Sinclair Inc (SBGI) 2013 Q2 法說會逐字稿

Greetings, and welcome to the Sinclair Broadcast Group second-quarter 2013 earnings call. At this time, all participants are in a listen-only mode. A brief 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. 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 Sinclair Television Group, and Lucy Rutishauser, Vice President, Corporate Finance and Treasurer. Before we begin, Lucy will read our forward-looking statement disclaimer.

Thank you, Dave. Good morning. 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 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 second-quarter earnings release. The Company undertakes no obligation to update these forward-looking statements.

The Company uses its website as a key source of Company information, which can be accessed at www.SBGI.net. In accordance with Regulation FD, this call 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 financial measures, 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 details to assist the public in their analysis and valuation of our Company. A reconciliation of the non-GAAP financial measures to the GAAP measures in our financial statements is provided on our website under investor information, reports, and filings.

Thank you, Lucy. This has been another great quarter for the Company, so before we go through the results, let me review some of the activities that have taken place since our last earnings call. Last week, we announced that we entered into a definitive agreement to purchase the stock of Perpetual Corporation and the equity interest of Charleston Television LLC, both owned and controlled by the Allbritton family for an aggregate purchase price of $985 million. The Allbritton stations consist of seven ABC affiliates, covering 4.9% of the US TV households, and NewsChannel 8, a 24-hour local cable satellite news network covering the Washington, DC metropolitan area.

The transaction is expected to close in the fourth quarter of 2013, and is subject to FCC approval, anti-trust clearance as applicable, and customary closing conditions. We intend to fund the acquisition through a bank loan and/or the debt markets. The Allbritton transaction -- before the benefit of the cable news channel carriage expansion, the Baltimore Washington market efficiencies, and having a news bureau in our nation's capital through WJLA -- is expected to generate approximately $46 million to $61 million of free cash flow in 2014. That is $0.46 to $0.61 of free cash flow per share depending upon financing strategy.

Yesterday, the shareholders of Fisher Communications approved our previously announced merger agreement. We expect FCC approval to be forthcoming, and we will close shortly thereafter. In May, we closed on the acquisition of four television stations owned by COX Media Group for $99 million, less working capital adjustments including $4.3 million of accounts receivable acquired, and entered an agreement to provide sales services with one other station with Deerfield Media. The transaction was funded with cash on hand.

In June, we entered into a definitive agreement to purchase of stock and broadcast assets of four television stations owned by Titan or TTBG, for an aggregate purchase price of $115.35 million. In two of the markets, the Company will also assume Titan agreements to provide sales and other services to two other stations. These stations are located in three markets, and reach 1% of US television households. The transaction is expected to close late in the third-quarter or early fourth-quarter and is subject to the approval of the FCC.

In June, we purchased the assets of Dielectric from SPX Corporation for under $5 million. Dielectric is the nation's largest manufacture of broadcast television, radio, and wireless antennas, transmission lines, and RF systems. In May, we completed a public offering of 18 million primary shares of Class A common stock, at a price to the public of $27.25 per share. The net proceeds of the offering, which totaled approximately $472.4 million, will be used to fund pending and future potential acquisitions and for general corporate purposes.

So now let's turn to our results. Net broadcast revenues for the second-quarter were $279.3 million, an increase of 28.4% or $61.7 million higher than second-quarter 2012, and coming in within guidance. Excluding $50 million from the acquisition, same-station revenues were up 5.4%, and up 10.7% when we exclude political. Growth came primarily from retrans, sign sales, and digital interactive. Television operating expenses in the second-quarter, defined as station production and station SG&A expenses before barter, were $139 million, up 33.4% or $34.8 million from second quarter last year. Excluding $25.4 million related to the acquisition and $700,000 of stock-based compensation, same-station expenses were up $9.1 million or 8.7%, which was $2 million favorable to our guidance due to open salaried positions and bonus savings. The increase to expense versus last year was due primarily to higher reverse retrans fees and compensation.

Corporate overhead in the quarter was $11.4 million, up $3.9 million versus the same period last year, of which $1 million of the increase related to stock-based compensation. The remainder of the increase was due primarily to higher staffing for the newly-acquired stations, higher health insurance claims, and acquisition-related costs. While our fourth quarter estimate for corporate overhead is expected to increase, the number will not reflect the ongoing run rate for next year, as a result of the fourth quarter forecast including one-time acquisition costs, and the addition of Barrington and Fisher. Excluding one-time acquisition costs and stock-based compensation and adjusting for synergies, the overhead would be more in the high $40 million range on an annualized basis.

