Sinclair Inc (SBGI) 2010 Q3 法說會逐字稿

Greetings and welcome to the Sinclair Broadcast Group Incorporated third quarter 2010 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded. It is now my pleasure to introduce your host, David Amy, Executive Vice President and Chief Financial Officer for Sinclair Broadcast Group. Thank you, sir. You may begin.

Thank you, operator and good morning, everyone. Participating on the call with me today are David Smith, President and CEO, Steve Marks, Chief Operating Officer of our Television Group, and Lucy Rutishauser, Vice-President, Corporate Finance and Treasurer. Before we begin, Lucy will make our forward-looking statement disclaimer.

Thank you, David. Good morning, everyone. Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the Company's most recent reports on Forms 10-Q, 10-K and 8-K as filed with the SEC and included in our third quarter earnings release.

Our earnings release was furnished to the SEC on an 8-K earlier this morning. The Company undertakes no obligation to update these forward-looking statements. The Company regularly uses its website as a key source of Company information which can be accessed at www.SBGI.net. In accordance with Reg. FD, this is being made available to the public. A webcast replay will be available on our website later today and will remain available until our next quarterly earnings release. Redistribution of this call is prohibited without the express written consent of the Company.

Included on the call will be a discussion of non-GAAP metrics. Specifically television broadcast cash flow, EBITDA, free cash flow and leverage. These metrics are not meant to replace GAAP measurements but are provided as supplemental detail to assist the public in their analysis and valuation of our Company. A reconciliation of the non-GAAP metrics to the GAAP measures in our financial statements is provided on our website under investor information reports and filings.

Thank you, Lucy. We should have an interesting call today as we finish the political season and begin to look forward. We will be discussing the continued strength we see in the television advertising market and we will detail our expected improvements for the fourth quarter. We will talk about the great job and performance and expected results of our television group for the full year, the improvements and the continued strengthening of our balance sheet in what has been one of the most difficult credit markets in our history, plus we are willing to discuss our thoughts on the outlook of 2011 and what we see as a continued resilience of our industry.

To begin, I wanted to highlight our third quarter accomplishments. Third and into the fourth quarters we have been busy shoring up our balance sheet. This included amending our bank credit agreement to provide increased flexibility and lower borrowing costs. We closed on a new $250 million eight year senior unsecured bond which was financed to our tender offers on our 8% senior notes and a portion of our 6% convertible debentures. Lucy will take you through the details a little later. We also launched the Country Network, a music video channel on a digital tier of 18 of our stations, with another 10 stations expected to be launched in the next 30 days. In addition to the Country Network, we carry Cool TV, This TV, MyNetworkTV and Estrella TV on various of our station's secondary digital tiers.

But the most anticipated news is the one we announced this morning. Our Board of Directors declared a special dividend in the amount of $0.43 per share or a cash distribution to our share holders of approximately $34.5 million to be paid this December. We believe shareholders will view this as being very favorable for many different reasons. Not only does it enhance the returns and the value of their investment in Sinclair, but does so in advance of the likely increase of dividend tax rates. More importantly, and for us as a Company, it speaks to our shareholders about the continued strength of our business, our ability to generate significant cash flow and our strong liquidity and credit metrics. Our objective is to return to being a regularly paying dividend company as well as to repurchase shares if warranted.

Now turning to our results. Net broadcast revenues for the third quarter were $158.8 million, an increase of 16.4% or $22.4 million versus third quarter of 2009. Although at the low end of our guidance, the growth was driven primarily by higher retrans fees and an increase in spending by political, automotive and service advertisers. Steve will take you through more of the details a little later.

Television operating expenses in the third quarter, defined as station production and station SG&A expenses before barter, were $70.9 million, up 12.7% or $8 million from third quarter last year. However, included in last year's results, was a $2 million reversal of bad debt expense relating to payment from the GM and Chrysler bankruptcies. Net of the bad debt expense, the $6 million increase was primarily due to higher sales commissions on the higher revenues, the network affiliation license fees, additional media promotional spending to promote the fall season, which we limited last year, local revenue based taxes and one-time expenses to remove analog equipment from the towers.

