Nexstar Media Group Inc (NXST) 2009 Q4 法說會逐字稿

Good day, and welcome to the Nexstar Broadcasting Group's 2009 fourth quarter conference call. Today's call is being recorded. All statements and comments made by management during this conference call other than statements of historical fact may be deemed forward-looking statements within the meaning of Section 21 of the Securities Act of 1933 and Section 21A of the Securities and Exchange Act of 1934.

The Company's future financial conditions and results of operations as well as forward-looking statements are subject to change. The forward-looking statements and comments made during this conference call are made only as of the date of today's conference call.

Management will also be discussing non-GAAP information during this call. In compliance with Regulation G, reconciliations of this non-GAAP information to GAAP measures are indeed included in today's news announcement. The Company does not undertake any obligation to update forward-looking statements reflective of changes in circumstances.

At this time, I'd like to turn the conference over to your host, Nexstar President and CEO, Perry Sook. Please go ahead.

Thank you, Shawn, and good morning, everyone. Thank you all for joining us today to review Nexstar's 2009 fourth quarter operating results. With me here this morning, Tom Carter, our Chief Financial Officer, and after our brief remarks we will open the floor to Q&A.

I am proud to report today that Nexstar generated strong fourth quarter financial results highlighted by an 11.1% increase in 2009 fourth quarter net revenue excluding political spending. Nexstar's focus on growing new revenue streams and leveraging our local platform continues to serve us well and during the quarter, our multi-platform content distribution strategy, revenue diversification initiatives and success in generating new local direct billings led to another period of solid results despite substantial reductions in seasonal political advertising and the overall decline in ad spending due to the recession.

2009 is a year best viewed in the rear view mirror, but during this time Nexstar accomplished quite a lot as we built and strengthened our business by reducing our debt balances and the completion of a very successful exchange offer. We renegotiated nearly two dozen more round two retransmission consent agreements and we forged a groundbreaking management services agreement during the year.

Also during the year, we launched an innovative campaign titled "101 Reasons TV Advertising Works" which is on air now. We recruited an accomplished CFO, a General Counsel, and a new Senior Vice President of E-Media sales and operations and finally in the fourth quarter we amended our credit agreements.

Turning now to the fourth quarter, our net revenue amounted to $74.0 million, that is a 7.9% decline from the Company's record fourth quarter revenue of $80.3 million in the year ago period. The decline reflected a $15.8 million or 81% reduction in gross political ad spending as well as the impact of the economy.

As I said earlier, excluding political ad spending, 2009 fourth quarter net revenue rose by $7 million or 11.1% over the fourth quarter of 2008. With well developed top line growth strategies, Nexstar generated a 6% year-over-year increase in local spot revenue and an 11% rise in national spot revenue, as well as a 54% increase in total revenue derived from retransmission consent agreements, E-Media initiatives as well as management fees.

In total, the high margin revenue from [retrans], E-Media and management services increased by $10.5 million in the fourth quarter of 2009 and we will see further growth on those line items in 2010.

With our focus throughout 2009 on expense management, our total fourth quarter 2009 operating expenses declined approximately 6.3% from the same period last year excluding the impairment charge, while active financial management of the balance sheet enabled the Company to reduce fourth quarter cash interest expense by 31.1% compared with the same period last year.

Free cash flow of $13.1 million in the fourth quarter of 2009 was a 78.1% rise over last year and it benefited from reduced capital expenditures related to the completion of our digital television conversion spending as well as our cash interest expense reduction. While all of our peers have yet to report, we believe that our fourth quarter results demonstrate that we are leading the industry in generating increases in our core advertising activity and this trend is extending into 2010.

With the ad environment improving and auto advertising on the increase, Nexstar expects a return to growth in 2010 as operating results will benefit from increases not only in overall ad spending, but also from significant political revenue and continued growth of total revenue derived from [retrans], E-Media and management agreements.

Nexstar today generates approximately 40% of our EBITDA from revenues that are derived from activities other than selling commercials on our television stations, and those are revenue sources that didn't exist on our P&L five years ago. And we see opportunities to continue expanding these high margin revenue streams as we move toward our goal of them accounting for more than 50% of our EBITDA within two years.

I will review these factors and our positive outlook for 2010 in further detail following Tom's financial review, but before we get to that let me run through some of our other Q4 highlights.

Our fourth quarter retransmission consent fee revenues of $6.4 million exceeded Q4 2008 levels of $3.9 million by 62%. For the full year of 2009, we generated $24.3 million in retransmission fee revenue, a 68.5% increase over 2008.

Q4 E-Media revenue came in at $3.4 million surpassing last year's third quarter by 19.6% and for all of 2009 we generated approximately $11.7 million in E-Media revenue, about 15% more than we did for the full year of 2008. According to Gordon Borrell of Borrell & Associates, a research and consulting firm that tracks local advertising and develops interactive advertising marketing strategies for companies, Nexstar is among the top 10 fastest growing, local online advertising companies and he believes that Nexstar is one of the few, if not the only, broadcast TV Company to generate positive growth in 2009 from this line of business.