Television broadcast cash flow in the quarter was $120.9 million, up $23.7 million or 24.4% from last year's second-quarter BCF. The broadcast cash flow margin or the net broadcast revenues for the quarter was 43.3%. EBITDA was $113.1 million in the quarter, up $21.1 million or 23.1% higher than the same period last year, and exceeding our guidance. The EBITDA margin on total revenues was 36% for the quarter. On a same-station basis, EBITDA was $89.7 million, down 2.4% in the quarter or $2.2 million and coming in at the high end of our guidance. Of course, the decline was due to the absence of $10.3 million of political revenues in the quarter.

Net interest expense for the quarter was $45.4 million, up $16.1 million versus second-quarter last year. The increase was due primarily to the financings related to the acquisitions, and a one-time charge of approximately $4.8 million related to a portion of the financing costs on the new bank credit agreement that we could not defer. Our weighted average cost of debt for the Company is an attractive 6.6%, which still includes $500 million of second lien debt at 9.25%. In connection with the bank credit agreement refinancing, we recorded a $16.3 million loss related to the extinguishment of the bank debt. This is a noncash expense related to the write-down of the deferred financing fees and original issue discount on our prior credit agreement.

Diluted earnings per share on 93.6 million weighted average common shares was $0.19 in the quarter, as compared to $0.37 in the same period last year. The extinguishment of debt charge costs reduced diluted earnings per share by $0.11 in the quarter. We generated $56.3 million of free cash in the quarter, of which $14.9 million was distributed to shareholders. Over the past year, we have converted 51.2% of our EBITDA into free cash. We continue to grow and diversify our portfolio of assets, and through our scale, national footprint, and operating synergies, we are creating meaningful free cash flows. Now Lucy will take you through the balance sheet and cash flow highlights.

Thanks, Dave. Total debt at June 30 was $2.45 billion. Included in that amount was $70.5 million of the non-recourse VIE and non-wholly-owned subsidiary debt that we are required to consolidate on our books. We ended the quarter with $550.8 million of cash on hand, and have the full $100 million revolving commitment available to us. Capital expenditures in the second-quarter were $9.7 million. And with the addition of the Fisher and Titan stations, we now expect CapEx for the year to be approximately $58 million. Cash programming payments in the second quarter were $22.7 million, and are estimated to be $92.2 million for the full year including amounts for Fisher and Titan.

Total net leverage through the holding company at quarter-end was 3.49 times. This excludes the VIE and non-recourse debt and is net of cash. The first lien indebtedness ratio was 0.83 times on a covenant of 3.75 times. The total indebtedness ratio through the television operating company was 4.35 times on a covenant of 7 times, and interest coverage was 3.38 times on a covenant of 1.25 times. Assuming all announced transactions, including the Allbritton stations plus expected synergies, our 2012-2013 pro forma total net leverage is expected to be approximately 4.75 times.

Now for those of you who have followed the Company for years, you will appreciate this next statistic, which points out just how much we have grown the Company and strengthened the balance sheet. If I look back 10 years, our blended 2002-2003 total net leverage through the parent was approximately 6.4 times on $257 million of average EBITDA. Ten years later, so for 2012-2013 blended, we are estimating pro forma net leverage to be 4.75 times, or almost 1.7 turns lower. And that is after having purchased over $3 billion in assets, and paid almost $400 million in common stock dividends during that period. So just think about that for a minute. It speaks volumes to our free cash flow generation, and how quickly the Company can delever. With that, I will turn the call over to Steve Marks, who will take you through our operating performance.

Thank you, Lucy, and good morning, everybody. As Dave mentioned, net broadcast revenues of $279.3 million in the second-quarter was within our guidance. On a same-station basis, net broadcast revenues were up 5.4%, and up 10.7% excluding political. Political revenues in the quarter were $1.5 million, as compared to $11.4 million in second quarter last year. Including our acquisitions, local broadcast revenues were up 35.9% in the second quarter, while on a same-station basis, local net broadcast revenues were up 12.5% when excluding political. Including the acquisitions, national broadcast revenues were up 7% in the quarter, while on a same-station basis, national net broadcast revenues were up 4.3% when excluding political. On a same-station basis, the automotive category was up 6% in the quarter. We also saw growth in telecom, furniture, grocery and direct response. Schools, paid programming, and restaurants were soft.