Corporate overhead in the quarter was $6.2 million, a $100,000 increase, or 2.1% higher than the third quarter last year, due primarily to salary increases and management bonuses not incurred last year. We had operating income in the quarter of $56.1 million, a 57% increase over the $35.7 million from last year. The nonbroadcast operating division had $1.9 million of operating income, primarily due to the results of the alarm business as compared to a $600,000 operating loss last year. Television broadcast cash flow in the quarter was $70.1 million, up $12.7 million or 22.2% from last year's third quarter BCF. EBITDA was $66.1 million in the quarter, up $15.2 million or 30% higher than the same period last year.

The broadcast cash flow margin on net broadcast revenues was 44.1%, a higher margin than from a year ago of 42.1%. The EBITDA margin on total revenues was 35.4% in the quarter, also exceeding last year's margin of 31.8%. Net interest expense for the quarter was $31.3 million, $13.8 million higher than third quarter last year due to the restructuring of our debt in the fourth quarter last year and offset in part by further redemptions of our convertible bonds. Included, however, in this quarter's expense is $3.7 million of refinancing costs related to the August amendment and refinancing of the bank credit agreement. Under GAAP we cannot defer and amortize those fees, but rather are required to expense them in the current period.

Excluding the one-time refinancing costs, cash interest expense was $24.8 million in the quarter. We had diluted earnings per share of $0.18 in the quarter, compared to $0.19 in the same period last year. We generated $34.5 million of free cash flow in the quarter, which represents an impressive 52% conversion rate of our free cash flow into EBITDA. On a trailing four quarter basis, we produced a 24.4% free cash flow yield on our market cap. Now Lucy will take you through the balance sheet and cash flow highlights.

Thank you, Dave. Capital spending in the third quarter was $5.1 million. For the year, we expect to spend approximately $16.9 million. Now while we have not completed our capital budgets for next year, we would suggest using a high teens CapEx amount for 2011, which should capture any shortfalls from this year's budget. Cash programming payments in the third quarter were $20.2 million, and we continue to be on track to hit our forecasted $89 million for the year. Now just as a reminder for 2011, we previously guided for film payments to decline by about $20 million to a level of approximately $69 million and then run at a level in the high $70 millions in 2012 and 2013 and this expectation has not changed.

As Dave mentioned earlier, we accomplished a lot in the third and fourth quarters. Most importantly, we addressed our near term maturities, amended our bank financing terms so they more aptly reflect our improved credit position as well as provided the flexibility to more efficiently use our cash flow. In August, we amended certain terms of our bank credit agreement and refinanced our tranche B term loans. The term B loans were reduced by $35 million going from a balance of $305 million down to $270 million outstanding. The $35 million reduction was funded with cash on hand. We also reduced the rate on our term B loan tranche by 50 basis points and lowered the LIBOR floor by 50 basis points. The new term loan B rate is LIBOR plus 4% with a LIBOR floor of 1.5%.

Among the terms relaxed were the ability to use cash to redeem sub debt and to also provide for the ability to pay dividends and repurchase shares. Those baskets have been set at $35 million in 2010, which will be used for today's announced dividend payment, and then $40 million per year beginning in 2011.

We also raised a new $250 million senior unsecured note which matures in 2018 and bears a coupon rate of 8.375%. The proceeds were used to finance the tender of $175.7 million principle amount of our 8% senior subordinated notes and $58 million of our 6% convertible bonds, both of which mature in 2012. The remaining $49 million of the 8% senior sub notes is currently in the process of being called and will be funded with the remaining new bond issuance proceeds and cash on hand and/or a revolver draw.

We also reduced the cash in our bond escrow by purchasing $17 million principle amount of the 4.875% convertible bonds through a private transaction. Currently $5.7 million of the bonds remain outstanding, which can be put to us in January 2011.