In the fourth quarter, we recorded approximately $700,000 of management fee revenue from our services agreement to manage the Four Points Group. This incremental $200,000 booked above the base management fee in Q4 reflects a performance compensation as we generated broadcast cash flow for this station group above the specified hurdle level in our contract.

In total, this new revenue stream delivered about $1.8 million in revenue to us in 2009 and we will benefit in 2010 from a full year of the management services agreement being in force and from the expected overall improvement in operating the results for the seven stations which will entitle us to earn additional performance compensation.

Moving now to new local television direct billings, with our well developed top line growth strategies, Nexstar generated $4.2 million in new local direct advertising in Q4 of 2009, our highest level in eight quarters. Also during Q4, Nexstar launched a Companywide information and education campaign entitled "101 Reasons TV Advertising Works", which reflects our ongoing committment to developing new and innovative ways to highlight the benefits of local television advertising, and the fact that TV viewing remains at record levels across all demographic groups.

Advertisers are reawakening to the fact that broadcast television is the preferred medium to drive awareness and build both traffic and brands and this was another positive factor in our Q4 results and this will also continue throughout 2010.

Automotive spending rose on a quarterly sequential basis throughout 2009 and in the fourth quarter improved by over 25% compared with the third quarter of 2009. Our trend in 2009 that auto was down approximately 40% in each of the first three quarters and while fourth quarter automotive advertising revenue declined 7.7% from last year's levels, it's clear from this trend and from what we're seeing in Q1 that the lows of the auto category spending are behind us.

This clearly is a very positive trend from several standpoints and it will also have an impact on inventory and rate for 2010. Overall, Nexstar did generate a small increase in aggregate billings from our top 10 advertising categories in the fourth quarter. That's an important milepost.

Broadcast cash flow totaled $28.8 million in Q4. That was a 54.6% increase over third quarter 2009 levels, but down 17% from fourth quarter of 2008. Adjusted EBITDA came in at $24.7 million, a 69.5% increase over Q3 2009 but down 18.2% from the fourth quarter of 2008.

And finally, free cash flow of $13.1 million more than doubled over what we did in Q3 of 2009 and was up 78.1% over the same period of 2008.

Let me now turn the call over to Tom Carter to provide further detail on our financials and after that, I will come back with some additional comments and then we'll open the call for questions. Tom?

Thanks, Perry. I'll review some of the key Q4 line items on the Company's income statement and balance sheet. Globally as we mentioned, net revenues were off 7.9% in Q4 2009 to $74 million from $80.3 million in Q4 2008. Broadcast cash flow was down 17% to $28.8 million from $37.4 million and adjusted EBITDA stood at $24.7 million for Q4 2009 versus $30 million, $30.3 million at Q4 2008.

Drilling down a little bit into the revenue lines, local revenues were up 5.9% to $44 million and national revenues were up a healthy 10.5% to $17.5 million. Core revenues which are both local and national combined were up 7.2% to $61.5 million. Political revenue, as we see often in this cycle, was down 81% to $3.7 million for the fourth quarter of 2009.

E-Media revenues were up a healthy 19.6% to $3.4 million from $2.8 million the period the year before, and [retrans] revenue stood at $6.4 million for the quarter compared to $3.9 million for Q4 of 2008. Net revenue excluding political, as we mentioned earlier, was up 11.1% to $70.8 million.

In 2009 fourth quarter, the Company generated $14.1 million of income from operations compared with the operating loss of $17.5 million in the year ago period which included the impact of $33.9 million of impairment charges. Excluding the charge, the year ago operating income was $16.4 million.

Overall, Nexstar's fourth quarter 2009 corporate overhead costs totaled $4.1 million. Included in that $4.1 million amount was approximately $1.1 million in additional expenses associated with the implementation of the credit agreement amendment which was finalized in October of 2009 and this compares to $4.4 million in total corporate expenses in the year ago period.

Corporate overhead in the fourth quarter of 2009 and 2008 both included approximately $4 million of non-cash employee stock option expense. When taking into account the $1.1 million in one-time credit agreement expenses, total operating expenses declined for the fourth quarter of 2009 over the fourth quarter of 2008 for Nexstar by 7.8%.

On the balance sheet side, Nexstar's outstanding debt at 12-31-09 consisted of $398.7 million in bank debt which was comprised of $321.7 million in outstanding term loans, and 7$7 million outstanding on the revolver. We reduced revolver borrowings during the quarter by $8 million.

The 7% senior sub-debt has two tranches, $47 million of which is the semi-annual cash pay piece as well as $132.3 million of the pick security which goes cash pay in January of 2011. Also, on the balance sheet was the 11.375% senior sub-debt which totals $50 million and the 12% senior sub-pick debt which went cash pay earlier this quarter in January of 2010 which stands at $42.4 million.