Turning to our outlook, for third quarter of 2013 we are expecting net broadcast revenues to be approximately $270.5 million to $275.5 million, up 20.2% to 22.4% as compared to third quarter 2012. This assumes $1.6 million of political, versus $27.8 million in the same period last year. Excluding the acquisitions, same-station net broadcast revenues are expected to be down 1.8% to 4%, but up 8.8% to 11.4% when excluding political. Categories expected to grow on a same-station basis are once again, automotive, soft drinks, internet and media, while toys, games, movies and telecommunications are expected to be down. Auto on a same-station basis is expected to be up by high single-digit percents in third quarter.

On the expense side, we are forecasting TV production and SG&A expenses in the third quarter to be approximately $145.8 million. On a same-station basis, expenses are expected to be up 7% in the third quarter, and 7.5% for the year. As we discussed last quarter, the full-year estimates include higher reverse retrans associated with two of our CBS stations for which we had not been paying a reverse. As well as higher reverse primarily associated with the renewal of the DirecTV and Mediacom agreements. For the year, net retrans is expected to grow.

We expect EBITDA in the third quarter to be approximately $93.7 million to $98.7 million, a decrease of 1% to 6.1%, due to the absence of $26.2 million in political revenues. On a same-station basis, EBITDA is expected to be down 18.8% to 23.9%, but up 10.7% when political is excluded. Based on our guidance, free cash flow in the quarter is expected to be in the mid to high $30 million range. And with that, I would like to open it up to questions.

(Operator Instructions)

And our first question comes from the line of Aaron Watts with Deutsche Bank. Please proceed with your question.

Good morning, everyone.

Good morning.

Just a couple for me. Steve, I think last quarter you talked about some accounts switching from the national categorization to the local. Just curious if you saw that again in the second-quarter, and maybe you can just talk to the difference between local and national performance?

I think we were a little bit top heavy on the local side, if memory serves me correctly. The account switches go back and forth all the time, and we really concentrate on total billing. Our performance in second-quarter, I believe, can be put up against any broadcaster in the industry. We continue to see, as we mentioned, strong automotive and a real strong quarter in telecommunications. So, whatever bucket you are putting it in, our performance was extremely strong in second-quarter.

Okay. And then secondly, just on the potential for some incremental, or healthcare ad spending later in the year, can you maybe talk about whether you view that as being completely incremental-type spending? Or whether you might see a pullback from some of your traditional advertisers, as they consider some increased healthcare costs they might be facing?

Yes, everything that we hear is that it is going to be a windfall, that will conclude the year with the preponderance of it coming in fourth quarter. There is some expectation that some of these Obamacare dollars will start in September. We are starting to get minimal avail requests for September, but we do expect it to heat up throughout the remainder of the quarter. And all the dollar figures that have been mentioned on previous phone calls, we believe will come to the marketplace.

It is just a question of when, not if. I don't think it will crowd anybody out from spending money, and I do believe it is a category that obviously we consider to be in the issue advertising category. So it is sort of like a -- probably you could consider it a one-time hit, since it is really categorized as, in our system as political or issue advertising.

Okay, great. And last one for me -- appreciate you taking the questions. I saw a report that the FCC may be thinking about putting a hard cap on REITs at 39%. Could you maybe just talk about what that might mean for your strategic outlook, and how you think about further acquisitions?

I think that it is way too early to kind of start speculating about what the FCC is thinking. This just came out a day or so ago. I think you need to give the industry a little bit of time to go sort through what the reality of it is, and the timeframe at which something might be promulgated by the agency. So I just -- I am not concerned about it right now. It is going to take some time to do something, because they frankly have to go out and do an NPRM, which could take a considerable amount of time.

There is going to be an awful lot of people filing comments, and giving their thoughts to the agency about what's right with it and what's wrong with it, and expect us to be in there along with everybody else. So, these things just don't happen in the blink of an eye. They take a lot of time. So I am not too concerned about it right now, because we have a lot of things in the pipe that, as does everybody else. But my sense is, would likely not be dealt with in the context of any future regulations.