As I mentioned, we used the majority of our growing cash balances to pay down the term B loans. At September 30, we had zero drawn under the revolver, $46.6 million of cash on hand, which includes $5.1 million being held in the bond escrow. Total debt at September 30 was $1.2464 billion, which included $46.2 million of nonrecourse and variable interest entity debt that we are required to consolidate on our books and another $27.3 million that relates to Cunningham's debt.

As you know, we have one of the strongest balance sheets of publicly traded companies in our industry, demonstrated by the strength of our coverage ratios. Our recent refinancings should only solidify that position by pushing out our maturities and eliminating refinancing risks. At September 30, our interest coverage ratio was 2.48 times on a covenant of 1.45 times. Our first lien indebtedness ratio was 1.18 times on a covenant of 3.5 times. And the total indebtedness ratio through the television operating company was 4.12 times on a covenant of 7.25 times. We do not have a covenant requirement at the Holding Company; however, if you were to calculate a net leverage ratio excluding VIE and nonrecourse debt, it would be 4.64 times. Given our fourth quarter guidance provided this morning and including the dividend payment, we expect that net leverage through the Holding Company will be approximately 4.15 times at year end.

Steve Marks will take you through our operating performance.

Thank you, Lucy and good morning everyone. Net broadcast revenues in the third quarter were $158.8 million, an increase of $22.4 million or 16.4% versus last year. Excluding political, net broadcast revenues were up 10.8% as compared to the third quarter of 2008. We exceeded that period's net broadcast revenues by $8.7 million or 5.8%. Our local broadcast revenues were up 11.9% in third quarter or up 9.8% excluding political versus last year. Our national broadcast revenues were up 30% in the third quarter or up 13.8% excluding political. Political spending in the third quarter was $9.8 million versus $1.9 million received in the third quarter of 2009.

The majority of our top ten advertising categories continued to grow, with the biggest gains coming from our top two categories of automotive and services. Auto, which represented 18.7% of time sales, was up $7.2 million or 43.9%, while services, which represented 15.4% of time sales, was up $2.7 million or 16.2%. Paid programming and religious programming continued their decline with paid down 8.8% and religious programming down 26%.

Turning to our outlook, we are currently seeing growth in the core business and every month of fourth quarter as compared to last year despite the crowding out effects from political and a recovering economy in fourth quarter last year. For the fourth quarter, we are forecasting net broadcast revenues to be $181.5 million to $185.5 million, which represents an 18% to 20.6% increase over the same period last year. As compared to the fourth quarter of 2008, this would be a $17 million to $21 million increase or growth of 10.4% to 12.9%.

For the year, net broadcast revenues are expected to be approximately $647 million to $651 million. This represents a $92 million to $96 million increase or growth of 16.7% to 17.4% over 2009. As compared to 2008, we would exceed that year's net broadcast revenues of $639.2 million by approximately $8 million to $12 million or 1.2% to 1.8%.

Political booked in the quarter through yesterday was $26.8 million, which equates to $41.9 million for the year. This is a record amount of political spending received by us. At these levels we beat 2006's $31.1 million of political revenues by 34.7% and exceeded 2008's $41.1 million of political by 1.9%, which is quite significant given that this was a nonpresidential election year. We are already hearing that the 2012 Presidential election should yield spending levels even higher than 2008 with some of that money accelerating into 2011. This year's political spending was driven primarily by heated gubernatorial races in Ohio, Florida, Nevada and Maryland and highly contested congressional and senatorial races in North Carolina, West Virginia, Florida and Nevada. About 61% of the spending came from candidates and the rest is from issue monies, including approximately $2.6 million received which we believe came in response to the Supreme Court's relaxation on campaign spending laws.

Even with the high demand from political and the crowding out effect it has had on normal advertisers, we are still expecting many of our categories to be up in the quarter. Automotive is expected to be up low 20%s and services to be up in mid-single digit percents. Other top 10 categories we expect to finish up are schools, media, fast food, restaurants and telecommunications. Paid and religious programming, retail and grocery are expected to finish the quarter down from last year.