Total debt on the balance sheet was $670.4 million and at 12-31-09, the Company had cash balances of approximately $12.1 million. Our outstanding debt for measurement under the credit agreement excludes the pick debt and stood at $495.7 million at 12-31-09.

Nexstar's total leverage at that date was 6.8 times compared to a covenant of 8.75 times and our senior covenant was 5.5 actual versus a covenant of 7.0. Overall, we believe the amendments to the senior credit facilities that were announced last fall provide us with ample leeway to avoid potential covenant issues as we have seen business levels begin to rebound.

Total interest expense in the fourth quarter of 2009 was $11.8 million compared to $12.4 million for the same period in 2008. Cash interest expense for the fourth quarter of 2009 was $7.3 million compared to $10.7 million for the same period in 2008. Cash interest expense for the full year of 2009 was down $25.2 million from $41.1 million in 2008.

Nexstar's Q4 CapEx was $4.7 million compared to $12.7 million in the fourth quarter of last year. All of this was impacted by the additional spending required for digital television conversion in 2008 and early 2009. We expect our run rate CapEx to continue to decline through the end of 2010.

CapEx for full year 2010 was $19 million which was inclusive of $2.6 million for the reconstruction of plant which was reimbursed through insurance proceeds from our property and casualty insurance. That was largely in Joplin and Beaumont during 2009.

Cash interest expense and CapEx obligations were reduced by approximately $27.7 million during the year and we see this combined with the continued upticks in ad spend as a recipe for significant free cash flow generation and additional liquidity for the Company in 2010.

That concludes the financial review for the call. I'll turn it back over to Perry for some additional remarks and then Q&A.

Thank you very much, Tom. Nexstar's solid fourth quarter results provide strong evidence we are leading the industry in generating increases in core advertising activity and this trend is extending into 2010 and will be reflected in our Q1 2010 results as well as throughout the year.

With the ad recession subsiding and auto advertising now on the increase, Nexstar will see a return to growth in 2010 as our operating results will benefit from growth in overall advertiser spending, significant political revenue and continued growth of total revenue derived from retransmission agreements, E-Media and management fees.

Given the highly unfavorable macroeconomic environment of the last six quarters, it was a real test to our station, our E-Media and our corporate personnel and I'm extremely proud of the way that our employees and this team responded and helped to position the Company for 2010.

Throughout 2009, we made steady progress toward our goal of emerging from the recession with a stronger competitive position and an improved diversified business model. And based on the results in the books for January and February of this year, we're confident that our expectations for a return to growth this year will be fulfilled and perhaps at levels beyond our initial projections.

We've led the industry in successfully transitioning the traditional television revenue model from a one-legged ad supported distribution dependent model to a five-tier business model that starts with our core on air television operations. Subsequent to that we've demonstrated our ability to generate E-Media revenue through our local portal platform and on top of that a retransit distribution revenue stream and station management agreement revenue stream serve as strong third and forth legs to the revenue stool.

We're also making plans toward monetizing the fifth component which is our digital spectrum platforms. We view that as our untapped mineral rights and we're just trying to figure out how to drill down to the oil. Some of the Q1 growth drivers that we're excited about include the Winter Olympics which closed at the end of February. With our dozen NBC affiliates, we set a new high water mark for Winter Olympic for the Company with these games.

Nexstar continues to do a great job in garnering political ad dollars for state and local candidacy spending which is buttressed by increased issue advocacy spending for subjects like health care debate, cap and trade, employee work rights and local ballot propositions. Given the economy and heightened levels of partisanship, 2010 promises to be a very interesting year with key races in several of our markets and the implication of the Supreme Court's recent campaign finance ruling, as well as the Census all expected to be factors in driving political ad spend.

We will record substantial political revenue in 2010 given our geography, including the battle ground states of Pennsylvania, New York, Indiana, Illinois, and Texas, will benefit from a dozen gubernatorial races with seven open seats. We also have 15 U.S. Senate races which is is more than we have had at any point in our Company's history.

On top of that, 58 Congressional races will be contested in 2010. All in all we think it will be a substantial year for political revenue for Nexstar. News leadership is a driver of political ad dollars. Overall we believe the strength of our stations and their markets aligns us well with the anticipated high levels of political ad spend.

Moving on to distribution revenue. Since the beginning of 2008, we've renegotiated agreements with approximately 200 cable, DBF, and telco distribution partners. We recorded $24.3 million of retransmission fee revenue in 2009 which generally represents a little bit over 80% of what we're doing overall on this front when you take into consideration the additional ad spend commitments on top of the fee revenue.

We have about a dozen agreements left to renegotiate in 2010, mostly at the end of the year, which will complete our second cycle renewals and as in the past few years, our retransmission revenues will be up a substantial double-digit percentage amount again in 2010 as we have escalators in all of our contracts on their anniversary date and by and large those anniversary dates are on a calendar year basis.

And looking forward, we will have the full year benefit of all of our new agreements, their escalators and the new per sub rates for 2011 so this will be a growing revenue stream for us continuing into 2011.