Okay, great. Helpful. Thank you.

All right.

Thank you. Our next question comes from the line of Marci Ryvicker with Wells Fargo. Please proceed with your question.

Thanks. I have a couple. I just want to follow up on that last question. So David, it sounds like with respect to the UHF discount, this doesn't really change any timing for anything you are looking at today? Doesn't speed it up and it doesn't delay it? Is that the right characterization?

Yes, I think that is a fair characterization. I mean, this is not something that is going to happen tomorrow, next week or next month. This is a -- typically as you know, having followed the industry a while, they got to issue a notice of closed rule making and ask for comments. And that is when the game begins, evaluating what all those comments mean and the relevance of them. I think quite, frankly, when you look at the idea, and I expect these comments to be tossed into the file, when you look at trying to constrain broadcasters in this competitive landscape today, to me it doesn't make a lot of sense, given what the competitive landscape looks like.

So when you think about the idea that there is essentially three phone companies in the United States, all of which is basically a monopoly. You look at the cable industry that consists of essentially four practical players who pretty much control the country. Two satellite players that control the country, the idea that you would want to constrain a broadcaster is to me, is nonsensical. And I think we just have to go and try to make those points to the FCC, that the world has changed, the competitive landscape has changed dramatically.

And we really need to be unshackled dramatically in order to compete against these fellows, because these fellows are in our business. And in spite of what the agency and other people may want to believe, we compete against cable companies every day. We compete against phone companies every day. It is going to get even more complicated with phone companies, from a competitive perspective. They are coming into our business, and frankly, I am okay with that, but let us go. Let us go compete. So we are going to make those arguments, as I suspect will lots of other people.

Okay. Just following on this line of thinking, it feels like there is another stage of M&A. And then it potentially could happen soon, with the rollup of some of the pure plays that are still out there. How should we think about how you may use your free cash flow post-consolidation? Would you consider a buyback at some point?

I think in theory, sure. I mean, that is always an option. But, I think it is way too early. There is still a lot of work to be done yet, with regard to the consolidation, and expansion of other opportunities that exist within the current platform.

And I have one big picture question. Investors have been questioning whether or not there has been a change in strategy at Sinclair, now that you are launching the cable network associated with Allbritton. Can you specifically talk about the incremental cost you might be spending there? And then, David, can you maybe speak to whether or not you view investor statements as correct? Has there been a change in strategy at Sinclair?

I think there is just way too much noise about a cable channel in Washington, DC and what we intend to do with it. Our view of it is fairly, is fairly limited at this point in time. Other than to say that, when, if and when we close on the Allbritton transaction, we are being handed essentially an asset there that is completely undeveloped, because of the inability of Allbritton to reach what we reach. So, I don't view it as any more complicated than effectively taking a television show, if you will, in the simplest form, and providing broad distribution across the country. So, I think there is way too much new conversation and discussion about what this is really all about.

We view this as an opportunity to take our local news platforms which are already built, already in place, full-time running businesses, and expand them in lots of other venues. And be coupled to a national -- potentially a national cable operation that comes out of Washington, DC. So the issue for us is, where is it carried? Is it going to be carried over the air on a D2 channel? Is it going to be carried on cable? Is it going to be carried on satellite? Those are all details to be worked out.

But in terms of the structure of it, it is already in place. And maybe it requires some additional talent or something to effect some change in our view of what we want in terms of content on the air. But in the grand scheme of things, it is just not material in terms of the actual construction of it, because it is done.

Yes, I would just add to that, it is opportunistic in the greatest order. You take a look the -- just to follow some statistics here, Marci, on our news operations, we have 97 stations right now that are producing and broadcasting news in 68 markets. So for us to look at this as a way to capitalize on that opportunity, it is about distribution. So any time you can distribute your content in more ways than one, that is a good thing. So not only do we have opportunities through digital subchannels within our markets, and now we add on a cable channel within our markets --

Internet capabilities.

Yes, it is just --

All the above.

Yes, the expansion of that is just significant.

I think the thing that you have to give some thought to here, is that we have become I am guessing, probably the single biggest news producer, local news producer in the country. Well, that is an awful lot of content, that we have to now go think about, and be thoughtful about how to distribute. And when you tie that to an already-existing cable platform in Washington that has been there 20 plus years, but we just see it as kind of a free option to go build a business.