On the expense side, we are forecasting our TV production and SG&A expenses in the fourth quarter to be approximately $73.3 million, an 8.3% increase over fourth quarter last year's $67.7 million. Included in the $5.6 million increase are the higher sales commissions on the revenue growth, higher compensation expense, the network affiliation license fees and media spending to promote the November rating book, which we did not promote outside of our stations last year. For the full year, we expect TV operating expenses to be up 5.6% or $14.7 million with the increases coming primarily from higher sales commissions on the revenue growth, the network affiliation fees and compensation expense.

Based on our guidance included in our earnings release provided this morning, we are expecting EBITDA to be in the mid- to high $80 million range or up by low to mid-40%s in the fourth quarter. For the year, this would put EBITDA at $267 million to $271 million, an increase of low 40%s. Now before you gloss over that number, let me put it in perspective for you. On a same station basis for our current station group, this would be our highest EBITDA level in the past 10 years. Let me say that again. You would have to go back to the year 2000 for EBITDA to be at this high of a level on a same station basis. So even with the economy where it is, with the media's talk of the killer internet applications, cable, viewer fragmentation and DVR usage, despite all of the negative posturing out there, we are having our best year in the past decade. Why? Because no other media can provide the consumer awareness, branding and mass audiences the way broadcast TV can. There is no greater or more powerful medium on the face of the earth.

Looking ahead to 2011, we continue to be very optimistic about the business and expect three main advertising drivers. In the first quarter, we will benefit from having the Super Bowl carried by the Fox network and aired on the 20 Fox affiliates we have. We also expect a record 2012 political year, with campaigns beginning to spend in 2011. And finally we expect a continuation in the economic recovery, which should enable the core business to grow year-over-year, excluding the effects of the Super Bowl and political.

With that, I would like to open it up to questions.

(Operator Instructions). Our first question comes from Bishop Cheen with Wells Fargo. Please state your question.

Hi, everyone. Thanks for a very detailed summary. Lucy, let me just focus on the balance sheet a second. You have done an incredible amount of work and I think you are almost done. The only big chunky thing hanging out there are the 6% converts, $58 million, if I have that right.

That would be $70 million outstanding.

I'm sorry -- $70 million. And so the question is, even with the dividends, which allows up to $40 million starting in 2011, where are you comfortable keeping your overall leverage -- in what range?

Okay, Bishop. That's a common question, I guess, in one regard because we are always looking at just how strong should our balance sheet be. And right now one of the problems and I think maybe one of the questions we are going to be hearing a little bit later if not from you is just what are going to do with all of the cash flow that we are generating. The $40 million is actually a restrictive amount given the free cash flow that we see ourself producing this year and going forward. So from that standpoint, what are we going to do with that cash.

As we mentioned we will be looking to provide dividends and share purchases as part of our strategy here. But we are limited. So that kind of leaves us with a lot of cash going forward, and right now we don't have anything in the pipeline, other than to continue to pay down our debts. So we have plenty of liquidity going forward. In regards to the $70 million that really -- we don't see that as posing any kind of risk or concern for us now that we've reduced that with the tender by $58 million.

So I think we are in pretty good shape and our challenges are going to be more about what do we do with the cash that we have.

Well, if you can't find anything out there to buy, you can always buy in yourself.

Well, there is another discussion I guess we could have.

Okay. Thank you.

Our next question comes from Aaron Watts from Deutsche Bank. Please state your question.

Hey, all. Couple for me. I just to follow on Bishop's question, David. What do you think about the opportunities out there to grow your footprint with some of the cash you have. Beyond paying dividends, is M&A or expanding your footprint, selling assets, how do you think about those opportunities?

I think the broad answer to that is the regulatory environment that currently exists in Washington and what's pending before the Third Circuit leaves it somewhat difficult to kind of get your head around. We are already in so many markets that the notion of wanting to double up or create advantageous structures in any particular marketplace is difficult to contemplate right now because of the uncertainty. So while I think it may make some sense to go look at some individual assets out there, in the grand scheme of things, I don't know that they really represent anything of any scale to a company that's our size.