I talked earlier about some of the upside we're seeing from our management agreement with Cerberus, and as we near the one-year anniversary of this groundbreaking new revenue stream for the Company, I'm delighted with the success that we've had with their stations. We'll see a full year benefit from this arrangement in 2010 and we continue to have discussions on potential additional station management agreements which would bring additional revenue into the Company.

As those of you who follow the Company know, we're very focused on local ad sales, as over 72% of our television ad spend, core television ad spend, is local. We have relationships with the owners and managers of those local businesses, not just their ad agencies and this fact was a primary consideration in the initial development of our E-Media revenue strategy as we focused on using the content and relationships of our television stations to build our unique online portal platform.

Since our launch in 2007, Nexstar has recorded 13 consecutive quarters of revenue growth from our E-Media community Web portal strategy, 2009 E-Media revenue posted a very solid 15% gain over 2008. With now three full years in this business, we've learned that over 40% of our online advertisers have never used our television stations before and the rest of our revenue comes from convergence packages that we sell that combine both online and on air.

While E-Media is a long tail and lower ticket business, we believe that it is a very sustainable platform and a very profitable business for Nexstar and we see further avenues for growth. For example, in February, we announced an agreement that brings Nexstar's market leading local content from our community Web portals now to mobile users. This Nexstar mobile functionality delivers local content to Web-enabled mobile handsets and delivers video clips to video-enabled mobile phones, either within a news story or through a video menu.

We will also be offering local wireless apps for the iPhone, BlackBerry, Droid and other smartphones as well as SMS and text messaging delivery, geo-targeted mobile alerts for breaking news, weather and sports and more. More importantly, in just three weeks of selling this new mobile application we've generated over six figures in new sponsorship revenue for 2010.

Just a few more comments on how we look to 2010 and our prospects. Our annual CapEx peaked at $31 million in 2008 with spending for the digital conversion. It dropped to $19 million in 2009 and will drop further to approximately $12 million in 2010.

With expectations for increasing revenue and the leverage inherent in our model, we expect to see substantial free cash flow generation in 2010 which obviously will be deployed for debt reductions as well as looking at new value creation initiatives.

In closing, we are as bullish as ever on our business and our Company's prospects. TV viewing remains at record levels across all demographic groups and advertisers recognize that broadcast television is the place to drive awareness and build both traffic and brands. Our local stations have a local brand that both viewers and advertisers know and trust and we produce tons of local and unique content every day.

We also have teams of sales professionals that go into the business community daily and interact with business owners to develop effective advertising and marketing opportunities, partnerships and business solutions. Our 2009 results demonstrate that Nexstar weathered the impact of the recession as well as, if not better than, any other media company and as we continue to leverage the traditional television broadcasting model into a multi-tiered model of high margin revenue streams, we're very optimistic about the future.

Thank you, again, for joining us this morning and now let's open up the call to Q&A to address your specific areas of interest. Shawn?

Thank you. (Operator Instructions). Our first question comes from bishop Cheen with Wells Fargo.

Hi, Perry, and Tom. Thank you for taking the question. Perry, your enthusiasm is certainly noticeable and apparently justified the trend lines that you were building. So I don't want to diminish that one iota, but I've got to turn to Tom and just ask a couple of balance sheet questions, so I'm on the right page.

So in the covenant leverage, via the October waiver reset, the 6.8, what's in that because there's obviously a carve-out off the 495.7 if you use the 63.2 of EBITDA as the the numerator?

There are some add backs for one-time expenses associated with some of the A) the credit agreement, B) the exchange, and then some of the restructure expenses that the Company experienced in 2009 are an add back to EBITDA which increases it off of the $63 [millionish] kind of number that you mentioned.

That combined with obviously even at 12-31-09, the 12% picks and the 11.375% were both excluded from the ratio, so it's a little bit of both. It's an add back to the denominator and a reduction in the numerator.

Okay, yes, because I'm just using the 495.7 of cash pay.

Right, and keep in mind, in the second quarter, we experienced about $2.9 million in corporate overhead expenses that were associated with the exchange and both that exchange and the credit agreement, those expenses were not able to be capitalized as you would normally see in a new financing because they were a restructuring of the existing debt and so they had to flow through the income statement.

Okay.

That make sense?

Big picture, obviously, you have a lot of cushion and flexibility off your covenant, but so now I've got to focus on the 12% picks that just went non-picks or cash pay as we speak and they are 13%, I believe, with a 50-basis-point step-up every six months as they get into this cash pay phase, is that correct?

You have it correct.

Okay, so clearly it would be highly motivating to do something about those. In your new credit facility, are you allowed to take those out? Is there a carve-out that would allow you to take out those 13% notes?

We have a restricted payments basket in the new credit agreement that grows with a percentage of free cash flow. The free cash flow is first designated to the senior credit facility and then, second, we get a percentage of it that goes into an RP basket which the Company can use to redeem portions of its junior capital.

Okay, can you tell us how large the RP basket is?