That's all it is. So I, there has been some curious reaction to me, as the notion that we would want to go spend zillions of dollars to go build a CNN that nobody watches, doesn't make a whole lot of sense to us. Honestly, it really doesn't.

Okay. Thank you.

And our next question comes from the line of David Hebert with Wells Fargo. Please proceed with your question.

Good morning, everyone. Thanks for taking the questions. I wanted to focus on another topic of consolidation on the cable and satellite side. Do you view any risk to your retrans line, scale aside, is there any language in your retrans contracts that would favor a lower rate if Time Warner Cable were to buy it on a large operator?

I can't imagine that kind of language existing anywhere.

Okay. Do any of this consolidation conversation, does this cause you any worry in terms of these distributors gaining scale?

No, not at all.

Okay. And then just focus on the balance sheet, you have the second liens I believe callable in November. You have the excess cash on the balance sheet, and financing some of these announced acquisitions. Just wondering if you have any thoughts about how you think about leverage going forward, and where you think you would like to see credit facility leverage versus the unsecured Op Co? Any color there?

Yes. So David, one of the things we have talked about is the 2012-'14 total blended net leverage, and that would assume Allbritton being debt -- debt financed. And so you are looking at 4.75 times, which is well below the threshold the rating agencies have set to maintain our credit ratings. And when you look at where, where we ended second-quarter, even on a first lien basis, it being less than 1 times levered, we have a lot of capacity, really, at all parts of the cap table.

And so we will be looking to what makes most sense in terms of financing Allbritton and refinancing the 9%s, and which part of the cap table we go to. But the point being is the leverage, the leverage is low, the balance sheet is strong, and we can access any part of the cap table that we wanted to, to finance both of those transactions.

Okay. And as you think about other acquisitions in the pipeline, you said you have capacity to probably add some more leverage. But would equity financing also be on the table, as well?

We had gone out earlier in May and with that offering, and the intent of that offering was to really provide the flexibility that Lucy just went over. So we are not -- we would never take anything off the table, but certainly that is not our intent. Our intent was with the offering to provide us with the flexibility that we are looking forward to lower our cost of capital as we make these, as we close on these deals going forward.

Okay. That's helpful. Thank you. And then, the last one for me, given your scale and your reach and your large footprint now, I wonder if you could walk through, are there any distinctions between geographic foot prints in terms of performance, or is it fairly democratic, the strength you are seeing on the core ad sales front?

I think it's, it is pretty consistent across the country. There is no one pocket that is unusually hot, and there is no one pocket that is suffering. So it is a pretty consistent story throughout the country for us.

Any distinction between like, larger markets versus smaller markets? I know in radio, we saw some of the larger markets do fairly well in Q2.

The only thing I can point to, and I think this is a point worth making, with our recent acquisitions, could rightfully be a concern about matriculating the new acquisitions into our systems. We enjoyed some outstanding audits in the second-quarter from Albany, Cincinnati, Grand Rapids, West Palm Beach, Salt Lake City, Rochester, Harrisburg, Mobile. All of these markets that I just mentioned are new to our resume, and had outstanding performances in second-quarter. And you couple that with some of our other strength markets like Columbus, Baltimore, Asheville, we are outperforming marketplaces on a consistent basis with our biggest billing television stations.

Great. Very helpful. Thank you.

Our next question comes from the question of Lance Vitanza with CRT. Please proceed with your question.

Hi, thanks. I had a follow-up to the last question, and then one additional question. I was wondering if you could be a little bit more specific with respect to how much of the strength that you are seeing? I mean, you are up 11% ex-political. How much of that was the markets performing well, versus how much was you taking share away from other operators?

Well, we clearly took away share in second-quarter with those markets that I just mentioned, because a lot of those markets which again, are some of our biggest billing markets, enjoyed, in fact, some all-time highs in terms of their revenue shares. And when you take a look at third quarter, we are not fortunate enough to have a bevy full of NBC stations. So we are going up against Olympic numbers last year, where we didn't really participate to any great degree in the Olympics because of not having a lot of NBC stations. So, our performance in third quarter, my anticipation will mirror, if it not be what was a really strong performance in second-quarter.