So, again, kind of the broad answer is the regulatory environment is unclear and there really isn't sufficient mass out there that makes us want to go dig deep and say we just need to do this because of the scale it presents us. We already have probably more scale than anybody else in the industry with the exception of Fox and maybe CBS. So I think we are content to kind of sit here until the regulatory environment redraws itself and/or we see opportunities that just become terribly advantageous to us, in which case we will be serious about it.

All right. No, that's fair. Steve, maybe one follow-up for you. After the log jam clears here, I guess beginning today, with your traditional advertisers being backed up from the political demand, how do you -- how are you hearing price shaking out for you guys? Is pricing, do you think, going to firm up off the political demand or how do you see that going into 2011?

Look, there is no question that political drives AUR and it always has. And we benefited dramatically by that in the past few months, and especially in October. So to maintain the rates is not realistic. That doesn't happen with anybody. There is a drop-off, so the question becomes how far of a drop-off. And as a matter of fact I was just looking at the inventory this morning before we went on to the call. We are in terrific shape for the remainder of this year with what we presently have booked. We still have spots left to sell. We are in good shape from an inventory standpoint. We have quality spots left to sell on football and all high visibility events. And the rates that we have going forward are clearly higher in November and December than what we enjoyed in 2009. A lot of that points to the political pressure. There is no question about that.

And as we look forward to 2011, we are predicting that the core business will continue to increase; when the business increases, the rates go up. I'm confident that in 2011 you are going to see more stability from an AUR rate and the comparisons that would be measurable. You'll take a look at 2011 and you'll start comparing it to odd years, nonpolitical years, and we will find ourselves probably in pretty good shape.

No, that's encouraging. And last one for me. You talked about where you are at today on a cash flow basis versus anywhere in the past, which is obviously a good place. Can you maybe just comment on in terms of the top line, how much of the ground have you made up from where you were at prerecession?

On a time sales basis versus everything else, we are still not back to where we were prerecession. From that standpoint, there is what we see as potential upside in growth in that regard. Some of the things we've talked about here in terms of just the first half of 2011 as far as potential is the fact that the first half of 2010 was still in a recovery mode. We didn't -- have not hit or did not hit the levels that we are capable of in the first half. Autos, I think there are somewhere close to 25 or 30 new models I've heard that are coming out by the auto manufacturers, and that will be another stimulus as we go into the first half of 2011, as they push those models to the consumer. So there is some real potential and upside to our TV sales business.

Thanks for taking the question.

Our next question comes from Marci Ryvicker from Wells Fargo.

Thanks. Good morning. Just talking about 2011 for a second, how much visibility do you have in Q1? Meaning how much of the quarter is booked? And how much are you expecting for the Super Bowl at this point?

There is very little booked at this particular point. That's not unusual. The traditional patterns start heating up the first quarter after Thanksgiving, so what we have booked is minimal. At this point it is positive compared to last year first quarter. We do, on our intelligence, believe -- and Dave was just pointing this out -- our two biggest categories, automotive and to a great degree telecommunications, we believe those two categories are going to be up in 2011, And we are banking on that driving our plus figures in our core business for 2011. So we are optimistic. In our biggest billing category, all of the intelligence we are hearing on automotive is positive for 2011. And we rode it in 2010, and to a degree, we will ride it in 2011. Everything you are hearing in terms of telecommunications, there is a lot of things going on in the industry. A lot of competitive situations along those lines. It's become a terrific category and we expect that category to be up as well. So we are cautiously optimistic with these categories that mean so much to us in 2011. The early intelligence that we are hearing, although nothing has yet to any great degree been booked, but what we are hearing from the ad agencies is to expect plus-ups for 2011 in these categories.

Okay. Then Super Bowl, do you know how much -- or do you have an expectation for the Super Bowl?

I look at it this way, when I go to the sales force, Fox, we had Super Bowl three some odd years ago; we are expecting to increase whatever levels we did three years ago by 15% and I think we will get there.

And then in terms of political for 2011, do you have preliminary expectations for that?