I can not because right now, it sits basically, when we did the new amendment, it reset to zero and it increases quarterly. Once I report to the senior lenders the credit agreements definition of free cash flow and then we divide that up.

Got it. All right. And then I won't take long and I'll move on. I've got to ask you again, two things. A) When do you think you're going to file the K?

We anticipate filing it no later than early next week.

Okay, and I missed when you talked about for the year, your performance fees for the year, 700 in Q4 of which 200 of that was extra performance or four points and then for 2009, how much was the management fee, the performance fee?

It was about $1.8 million total and, again, that agreement didn't begin until the very end of March of 2009, so the base component is a $500,000 per quarter management fee and then incentive compensation is on top of that.

Okay. And then the last thing and I'm sure someone else will answer it and you can save your answer for that, but I'll ask about [retrans] and your very good friends at all of the networks and looking forward, how you see this whole thing playing out in terms of [retrans] sharing? So I thank you for all your answers and I will pass it on.

Our next question comes from Jim Boyle with Gilford.

Good morning. Could you provide us with some color or actual pacing in Q1 that you noted was better than you were expecting so we can quantify how much of the sequential rebound continues?

Yes, we really don't want to give specific pacing or guidance, but let me tell you that we've already achieved our revenue budget for Q1 of 2010. Obviously, automotive is a big driver there. It is up a substantial double-digit amount.

Furniture is up double digits, medical and health care ad spend is up, as is legal, services, schools, radio, cable, newspaper. Those are the main drivers. Right now our top 10 category billing, is already a double-digit amount over where it finished last first quarter, when those categories are taken in aggregate.

You mentioned auto advertising. What percentage of your revenue was it in 2009 and what is it roughly historically?

If you look at it on a fourth quarter basis, automotive ad spend for the Company represented 18.1% of core billing. The all-time low was Q2 of 2009 at 15.4%.

If you look at Q4 of 2008, it was 20.4%. I think you could say at its peak it was approximately 25% to 26% of our revenue. Obviously, at its trough it was 15.4%. It is approximately, as I said, 18% of our fourth quarter 2009 Q4 core billing and it looks to be increasing over that on a percentage basis in 2010 Q1.

And if that's your top ad category what are the other top five? Would there be furniture, legal, health, some of the other ones you just mentioned or is it a somewhat different mix?

Well, automotive number one, fast food number two and then after that rounding out the top five would be furniture, department and retail stores, paid programming and, depending on the quarter, medical health care may trade places with one of those to be into the top five.

Okay, and as newspapers and magazines continue their very discouraging revenue declines recently and long term, do you see any of that headed to TV stations or is the Internet the primary beneficiary?

Oh, no, we see it heading to television almost on a direct path and particularly in the area of retail and display advertising. We, obviously, with our online strategy that is aimed squarely at the directories business as well as the newspaper classified sections as well.

But, again, with the reach in distribution of local broadcast television versus local print productions, people are increasingly, and I heard this a lot throughout the valleys of 2009 when I would talk with advertisers and station managers, people would tell me almost without exception, I'm spending less on advertising because of the recession, but I'm spending a higher percent of my budget on television.

And they would always add because I know that works, and so my challenge to our managers and our 300 local sellers is on a daily basis to maintain that share of mind and share of wallet now that things are on the rebound.

Okay, and currently, the two-analyst consensus for Q1 net revenue of $62 million, that's about 11.5% year-on-year. That's very akin to your Q4 year-on-year excluding political. Is that in the ballpark or the same zip code or are we crazy?

I don't think you're crazy.

No.

Okay, and let me zip back over to what Bishop briefly noted. Your national partners, the broadcast networks, claim they deserve and will inevitably get a piece of your cable [retrans] revenue because they provide you with their expensive programming. Why shouldn't they get a modest percentage of it?

Well, let me just preface the conversation by saying two things. One is that I am in one conversation with one network about one station and so this doesn't occupy anywhere near the amount of my work week as it does the trade press or the minds of investors and analysts, I think. I think that we -- let me also be clear that we affiliates already pay the networks for certain things.

We pay CBS a contribution to defray the cost of NFL Football and NCAA basketball, we pay Fox for NFL Football and also an inventory buyback program. So the concept of the networks wanting more money from the affiliates to us is, I guess, not surprising, but it's also not new and we don't consider it newsworthy.

So I think that this will be the same business as usual and the tug of war over money that's been going on with the network and their affiliates since the late 90s. I would say that we -- as agreements come up for renewal we'll enter into those discussions and I think there is a balance between value exchange and distribution. A network without affiliates is not a network at all and maybe it's a cable network and I think we know what original program ratings are on cable.

And that's never been a part of the conversation of, if you don't play ball we will go to cable. It is just a tug of war over money that I think will play out. We have affiliation agreements that have various expiration dates going all the way out through 2016 and I think this will be a rolling discussion just like the decline of network compensation was a rolling discussion over about a decade.

Do you have any affiliate agreements expiring in 2010?

Yes, we do.