Got it, okay. And then the next -- the other question I had was, you mentioned reverse retrans as putting pressure on costs. And I heard the commentary regarding the CBSs, where you had been paying no reverse retrans. And then it sounds like you had to re-cut a deal with DirecTV. But generally speaking, putting those issues aside, are reverse retrans costs, are they going to grow, should we expect them to grow at about the same pace as retrans revenue going forward or do they grow more quickly? Is there sort of a catching up?

You will see some catching up, because not all of our affiliation agreements are paying out full reverse trans at this point. Some of the acquisitions we are made are kind of -- I don't know if you would call it a grandfathering, but as we took on the assignment of those affiliation agreements, there is still in some cases a year or two left, before they will start converting over to reverse retrans payments. So, there will be some catching up as we go forward here, over the next couple three years.

Thank you.

Our next question comes from the line of Alexia Quadrani with JPMorgan. Please proceed with your question.

Hi, thank you. Just staying on the retrans topic, I guess given the live negative attention that CBS Time Warner Cable seems to have gotten recently, do you think there is any likelihood in general that Congress may get involved in these discussions you have with the cable distributors? And I guess along that same topic, are you seeing these discussions? Again, don't talk about any particular discussion, but sort of in general, getting more challenging as more people are out there sort of demanding for more retrans or affiliate revenue?

I don't expect to see the Congress inject themselves into this discussion. And frankly, if they were going to, the discussion should be how can Congress help the broadcasters? As bizarre as that may sound, because when you look at the scale of the cable companies versus every broadcaster in this country, they dwarf us in the grand scheme of things. I mean, Time Warner is roughly 10 times the size of Sinclair, and Comcast is 50 times the size of Sinclair, and you just walk down the ladder. And we are a large scale broadcaster. So take, take Time Warner and lay them up against Nexstar or some of the smaller companies out there, they just dwarf them.

So the notion that a cable company would be going to Congress, and asking for help to fight off a little toy broadcaster is just comical to me. I can't imagine any congressman looking at that with a straight face, and doing anything other than saying, you got to be kidding me. So, I just don't see that happening any time, any time soon.

As it relates to the last part of the question, I don't know that there is going to be any more friction today, than there has been in the last 10 years. It's just -- it is what it is. It's just the nature of the relationship, and I don't see it going away. It is just part of the business. It's here to stay.

Okay. Thank you.

And our next question comes from the line of Edward Atorino with Benchmark. Please proceed with your question.

Hi. Could you maybe give us a ball park of what the acquisition contribution could be for the fourth quarter?

Yes. So Ed, we should have that, if you take a look in the outlook section of our earnings release this morning.

Oh, I am sorry. I apologize.

Yes, those numbers should be there. But if you have any questions, just give me a call.

I'll give you a call. If it is here, I'll find it. Thanks.

Okay.

We are assuming Fisher and Barrington as of October 1. So and as I mentioned, with the vote yesterday and the FCC approval, we might -- we probably have Fisher closed before October 1. So that ought to create some more confusion, I guess, in terms of your numbers, as we bring Fisher in before our model. But we have not provided that to you, as far as an expectation of an earlier close than October 1.

Yes, and -- (Multiple Speakers).

No, sorry.

No, I was also going to say too, that because Allbritton we expect to close sometime in the fourth quarter, they are not in our model at all.

Okay. Fisher seems to have low margins. A, why, and how quickly can you get those margins up, I guess? (Laughter).

I think you should look at us to attack that immediately, and (inaudible) and do what's necessary. That's just not going to, that's not going to stand.

Of course. Thank you.

Our next question comes from the line of Howard Rosencrans with Value Advisory. Please proceed with your question.

Hi. It's actually Brian Moyer. 2014 looks like it is shaping up as a very, very strong mid term year. And I am wondering if you -- I am wondering if you could give us a little color on how you think it might compare for you, as well as the industry versus our last presidential advertising year?

We haven't really concentrated on race by race yet. It is funny that you mention that, because we were just talking about it yesterday. And we are about to get into it, in a big way in the next week or two. But if you take a look at the trends recently, it obviously will bode well for us because the increases in both political and issue have been astronomical over the last four election cycles, whether it be midterm or presidential. So, you couple that with some of the acquisitions that we made, that are in some key political battle grounds, it bodes very well for us.