I just don't know how in this day and age you could think of anything but going forward. Obviously, the political category has exploded. In our minutes this morning we talked about the Supreme Court ruling and how much more money that meant to us. These are all positives. The category is just absolutely explosive, and depending what city you are in, I would think today is a day of rest. Because I know in Florida where I live, every single ad for the last three weeks in any break you saw was political. It's just a booming category. Any comparisons that we are going to make we are going to be budgeting for an increase on previous odd years.

And then last one, just focusing on expenses, for 2011, how should we think about expense growth? And related to that, how do we think about expenses in terms of variable versus fixed, because most operators, you included, have taken a lot of costs out of the business. So has that changed the mix of fixed versus variable?

As far as -- one of the key drivers there is the film payment line that Lucy had talked about earlier, the $20 million decrease from 2010 to 2011 from $89 million down to $69 million. I think that's one of the areas that is most -- that we focus on so much. The other part is really pretty much fixed in terms of our day to day operations, except for the commissions that relate to the revenues. Besides that, we have your normal type of growth in regards to the salary lines and other kind of just expense increases in that regard, but nothing that we're talking about here that would be a big expense initiative. We just don't see that.

Where we are moving is always to find greater efficiencies in the way we operate our television stations. So we are certainly looking to take advantage of the new technologies as they come out and become available to us. We consolidated quite a bit of our traffic operations. A lot of our business operations have been consolidated in the past couple of years. So we have been able to cut our costs by a significant amount and will continue to look for those opportunities where we can. But it's pretty much a fixed cost other than that.

Thank you so much.

Our next question comes from Jonathan Levine with Jefferies & Company. Please state your question.

Just two quick ones. First, do you have any retrans agreements that are upcoming and which ones? If you could talk a little bit about kind of how we should think about mobile broadcast revenue growth into 2011 and into 2012, and just give us a little bit more color on how we should think about that.

I will do the first one. We have -- as far as retrans agreement we have MediaCom and Time Warner that come up at the end of this year. And then a couple into next year.

I think with regard to mobile revenue, if that was your question, there is no mobile revenue as yet. But what I think your question really was or should be is when do we expect to roll out mobile to the marketplace. And I think it's reasonable to assume that sometime before year end, you are going to see a concerted effort and appropriate announcements on behalf of the major players and the industry to kind of lay that groundwork and say, get ready, here we come. Here is when we are going to launch, et cetera, et cetera, et cetera.

So I think it's reasonable to expect in the immediate near term that the game is going to begin, and expect us, as an industry, and us, as a Company, to start to think about how to monetize that side of the business. But I think the most important thing is I'm hopeful that in the immediate future here that the announcement of the games beginning is likely to come from the industry. I think that's a very -- we have been talking about this for a long time now and I think it's now time to start the game.

And as far as kind of when you think we might see some meaningful revenues, is that kind of 2012 or is it more likely even 2013?

I think it's a bit early to steer you in any particular direction because I think until we have certainty as to the date at which we launch as an industry in a significant number of markets, once that's defined, then I think the game begins, of okay, now let's figure out how to monetize this thing. Give us a little time in that regard. But again, the most important thing is that once it starts, I think we won't be looking backwards any more. We are only going to be looking forwards about what the future is. And I see nothing on the horizon that impedes our ability to become the dominant player in terms of delivering video content to every device that's out there.

Okay. Thank you.

Just to -- I wanted to circle back just for a second here on the retrans question and also bring back Marci's question in terms of expenses. And one of the things that -- I guess the areas that you need to highlight or think about and everybody has this question, so it's nothing new, is just what's the effect of the reverse retrans as we go forward, sort of what's coming from the network. So we do have the ABC affiliation and that piece settled up. We're in negotiations with Fox, and certainly we are looking to pass as much as we can along of that expense in terms of our retrans agreements. So, there's a lot of work to be done in that regard and certainly with the Cablevision results that we saw just in the last week or few days in regards to how much value our signal has to the viewer, I think that puts us and just really strengthens and re-enforces just the concept and the value of our signal and our product to the consumer.