Which one?

Well, we have, they're listed in our 10-K and we have one that expires in the first half of this year and some of our smaller market stations, some of our Fox stations at the end of the year, and I expect we'll engage in dialogue at some point, but we are not currently other than with one exception.

And if that's going to be in print somewhere, could you just tell us now and save us the time?

I'm sorry, what's the question?

Who is going to be expiring in the first half of 2010?

We have one agreement with CBS expiring before the end of the second quarter.

Okay, thank you.

Our next question comes from Jonathan Levine with Jefferies.

Yes, thank you. I was wondering if you can talk a little bit more in terms of the primaries? Obviously, the Texas primary came to an end recently and I was just wondering if you can talk a little bit in terms of what the performance was for your stations?

Sure. I mean, if you look at first quarter, we generated substantial revenue, multi-million dollars in political advertising on the books already for the first quarter. Texas and Illinois were primarily where the game was played.

We're now seeing revenue for a May primary in Arkansas on our stations in Arkansas. So I think the interesting thing, first quarter is obviously somewhere between 5% and 10% of what you expect to generate in political revenue for the year, so it's interesting but probably not meaningful in the scheme of things.

But the interesting thing is we had a number of races in New York and Indiana that we had budgeted no money, we did not expect them to be competitive and now with resignations those are open seats. So in terms of our perspective for political for the full year, we are sticking with our number and in fact we would bet the over at this point.

And I guess the number was comperable to 2008 which was around $32 million, $33 million? Is that right?

Yes, I think that is a good conservative estimate.

Okay. You touched upon spectrum. Can you talk a little bit more in terms of what you're thinking about, that clearly we're going to get the report from the FCC out shortly and obviously they've already floated the idea of potentially working with the broadcasters in regards to spectrum and a potential auction and sharing some of the proceeds. Can you talk a little bit in terms of your thoughts about that?

Yes, I think from our perspective, there are any number of services, products and platforms that are being bandied about and being developed. Mobile video, wireless cable, digital multicast, data transmission, Internet backhaul and we don't know which ones will be successful and I think only time will tell.

The concept of basically abdicating that opportunity by a "voluntary" giveback of spectrum, I can't imagine that the opportunity cost would, lost opportunity cost, would be worth whatever percentage of those proceeds that someone might want to cut us in for. So we think that we're less than nine months past the biggest transition in the history of television.

It was an unfunded federal mandate to the tune of about $15 billion and there's not been a dime of return on that investment yet, but I think only time will tell how to do that, and I think that it should be a purely market based discussion.

There is absolutely no need for the government to be inserted in the process. And, again, I think that there are companies a lot bigger than ours and people frankly a lot smarter than I am that are thinking about optimizing this digital spectrum, and I think it's only a matter of time before applications are developed that will begin to yield a return on the investment of the digital transition.

Okay, that was all I had. Thank you.

Our next question comes from Aaron Watts with Deutsche Bank.

Hi, guys, how are you? Two questions for me. I guess first on the auto side, was seeing that GM was going to reinstate around half of the dealerships they had pulled initially and I was curious if you had any initial sense for whether that would impact any of your markets.

Of the initial GM closures of 1,100, there were probably 50 or 60 that were in our geographic footprint. None of them were major advertisers, however, no spending from any of those potential closed dealers were in our 2010 internal forecast. So, again, I view it as a net positive to the automotive category. And if you look at the dealer spending for us, it represents in the neighborhood of about 20%, 25% of the dealers, of the total aggregate.

And actually, our dealer spending has held up relatively well vis-a-vis the factory dollars throughout all of this. I think the interesting thing is that the dollar ad spend per car has not varied significantly from the high water mark of almost 17 million unit sales to the low water mark of 9 million. It's just that dollars per car were down, ad budgets were down because new unit sales were down. So all of that taken together we would view as a net positive for the auto ad category as we move throughout 2010.

Okay. And then just on that same note, with Toyota, have you seen like a slowdown in their spending on your stations and if so, do you expect that to kind of ramp up as they figure out their game plan going forward or how has that played out for you?

Thus far, it's primarily been a change of creative in that the commercials that they're airing, but we're actually projecting right now a net positive for Toyota in Q1, slightly up over 2008. I do expect that they will need to spend to reestablish equity in the brand and help to repair their reputation, so I would expect to see a substantial step-up in Toyota advertising beyond the first quarter.

Okay, and last one for me. Just on the expense side as I think about how this year might play out. You had to go through a tough period of cutting costs to match up with the sort of revenue line. Now that we're back to a growing top line environment, how do you think about your expense base?

Well, let me take a stab at that. I think there's a lot of variables that go into that. Obviously, with a more robust top line, we'll see commissions and agency expenses go up, so from a variable perspective that's all good.

From a fixed perspective, we will see flat to continued decline in fixed expenses as we experience a full year of some of the cost reduction initiatives that were implemented mid-year of 2009 and we get a full year's benefit of that. And then, lastly, obviously, our employees have gone through a tough six- to eight-quarter period here. We're continuing to reinvest appropriately in them from a compensation perspective wherever we can, so we're starting to look at some of those initiatives as well.