And then on top of that, another interesting point is that we will start the year off with a whole host of Super Bowls that will be airing on Fox, which is our biggest affiliate that we are associated with. And then, to take it yet even one step further, we have fortified a lot of our stations with new and fresh programming that literally begins next month. Programs such as Modern Family, which will be airing five days a week, and enter into a lot of our program lineups across our resume of stations.

Arsenio Hall is debuting next month. Queen Latifah, who begins next month. Bethany, all of these programs that I am mentioning, we have high hopes for. Coupled with, what I mentioned about numerous markets enjoying the Super Bowl, as well as historical information on political that absolutely should be a can't miss. It should be a, quite frankly, a very strong year and we look forward to 2014.

Thank you.

Our next question comes from the line of Devon Xu with Wells Fargo. Please proceed with your question.

Thanks for taking my question. I just had -- I was wondering if you could give an update on achieved synergies versus your pro forma 2011 and 2012? That is just excluding unachieved synergy number.

We, Devon, pretty much achieve our synergies once we close on the deal. There is some transition that takes place, in terms of the consolidating in markets where we have a combination like Steve was talking earlier, like Mobile. And what we don't put in is, for example, that forecast of growth in a market and in terms of our ratings and our share. So those synergies that we provide are more of expense-related or strictly revenue-related from a retrans standpoint. We don't really get beyond those areas. Those are benefits that you are seeing from us that Steve talked about, are added to everything that we have been doing or everything that we have related to you in terms of our expectations on the acquisitions.

Well, what portion is related to I guess, retrans that has not yet to be rolled over?

I am not sure exactly what you mean, but as far as the retrans, we have --

They are in the future, I guess?

As we close, those fall under our agreements.

Okay. Thank you.

Thank you.

(Operator Instructions)

Our next question comes from the line of Wescott Rochette with S&P Capital IQ. Please proceed with your question.

Thank you very much. It's Wescott Rochette. Can I ask you to opine on the auction process, or the spectrum? Now that you have gone through a comment period with Congress, how you see that progressing, and whether you think it is going to be on track, either for you or the industry? Thank you.

Yes, I think it is a little too early to tell. I think the NAB's position and the industry's position is that, let's get on with it and get it over with so we can start the repacking process, which is fine with us. But I think the -- what you are starting to see surface now are the kinds of really complex issues that were raised a number of years ago, that were fundamentally overlooked by the agency and Congress. And what is interesting is, when you go to the Hill and you talk to congressmen about the consequences of auctions in any number of areas around the country, the congressmen literally are aghast at what is going on. Because they weren't aware of what was happening.

And either there is just disinformation that was floated around the Hill, as to here is what is going to happen, or they just didn't frankly understand is unknown. But I would tell you, there isn't a congressman that you don't go to, that you don't sit down say, did you understand that this was going to happen? And they say, we had no idea that it was going to happen. So there a lots of issues like this, that are starting to creep up to the surface here and get attention, that are terrible negative consequences to a potential auction.

So I am -- far be it for me to second-guess whether the auction goes, when it goes or if it is successful. I would tell you that the idea that literally hundreds and maybe thousands of low power television stations and translators in this country that reach tens of millions of people of, weren't known by Congress that they were going to be wiped out.

So that kind of information is now suddenly surfacing, and people are saying, I didn't know that was going to happen. So, all that has got to be digested by the agency and by Congress to figure out what that means in the grand scheme of things, and is it going to be tolerated? The idea that -- this just came out a while ago, and it continues to kind of hover around out there on the cloud. The idea that all the television stations in the city of Detroit would go away by virtue of an auction just seems impossible to me. And I am sure it does to the people who own television stations there. But it is a by-product of the proposed auction. And that's just -- it's not just Detroit. It is all along the borders.

So, I think when the whole process was put together and the plan was put together, they just -- they either missed that kind of stuff, or didn't understand the real technicalities of it, which are now kind of coming into full view. But my sense is that it is not going to happen tomorrow. It is not going to happen next week. It may not even happen next year, because all this stuff is just now kind of floating to the surface, and it has got to be dealt with somehow. So, I think that is about the best view we have, is that we would like to get it done and get it over with, so we can start repack and be finished. But, I am just not sure that it is going to happen according to plan, in spite of what people might say.

