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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good morning, ladies and gentlemen, and welcome to LIN TV Corp. Second Quarter 2004 Investment Community Conference Call. Today's call is being recorded. Before we introduce today's speaker, I will read a brief legal statement from the Company. This conference call may include statements by the Company that may constitute forward-looking statements, including estimates of future business, prospects or financial results, and statements containing the words "believe," "estimate," "project," "expect," or similar expressions. Forward-looking statements inherently involve risks and uncertainties including, among other factors, general economic conditions, geopolitical events, demand for advertising, competition for audience and programming, government regulations, and new technologies that could cause actually results of LIN TV 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 most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission. By making these forward-looking statements, the Company undertakes no obligation to update these statements or revision or changes after the date of this release.
Joining us from LIN TV will be Gary Chapman, Chairman, President and CEO; Paul Karpowicz, Vice President, Television; and Deb Jacobson, Vice President, Corporate Development and Treasurer. At this time, we will turn the call over to Mr. Gary Chapman. Please go ahead, sir.
GARY CHAPMAN, CHAIRMAN PRESIDENT AND CEO, LIN TV CORP.: Good morning and welcome to LIN TV's second quarter 2004 conference call. After I make a few opening remarks, Paul Karpowicz will provide a brief operational update. And Deb Jacobson, I believe it is, will speak to you about financial results and guidance. And then we'll answer your questions.
Second quarter was right on line with the guidance we gave you 3 months ago. We see a conformation, and a continuation of the steady recovery in advertising time sales that developed in the first quarter. We believe that the market will continue to strengthen in 2004, and with the Olympics and elections coming in the third and fourth quarters, we expect a more favorable environment for the rest of the year for our stations. We continue to work to monetize our digital spectrum. We are optimistic that the prospects of a low-cost cable alternative, we discussed this with you before, and we continue to work on this project.
We completed the sale of WEYI, Flint, Michigan for $24 million in cash, used the proceeds to repay debt. That completes our station sales efforts. We continue to apply our free cash flow to reduce debt and currently have $25 million outstanding under our revolving credit facility after spending $15 million to buy in more of our 8% senior unsecured notes during the second quarter. We expect to replay the revolving credit debt with free cash flow in the fourth quarter.
Net debt after $10 million in cash balances at the end of the quarter was approximately $660 million, which results in a leverage ratio under a senior credit agreement of approximately five times. We believe the Company still on track to reduce leverage by the end of 2004 to approximately 4.5 times. Our expectation is that the affiliation switch to NBC for WDTN in Dayton will occur on August 30, 2004. We also expect to switch the affiliation to NBC for a joint venture, WAND in Decatur, Illinois, when the current affiliation agreement lapses September 2005. As a result of the increased political revenue, market growth in the second quarter of 2004, net revenue increased 8% to $96.3 million in the second quarter. This performance, again, is in line with the guidance at we gave you on our last earnings call. Once again, only 36% of the growth was come from political spending. So we are very pleased to see that our core business continues to build.
Direct operating expenses, which exclude depreciation expenses, increased 2.6% and sales and G&A expenses were up 8.9 for the quarter. These expenses on a combined basis, before program member to expenses, were up some 5.6%, in line with our previous guidance.
Ownership rules, we were disappointed that there was not grater clarity. We assume that it would take some time for the FCC to respond to the remand from the Philadelphia court. Needless -- LIN has a long history of growth under the existing rules and we are pleased to announce several of these new initiatives today and we while provide enhanced growth prospects for the future.
We also recently announced that Vince Sadusky will be joining LIN as Chief Financial Officer and Treasurer in mid-August. Vince brings terrific experience from his position as CFO Telemundo and we anticipate a great contribution from him. I am looking forward to working closely with him and having you meet him in his new capacity. We also announced that this will be Deb Jacobson's last call with the Company. We wish Deb well. We are grateful to Deb for her important contributions to LIN during her past 9 years.
Now Paul Karpowicz will give an update on some new operating initiatives. Paul.
PAUL KARPOWICZ, VICE PRESIDENT OF TELEVISION, LIN TV CORP.: Thank you, Gary, and good morning. I am pleased to report that several new operating initiatives that will create growth opportunities for LIN in 2005 and going forward into 2006. We have just launched a joint program adventure with MTV for our duopoly station WJPX-TV in Porto Rico. This will open up an outlet for advertisers in Porto Rico to reach the younger demo ages 12-24 that's been very difficult to reach. The programming will be very unique just for our station and will focus particularly on Porto Rican recording artists and long-form MTV programming in Spanish. The MTV programming will be on the air 12 hours per day and the rest of the day WJPX will be broadcasting local programming, horse racing, and paid programming. So we are seeking to build revenue share by several points in Puerto Rico. As Gary has mentioned, increased revenues from these efforts will help us when political revenue decreases in 2005.
While initiatives like MTV are exciting, our core business continues to be sound. Our stations remain strong in their news ratings with particular growth in the Providence market. We are seeing this payoff in additional revenue share as well. In fact, I'm in Indianapolis today for a two-day seminar with our local sales managers and business development directors to implement something we call optimum effect advertising. This is a plan designed to generate additional local direct business growth in 2005. As Gary has said in the past, we expect that if we are able to achieve revenue share gains in Providence, Dayton, with the NBC affiliation switch and Puerto Rico with the new programming strategy, we will be able to offset significantly the loss of political revenue next year.
Near-term for the third quarter, we expect growth to be in the mid-teens since we will have Olympic and politic revenue in the quarter. In terms of Olympics, we are around 90% sold on our inventory and feel very good about our positioning. It's really too early to call the fourth quarter, but we are very optimistic about performance. I'll be happy to take any questions after Deb goes through the numbers.
DEB JACOBSON, VICE PRESIDENT OF CORPORATE DEVELOPMENT AND TREASURER., LIN TV CORP.: Good morning and thank you Paul. Before I get to the numbers, I want to thank you all for my 9 plus years at LIN. I've enjoyed working with the investor community, had a lot of fun and I've learned a lot answering your questions. So thank you.
In the ,release we provided the raw data that you would need to calculate traditional broadcast cash flow, a non-GAAP measure that remains an important means of evaluating performance in our industry. Broadcast cash flow for the second quarter was $40.6 million, up 11% compared to broadcast cash …