Long winded way of saying we believe that the fixed expenses which are the vast majority of our expenses will be down nominally in 2010 with variable expenses going up because revenue is going up.

Okay, thanks for the color.

Our next question comes from Marci Ryvicker with Wells Fargo.

(Inaudible) but as it relates to [retrans], do you believe that you can negotiate better with the distributors on your own versus having the broadcast networks negotiate on your behalf?

You know, that's a good question. Obviously, everyone's results are confidential at this point. We have offered to ante certain of our stations to certain networks if they could negotiate a better deal on behalf of a larger footprint, and we have offered to share that upside revenue potential with them.

It would only seem logical that the bigger the negotiating group and the more leverage they would have with the distribution partner in the discussions that the networks ought to be able to do better than we can as a small Company on one-off basis.

Having said that, I think our results are pretty good when you look at our footprint and our [retrans] and kind of do the math. But it's an open invitation to any and all of our network partners that if they can do better on their own than what we're getting today we will be more than happy to negotiate an equitable split of that upside because that's value creation for both of us.

And then I'm just trying to understand what leverage the affiliates have over the networks. I guess what's stopping the network from going to an independent in the market if you were to say to them, we're not going to give you anything for our [retrans]?

Really nothing, but that's been the case for 20 years. And if there is an independent in the marketplace, if it has distribution, if it has a robust local news operation and a promotional platform that could be a viable alternative. I would tell you that in the vast majority of the markets in which our Company operates, there is no viable alternative there.

Going all the way back to the 90s and when New World decided to defect from CBS and go to Fox, that started a sea change in landscape and the whole discussion about compensation was how much more will you pay me to remain with your network versus going to a competitor. I think that this whole conversation, Marci is on a pendulum like about everything else in our business, that it's cyclical, and if it goes too far in one direction, the networks basically have a pretty good deal, I think.

They take the audiences that we generate for them and then resell those eyeballs to national advertisers. It's basically a huge time brokerage agreement, and without our distribution and our eyeballs, they don't have a network and they can't command national CPMs.

So I think that from my perspective, the reason that local stations and broadcast network ratings are so much higher than cable ratings are because every night, our signal or their signal goes into the home via a local television station that has a brand that makes it their business to become a part of the local community, versus a cable network that only goes home on a cable channel or through a cable MSO.

And I don't think that the public perception of cable MSOs quite equals what the public perception of local broadcast stations would be. So I think that for that reason, broadcast network ratings will always be higher than cable network ratings assuming that the distribution model stays intact.

However, if all of a sudden a particular network chooses to not distribute in 4% to 5% of the country, I think that will change their network CPM in a heartbeat and then I think the conversation will move in an entirely different direction very quickly.

Great. Thank you for the color.

Our next question comes from Edward Atorino with Benchmark.

Hi, good morning. Could you go over the interest expense outlook? Did you say there was sort of a non-recurring part of the expense in the fourth quarter, and what would sort of the run rate be for 2010?

There is no non-recurring, the only non-recurring was an expense item to corporate expense for the professional fees and basically the administration of the new credit agreement.

We're not giving, obviously, interest rate forecasts here, but the only difference in our debt capital structure is, I think we talked about this briefly, the 12% notes which are now 13% notes go cash pay, went cash pay on January 15, I believe, of 2010, so that will go from a non-cash item to a cash item during the fourth quarter. All other--

Fourth quarter this year?

I'm sorry, first quarter of this year.

So your interest expense will be up versus the fourth quarter?

Well, the cash interest expense will be up. The interest expense will be similar.

Oh, okay. With the amount you're booking?

Right.

So run rate of what the fourth quarter expense was for 2010?

The interest expense was 11.8 for that, that's total interest expense.

Right.

Cash for the fourth quarter was 7.3. That 7.3 will go up as, in Q1 of 2010, as that $42 million goes current pay. So 11.8 is the answer to your question.

Second, you mentioned the Olympics, you've got a big station that's a CBS station. Did the Super Bowl help you in the quarter?

Yes, yes, Ed, on an all in basis we generated about $1.5 million of Super Bowl revenue which, again, for our universe of CBS affiliates was a very good showing.

Olympic revenue in the quarter was just shy of $5 million. So both were positive drivers. Both displaced some regularly scheduled programming and so it wasn't 100% incremental, but we were pleased with the results.

On the new media [retrans], the management fees, are they going to ramp up during the year? I know the [retrans], you got some contracts coming up next year, but is there a step-up over the course of the year in those categories?

Yes, and in fact, our E-Media pacing for the first quarter is -- even though we're up against, larger numbers as that revenue continues to grow, we're pacing double ahead of where we reported our fourth quarter results versus the prior year.

So there will be continued ramp-up in each of those three categories, in distribution revenue, in E-Media revenue and in management services revenue throughout the year based on our current projections and our current performance.

