don't have an NBC affiliation of course that our number of stations that do have an NBC affiliation. So we do get incremental dollars on the Olympic front, but it's also tampered by the stations that don't have Olympics.

Marci Ryvicker – Wachovia Securities

Do you have an Olympic projection for the third quarter? Do you know what you are going to do?

Vincent Sadusky

We have not shared that with folks, no.

Marci Ryvicker – Wachovia Securities

Thank you.

Operator

And our next question comes from Kit Spring with Stifel Nicolaus. Please go ahead.

Kit Spring – Stifel Nicolaus

Good morning. Can you talk a little bit about political in 2Q, was quite a bit above what I had wondered if that was above your expectations? Maybe how you feel now about political for the year if it's going to be more comparable to 2006 or 2004 or kind of what you are expecting. Also if you could talk a little bit about affiliate fees, do you expect to have to pay them in the future, essentially reverse compensation? Is that something you think will happen or not? Kit Spring. Let me know.

Vincent Sadusky

Thanks, Kit. Yes. The second quarter political has continued to be a bright spot in a difficult economy. For the rest of the year, as we've said in the past, it's very challenging to project out where political is going to end up, but we are certainly seeing robust political advertising in key markets, and we are certainly hopeful that, that continues to be a category that over delivers as it has in the first half of the year for us. With regard to affiliate fees, we have said in the past that there is a chance that the networks will look to make the relationship with their affiliated television stations more expensive in the future, and what form that takes, we don't – I don't know, we would just be speculating. And as far as who that would impact, I do think that there is a significant distinction that has been made, and I think we'll be even more highlighted going out into the future in terms of the affiliates that have strong local news, that continue to invest in their digital technology and infrastructure, that provide the networks with superior rating I think. You know, Scott has mentioned earlier, we again, this past ratings book averaged over 50% higher delivery than the average delivery of the national delivery of the networks that we affiliate with. So we are clearly a desirable network partner that benefits the networks in their national rating, and their ability to sell network advertising, which is how they make their money. All of our affiliate agreements go out for many, many years. As far as the industry, I don't know. The relationship could get more expensive going forward, but as far as our position, we feel as if we're positioned very well beyond our contractual agreements is just simply due to the fact that we are very, very effective and beneficial distribution partners for our network partners.

Kit Spring – Stifel Nicolaus

Then based on the retrans agreements that you did in the quarter, is your outlook for the year changed at all, or had you kind of factor that in already? Or maybe looked at another way, how did those negotiations come out relative to your expectations?

Vincent Sadusky

Yes, as we said in the past, the only issue that's been challenging for us to be able to forecast is the timing of the closing of each one of these agreements, but now that we have gotten these agreements completed, going forward, we now have very good certainty and clarity around the ability to project out sub fees for each one of these deals. But ultimately we ended up in a range of values exactly where we had forecast. We went in negotiating with a target in mind, and that is ultimately what we have been able to end up with.

Kit Spring – Stifel Nicolaus

Thank you.

Operator

And our next question comes from Aaron Watts from Deutsche Bank. Please go ahead.

Aaron Watts – Deutsche Bank

Hey, guys.

Vincent Sadusky

Good morning.

Aaron Watts – Deutsche Bank

Vince, just a question on auto, as we're now in August. What's the tone coming from the OEMs? Are they still pulling back, or is like the down 15% metric that you talked about, is that the right way to think about it in the next quarter or two? And when do you think, if you had to wager a guess, when do you think they have to start spending again to market cars?

Vincent Sadusky

Scott, why don't I let you take that question since you're very close to the advertisers?

Scott Blumenthal

At this point I think from the way we're operating this company, we have to project that they are going to stay pretty depressed as far as the rest of the year is concerned, but in talking to local dealers and dealer groups there's still an inventory of cars sitting on the lot that are going to have to be advertised. While we see a lot in the trades about the factories and the manufacturers pulling back, reallocating funds, the local dealers are still supporting their advertising dollars to a greater extent than the national dollars. So we think they're going to be spending as the new models come out next month a little bit. But we are not anticipating the national automotive dollars to be coming back with any strength for a while now. So we are obviously adjusting our operations accordingly, and developing other forms of business to make sure we can compensate for that deficit.

Aaron Watts – Deutsche Bank

So that sort of down 15% metric, that's something we should kind of consider and think about as being a good level going forward?

Scott Blumenthal

What we are projecting right now from what we have seen the order is coming in it's somewhere between 10 and 15 for third.

Aaron Watts – Deutsche Bank

That's helpful. And then I think you hinted at this, but on the local side, from the dealers, they may need to keep advertising to get the inventory out?