Okay. Thank you very much.

Our next question comes from the line of Andrew Finkelstein with Barclays. Please proceed with your question.

Hi, thanks. Couple questions. David Amy, I thought I would follow up on expenses. And typically we used to see pretty low expense growth in the odd years. Obviously, we know we have some of that reverse retrans in there. But what does the core expense growth look like away from reverse? And maybe, could you talk about some of the items that are boosting them a little higher this year? And lastly with that, do you think that that normalizes going forward?

Yes, you would -- what you are seeing is a lot of additions to the Company in terms of the station acquisitions. So, that is driving some of your expense growth. And so we tried to back that out for you, to illustrate what that is on a same-station basis. And from that standpoint, you are primarily going to be looking at our reverse retrans number, that is the primary driver. And then, of course, though, we are building the Company. A lot of times we are getting the question about being able to absorb all of these businesses that we are acquiring, all these stations we are acquiring. So we have laid in a lot of expense in that regard, just different functional areas, whether it is in the sales or the digital interactive part of our Business or operations, engineering, just about every functional area where we have expanded. So you are seeing that as a real cost driver, as we take on and prepare ourselves, really, for what are, the acquisitions that will be closing shortly.

Yes, and Andrew, I will just add to that. So we talk every quarter about just our concerns in (technical difficulties) forecasting TV operating expense and fully loading for staffing and compensation and bonuses. So there just as a data point, when we came into the year, we had guided for the full-year same-station TV expense growth to be up 9.4%. If you look, our most recent guidance now is for it to only be up 7.5%. So you are seeing a lot of that, that conservative nature of the forecasting now flowing through, and as we go through the year, the same-station growth coming down.

Thanks, Lucy. When you look longer-term, do you think commissions aside in political years, that the business expense growth is a low- to mid single-digit longer-term, and acquisitions aside obviously?

Well, we certainly hope to keep it to below mid single-digits. When you say that, I think you are talking 4% or 5% type of expense growth. Sorry.

Right. Absent reverse.

Yes, right. Absent reverse.

Right. Okay. (Multiple Speakers). And then one more -- I am sorry. Go ahead, David.

No, I was just saying to mitigate cost increases we, with technology moving in the direction it has -- I have mentioned this in the past, we are able to do a lot of consolidation in terms of operations and traffic. And a lot of our functional areas and administratively have been able to capture that and just reduce our operating costs. So that's, that's a benefit in terms of being able to keep our costs down going forward.

Okay. And then one last one for Steve. I guess some of the radio guys, and maybe newspapers too, saw a slowdown in advertising in July. And it seemed like back-to-school is maybe a little softer. Some of the retailers also yesterday started talking about softer back-to-school season. Your pacing, obviously, for third quarter is really strong. Have you -- what have you seen out of the retail category going into back-to-school?

Well, first of all, we had a very strong July. And what is interesting about July in our Business, last July on the broadcast calendar was a five-week month. This year, the broadcast calendar for July is four weeks, and we exceeded our expectation for July with one less week to work with. So, we are off to a really good start for third quarter. Everything that I have heard, in terms of retail and back-to-school is extremely positive. So -- especially the back-to-school stuff. So whether that is actually going to take place or not, we still have a few weeks to see whether those dollars are going to be spent. We haven't seen it yet. But we are hearing that the back-to-school stuff could be halfway decent.

Okay, great. Thanks.

Thank you. And our next question comes from the line of Doug Arthur with Evercore. Please proceed with your question.

Yes, hi. This is actually two questions from Tracy Young. First, I may have missed this, but have you identified the legal costs related to some of the acquisitions things you have been doing? And second, Steve, you did talk about a pickup it sounds like in the Auto business. Is that coming from Tier 1, Tier 2, or foreign or domestic? Can you give more color on that? Thanks.

Tracy, we don't operate down to the levels expenses to that extent. But I will say that as Dave Amy spoke in his opening remarks, a big driver of the corporate expense increases for this year, has been related to a lot of the acquisition costs and the refinancing costs.

Political.

Right.

Thank you. It seems we have no further questions at this time. I would like to turn the floor back over for any closing comments.

Well, thank you, operator. And thank you, everyone. And this closes our earnings call for this morning, and feel free to contact us with any other questions that you might have.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.