And one clarification on the management revenue. We accrue at the $500,000 per quarter that we mentioned, and then, obviously, we get an incentive payment. We don't know what that incentive payment will be until later in the year, so similar to what we did this year, we won't see an incentive, an additional incentive accrual until probably the fourth quarter.

So it all goes in one quarter?

One or two quarters depending on when we start to see political in some of the Four Points markets, et cetera.

Got you. And you mentioned the costs. I guess with the ramp-up in ad spending, SG&A will bump up a little bit. I presume that's where all of the commissions are?

Correct.

Okay. Thanks a lot.

Our next question comes from Matt Swope with Broadpoint.

Hi, guys. Could you talk a little bit more about the capital structure? Tom, you mentioned earlier you have the restricted payments that is a little bit of a bottleneck in the new credit facility of the amended credit facility.

Is there any thought on doing something a little more global with the capital structure to, one, help give you a little more room there, and, two, take care of the series of cats and dogs you have across your notes?

Well, we don't think of them as cats and dogs, but I appreciate your characterization of that. We think about capital structural all the time. Having said that, obviously we're laser focused on execution from a business perspective right now.

I think we have a little bit more wood to chop here in terms of filing the K than we have obviously our existing obligation to the senior credit facility in terms of free cash flow and the designation of free cash flow to repay some of the senior facility.

After that, we'll look at our options in terms of free cash flow and other options to take care of some of the senior credit facility. The covenants that we have there as well as other potential pieces of the capital structure.

But I guess one way around that would be to even replace the senior credit facility entirely?

That is a true statement.

Okay, and maybe moving on, the management services agreements, you talked about the Cerberus agreement. In the past, you've talked about having, Perry, I think, two or three others in the Q. Is there any update on those?

No. Discussions are ongoing and we're going to be both opportunistic and selective in leveraging the intellectual capital and the corporate DNA, if you will, and we have no interest in being the low cost producer in the sector of providing management services because we think we add real value.

So we had a discussion yesterday with a potential party regarding that. Those conversations are ongoing and when it's right for both parties, it will yield fruit.

As you talk to those guys, is there any ability to take your [retrans] agreements and put them over somebody else's station group?

The short answer to that is, yes.

So theoretically that could be attractive to somebody if they could append to your agreements?

I think that is a true statement.

Okay, well I will leave it with those true statements. Thanks, guys.

Our next question is a follow-up from Bishop Cheen with Wells Fargo.

Hi, thank you. Tom, I love the questions about the cap structure. You wrote the book on cap structures and, Perry, you've got the camel inside your tent now, so we'll leave that there.

But let me ask both of you guys, any sign of anything positive on M&A station deal flow the way we used to see stations change hands at, doesn't have to be astronomical multiples, but kind of allowable deal flow multiples, are there any positive signs on the M&A front?

I would say this, Bishop, that you probably read the same article I did over the weekend on the reemergence of staple financing and--

Yes, the staple is back.

That in and of itself would be a positive sign. As we look outgoing forward, I'm not so sure that you'll see a lot of strategic activity. I do think you could see conversations between private equity and folks that don't have current legacy portfolios and some of the unnatural holders of companies that have just come through or are in the bankruptcy process.

I think that you'll see those two sides push closer together and quite frankly we've been contacted by more than one private equity sponsor to determine if we would have interest in potentially managing a portfolio if they were successful in, as we used to say in the car business, moving the wheels over the curb.

So I think there are -- certainly there are more discussions now than there were a year ago, but I think it will take the first transaction before we can discern any trend information.

And, Bishop, just to answer your question, I think those conversations are going on. It's not as it was before. It's different.

People have legacy capital structures that are restrictive. It doesn't prevent those conversations from happening. They just take a different form.

Yes, I would imagine they would, Tom. One of the things I noted and I think, Perry, you and I talked about this before, in the last go around, the bubble, call it what you want, the go-go era, we saw a lot of activity of strategics to private equity groups or PEGs and strategics to strategics.

We really didn't see any activity of PEGs to PEGs and there are some onerous capital structures out there that the PEGs own and I -- do you imagine that we will see some PEG selling to PEG buying this time around?

I think that there are a number of companies that have private equity sponsors that have been invested for quite some time. And I think that you will see those private equity sponsors exit at some point in the next couple of year horizon.

I think it depends on when the sunny days are sustained, but, and as to who ultimately those are sold to, I could imagine some private equity companies looking to buy an established portfolio to leverage those operating strengths across, and use that platform as an acquisition platform of other assets on a going forward basis. Who can predict the future but I wouldn't rule it out.

Okay. Very interesting. Thank you. Great color.

I'm not showing any other questions at this time, gentlemen.

All right. Well, I'd like to thank everyone for taking time to join us today and we look forward to gathering again in the not too distant future to talk about our first quarter results, and we'll be pleased to bring that information to you as soon as we are able. Thanks again and have a great day.

Thank you. Ladies and Gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect. Good day.