I think just to amplify that, for those of you who haven't seen the piece that was published by RBC, I think it was last Friday or something -- last Thursday, Friday -- it is worth getting that piece to get a very clear perspective on what the real value of broadcast is as an industry relative to everybody else out there. It's a very insightful piece, and it was kind of nice to see somebody other than somebody in our industry write something about how valuable we are. It's now being recognized by third-party independent people, who have suddenly woken up and said, gee, we've missed something here, that the broadcast industry really has been undervalued dramatically relative to what it gets from the cable and satellite multichannel fellows. So it's worth reading; again, it was an RBC piece published just in the last three or four days or so.

Our next question comes from Edward Atorino with Benchmark Capital.

(Inaudible) You and I get a lot of questions about 1Q 2011. I know you've talked about it. Any granularity you could provide would be appreciated regarding the trends in early 2011. You don't have to go on too far. I know it's a difficult question and probably beating the horse on this one. Thanks.

It's going to be a good one for us. We have 20 Fox affiliates that are going to enjoy having the Super Bowl and that puts us a leg up on anybody that's not Fox.

That's true.

We look forward to these years when Fox has the Super Bowl. It sets the year off on the right foot. That coupled with the fact that I had made mention that we believe our two biggest categories are going to have some continued strength going into 2011. We are very optimistic about the first quarter, seeing that we have all of this ammunition going into the quarter. So I think we are in a really good position, actually, as a company.

And I think the kind of the larger question out there is going to be now that the election is over and the Republicans appear to have taken the House, the really unknown at this point in time is what effect is that going to have on the public psyche with regard to going out and spending and buying cars and doing things. I think we need a little bit of time to let what's happened in Washington, just the historic nature of what's happened, sink in with everybody. And after it's kind of sunk in a little bit, it wouldn't shock me if we don't see some positive benefits in terms of public opinion and all that's related to.

You sort of addressed this before. Given the changing political environment and the Supreme Court ruling, I mean, will the falloff in political be less than we've seen in past years, when it goes to tiny little numbers and could political sort of become a better category on a sustained basis?

Well, look, nobody knows the absolute answer to that. But what I would tell you is -- at least in my recent memory -- and Steve, correct me if I'm wrong here -- but for the first time in a long time, we saw half hour infomercials put together that weren't necessarily anti any particular politician, but were more macro oriented type political discussions about socialism and comparing us to other parts of the world and the direction that we are drifting in as a society. So any time you start to see that kind of content out there being purchased on local television stations, kind of says that, you know what? People are starting to get concerned about the direction this country is going in, and the mechanism by which they affect change is to create content like this and buy television time.

So I wouldn't be shocked if over the next 18 months we just don't see more of this kind of stuff coming from both sides of the aisle, frankly, which is fine. We are just in the middle, taking the money. I honestly think there is going to be more and more people out there who have their view of the world and they want to reduce it -- not to 30 second commercials because it's hard to say a lot in 30 seconds -- but more long form stuff that -- where you can deliver a legitimate, realtime message.

Thanks a lot.

Our next question comes from Doug Arthur with Evercore Partners.

All our questions were answered. Thanks.

Our next question comes from Avi Steiner with JPMorgan. Please state your question.

Thank you. Two very quick ones. All of them otherwise have been answered. How do we think about your tax rate going forward, number one? And number two, in the past you've talked about some of your noncore assets and potentially monetizing those, and if you can just give us an update on that. Thank you.

Well, the general answer is the tax rates are too high. Now here is the other side of it.

Yes, wish we could do something about that. Tax rates, we are actually seeing a lit bit more in terms of NOL carryforwards than we had anticipated on some of our earlier discussions. So 2011, we anticipate we will be a taxpayer in 2011, but not at quite the levels that we were thinking earlier in the year. So that's the good news. Not a whole lot of money there to get excited about, but still an improvement on our -- from our tax basis.