Scott Blumenthal

The larger dealers are certainly taking advantage of this situation, yes.

Aaron Watts – Deutsche Bank

And then, my other question just has to do with your leverage targets, and I know it's your goal to be one turn below your covenant, and I think your covenant steps down to six times later this year. Are you going to be able to maintain that one turn cushion next year once the political fall is away amidst what is admittedly a weaker environment for advertising?

Vincent Sadusky

Yes, we have run some projections for 2009, and we feel comfortable with our ability to comply with our leverage covenant with the six times, even given what could be a challenging economy in 2009 and the loss of political, but it really depends on what the outlook ultimately turns out to be. If it's kind of a downside scenario, where the economy continues to be challenging, we will not meet that one turn cushion. But even in a down case scenario, we still feel very comfortable with our ability to meet the six times minimum covenant.

Aaron Watts – Deutsche Bank

And you feel good at least for the more near term, let's say year-end this year, you feel good about being having that leverage down closer towards the low fives area.

Vincent Sadusky

Yes.

Aaron Watts – Deutsche Bank

Good ballpark to think about?

Scott Blumenthal

Yes, absolutely. We feel good about that.

Aaron Watts – Deutsche Bank

And the last one, I don't know if you can comment on this at all, but any progress on getting sort of the last cable MSL on board for your retrans agreements?

Vincent Sadusky

Yes, that ones in active negotiations right now, and we will report that one when it's completed, but it's continuing along the negotiating process, and it's really difficult for us to comment more than that right now.

Aaron Watts – Deutsche Bank

All right. Thanks, guys.

Operator

Our next question comes from Bishop Cheen with Wachovia. Please go ahead.

Bishop Cheen – Wachovia Securities

Thank you, Vince. Bart, best of luck to you.

Bart Catalane

Thanks, Bishop.

Bishop Cheen – Wachovia Securities

It has been a great relationship. We appreciate it. I have two questions. One, let me billboard them. TV prices, you mentioned that specifically in your release, and I would like some more color on that from the way you see it, you know a thing or two about buying and selling stations. And two, on retrans fee, up 122% for the Q, I believe you said. And can you give us the dollar amount of that to match that 122%?

Vincent Sadusky

With regard to television station prices, to be honest, I have been surprised at the level of activity that's continued in the space given what's going on in the difficult credit marketplace. It's gone more towards strategic buyers now, certainly more than financial buyers as has taken place in the previous 18 months or so. So you are seeing television station deals get done at reasonably good multiples, but it's primarily strategic buyers where on the case of Miami, Post buying the station from NBC that was an in-market buyer, to Richmond, which is a market apparently that made sense for Sinclair in purchasing the station from Raycom. So you are continuing to see television station deals get done in what we gather and what's published, we have the same public information as anybody else in the double digit multiple area. So I think that that's encouraging, and indicative that for folks that have a healthy balance sheet, this is going to continue to be an opportunity for them to shore up their strategic positions. I think if you have got television stations that are in markets that aren't of strategic importance, and have much poorer economic profiles, then clearly that's a different story, that's a much more difficult valuation, I think.

Bishop Cheen – Wachovia Securities

So it's not the data points per se, it's the volume of data points or of the asset liquidity.

Bart Catalane

Yes, Bishop there were fewer deals obviously done. And we use the third party valuation company to do these analyses with us, and obviously, you just nailed it, fewer data points and what data points we've got appear to be lower than what they were over a year ago. As they looked at several different factors that we listed out in the press release that was just one of the areas they looked at to validate the fair market value at June 30, 2008.

Bishop Cheen – Wachovia Securities

Right. Yes. Well, you nailed it. You took out half the buying pool with the financial buyers.

Bart Catalane

Right.

Bishop Cheen – Wachovia Securities

And if you take out the mezzanine, I guess the balcony falls.

Bart Catalane

Yes.

Bishop Cheen – Wachovia Securities

The retrans, 122%?

Bart Catalane

Yes, we don't break out the separate numbers, but we have said throughout that it's roughly two-thirds retrans, and one-third internet. And that's still a good metric to use for us. Going it to '09 as we think about it, obviously, it may get to the point of once the final deals are done for retrans to obviously break that separate line item out, but that remains in the future, but for now, I would just use the two-thirds retrans, one-third internet metric for total digital.

Bishop Cheen – Wachovia Securities

That's very helpful. Thank you.

Operator

(Operator instructions) And we'll take our next question from Edward Atorino with Benchmark. Please go ahead.