And then going into 2012 and 2013, barring us making any significant acquisitions, we are really seeing -- and the reason I say that is because what we are seeing is the acquisitions we made back in the mid- to late 1990s and the amortization of those asset purchases are really coming off as we get into 2012 and 2013 and they will be gone. So we won't have those tax shelters, if you want to think of them that way, in 2012 and going forward.

So we anticipate becoming kind of a regular taxpayer at this point. And certainly, it's a discussion that we have as far as tax strategy and everything else around that that we have pretty often around here, in terms of ways to find or is there is a way to come up with a way to remedy paying that kind of level of taxes. So it's very high on our list of priorities, but it's not something that offers you a simple solution.

But -- I'm sorry -- an acquisition potentially could remedy some of that. Is that roughly right?

Yes, well, if it makes sense. And David talked earlier just about what kind of opportunities we really have in regards to acquisitions. Unfortunately there is -- with the regulations that exist out there, there is nothing that really pops up to us and on the table. We have taken a pretty consistent position that what we are looking for are ways to strengthen our core business in terms of acquisitions. So we will continue to follow that and look for ways to improve our competitive strengths where we can. If those opportunities avail themselves to us, certainly we want to be opportunistic and take advantage of those. And I think Bishop earlier on had asked a question about our leverage and if it makes sense for us to go after properties where we can strengthen our competitive position. That is a very important and positive -- it would be very important and positive for us, as well as it would provide a potential tax shelter in that regard. So there is a couple advantages to looking at asset acquisitions for our core businesses.

As far as the nonbroadcast assets and liquidity events, certainly most of them are real estate related. And because of that, we all know how real estate values are and just kind of the condition they are in. So we don't see a whole lot of liquidity events coming quickly. But we do see a few opportunities over the next -- sometime in 2011. So hopefully we will see some of those materialize. We are not at this point ready to give you an estimate of what they would be or when they would occur. They may carry over into 2012, but we do have some real upside there in a couple of areas. But for now, we just have to be patient with those investments.

Thanks for taking the questions.

Our next question comes from Michael Meltz with JPMorgan. Please state your question.

Sorry to drag it out. Two quick ones for you. On the cost answer you gave -- or to the cost questions, your operating expenses were up 5% this year. Is there any reason to think that they would be up at a higher rate next year?

Our operating expenses, as we talked about, are tracking along with our revenue. When you say is there any reason, as I mentioned, it would -- from an operating expense standpoint, it will be driven by the growth -- or it should come down somewhat because of the variable costs without all the political that we will have next year. Do we end up with a higher revenue next year than this year? We are not really providing you the guidance on that. So it should be right in that neighborhood.

Okay.

(multiple speakers) for that piece. And then the other piece was just the retrans, so that reverse retrans piece. We have the ABC in there already. As far as the Fox negotiations, those have not concluded. So it's premature for us to give you a number and how that will affect our operating expenses at this point.

But isn't Fox a 2012 event?

That's our affiliation agreements, are 2012. And under the -- and we've disclosed this in our Q's and in a number of other areas. But we are not under our affiliation agreements are we technically permitted to have -- to provide the retrans or to have retrans, I guess, is the short way to think of it. So we have -- with Fox's permission, we have been moving ahead on retrans. But they are saying to us in effect, that we need to negotiate with them and come up with a sharing arrangement prior to the end of our existing affiliation agreements. And those are all, from my understanding, conditioned on the different retrans agreements that we have and when they are negotiated, and so it's one retrans agreement after another in terms of just how we will be affected with Fox.

Okay. And then last question, your Q4 guidance this quarter, I think implies core ex political ad sales up mid-single digits, roughly. Can you talk about what is December pacing up -- or what is the expectation on December?

December right now is pacing fine. No problems whatsoever. Got a nice healthy number in both local and national.

Above mid-single digits?

Presently.

Okay. Thank you for your time.

There are no further questions. I will turn the conference back over to management for closing remarks.

Thank you, operator. And thank you, everyone, for participating on our call. If you have any other questions, we will certainly be happy to take them off-line. Thanks again.

Thank you. This concludes today's conference. All parties may disconnect now.