Edward Atorino – Benchmark Capital

Good morning. All of the best to you guys by the way. Could you talk about sort of the base cost trend? In the press release you mentioned a little uptick in expenses due to the impact of Olympics and the election, there is some sales expenses in there. Is there some way to sort of estimate sort of a base cost trend going forward on that?

Vincent Sadusky

Yes, I mean, I think we continue to guide our full year at the number that you saw in the press release, and as we have said, that sort of puts us up in the range of roughly 3% to 5% up for the full year. So, I would sort of think about that for the full year is sort of our range of being up for '08.

Edward Atorino – Benchmark Capital

Would the rate of increase come down a little bit next year, since you take out the Olympics and politics and I guess SG&A?

Vincent Sadusky

Yes, sales variable expenses will come down. News costs will come down, absolutely.

Edward Atorino – Benchmark Capital

Are you seeing any new pressure? ATAG had a big article that the CPGs seem to be cutting budgets, P&G, et cetera. Do you have much CPG business? And is that a new area to worry about going forward?

Vincent Sadusky

Scott, why don't you take that?

Scott Blumenthal

Certainly, they are going to cut. I think all businesses are going to take a look at their expenses. If it's indicated early these are variables for these companies, but as we have also suggested to you, the CPGs of the world are still trying to orient to get the best value for the dollar, and while it's an area that we keep an eye on, I think the LIN stations with their strength of audience and ratings are positioned very well to maintain our levels. I think the cuts are going to be oriented to those things that are giving lesser returns than we're able to get with the stations. So it's something we watch, but it wouldn't say it's an area of concern for us at this point.

Edward Atorino – Benchmark Capital

Are advertisers making sort of shorter term commitments and changing more than they used to change plans? Is it sort of just in time advertising? And theoretically, God forbid if the economy ever got a little better, could there be a little bit of an earlier than expected uptick? I mean, are advertisers looking very, very short-term in their plans?

Scott Blumenthal

It's actually an interesting question because it's sort of a mixed bag. Some of the smaller advertisers are operating a little bit more day-to-day and watching where it goes on a monthly basis, but the larger ones are taking advantage of the lesser demands right now, and the negotiating larger dealers are making commitments to air time and then plugging in particular products and categories and sale items as they come up to those dates. So I would suggest that the answer is both ways. The larger advertisers are taking advantage of committing longer, some of the smaller ones are certainly operating closer to the belt.

Edward Atorino – Benchmark Capital

Thanks.

Operator

And our next question comes from Tracy Young with JP Morgan. Please go ahead.

Tracy Young – JP Morgan

Good morning. Best wishes to you, Bart.

Bart Catalane

Thanks, Tracy.

Tracy Young – JP Morgan

Just two questions. You had mentioned that government advertising was up 36%, is that issue advertising, and can you talk a little bit about that?

Scott Blumenthal

It is not. And while it's up 36% and we're thrilled with that number, it's little bit smaller growth category than obviously the automotives and the bigger ones. It is more oriented to government controlled operations where they are looking for bus lines and public transportation and certain image things that the governments are trying to do in certain markets. It's a relatively small category for us, but it's the only one showing growth along with health and beauty.

Tracy Young – JP Morgan

And have you been seeing issue advertising come in?

Scott Blumenthal

We have been seeing some issue advertising come in about half a dozen of our markets, yes, but not to the extent we've seen in the years past.

Tracy Young – JP Morgan

And can you talk at all about some geographic trends you are seeing? Obviously, you have a strong presence in the Midwest. Is that any stronger than the rest of the country?

Scott Blumenthal

It's only in terms of automotive and some other key categories. Corporate and retail is holding up, while still little down, it's holding up better than the Northeast, for example, in terms of automotive. Political has been very unusual for us this year, and that traditionally the Midwest is not a player in presidential election years, and as we all know Obama has been generating campaign money into the Midwest, which is driving competitive dollars coming in. So that's higher than we expected. Political is very strong force in markets where we didn't necessarily see it in the years past. New Mexico being a prime example of that, where there are four races being run right now with no incumbents, so they're very highly contested. But in general, I would suggest to you the Midwest is just sort of flat, little bit of growth in Mobile, Austin, Albuquerque, and some Southern markets and the Northeast is depressed more than anything.

Tracy Young – JP Morgan

Thank you very much.

Operator

And there appears to be no further questions at this time. I would like to turn the conference back over to Mr. Sadusky for any additional or closing remarks.

Vincent Sadusky

I just like to thank everybody for participating on today's call, and we'll look forward to updating you throughout the year. Thanks very much.

Operator

And ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect.

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Source: LIN TV Corp. Q2 2008 Earnings Call Transcript
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