Sinclair Inc (SBGI) 2013 Q3 法說會逐字稿

Greetings, and welcome to the Sinclair Broadcast Group Incorporated third-quarter 2013 earnings conference 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)

It is now my pleasure to introduce your host David Amy, Executive Vice President and Chief Financial Officer for Sinclair Broadcast Group. Thank you, Mr. Amy, you may begin.

Thank you, Latonia, 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 make our forward looking statements disclaimer.

Thank you, Dave. 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 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. The Company undertakes no obligation to update these follow looking statements.

A company uses its website as a key source of company information which can be accessed at www.SBGI.net. In accordance with Reg 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 detail to assist the public in their analysis and evaluation 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 active quarter for the Company with solid results. Before we go through the results, however, let me review some of the activities that have taken place since our last earnings call. On August 8, we closed on the previously announced acquisition of Fisher Communications Inc for an aggregate purchase price of $373.2 million that's approximately $25 million of working capital.

On September 30 and October 1, we closed on the acquisition of certain stock and assets of four Titan Television stations for an aggregate purchase price of $115.35 million and we will provide sales and services for two other stations. Also on October 1, we closed on the purchase KBDC the Fox affiliate in El Paso, Texas, for $21 million. The Fisher, Titan, and El Paso acquisitions were funded through cash on hand and from the proceeds of the equity offering raised in the second quarter.

In September, we announced that we entered into a definitive agreement to purchase the broadcast assets of eight television stations owned by New Age Media for an aggregate purchase price of $90 million. The eight stations are located in three markets and reach 0.8% of the US television households. The transaction is expected to close late in the first quarter of 2014 and is subject to FCC approval and customary closing conditions. We intend to fund the acquisition through cash on hand or from the recently raised delay draw term loan A under the bank credit agreement.

On October 31, 2013, the Company closed on the purchase of the non-licensed assets of WPFO, the Fox affiliate in Portland, Maine, for $13.6 million and we will provide sales and other services.

Now turning to our results. Net broadcast revenues for the third quarter were $303 million, an increase of 34.7% or $78 million higher than third quarter of 2012. This was higher than our guidance due to the Fisher acquisition closing in August rather than forecasted October 1 date. Excluding Fisher we would have come in within guidance. Same station revenues excluding $82.5 million from the acquisitions were up 11%, excluding political or down 2% with political. Both came primarily from retransmission fees, core time sales, and digital interactive. Actual core advertising, excluding political, increased 42.4% for the quarter, while on a same station basis, excluding political, increased 3.1% when compared to third quarter of 2012.

Television operating expenses in the third quarter, defined as station production and station SG&A expenses before barter, were $165.1 million, up 57.4% or $60.2 million from third quarter last year. Excluding $49.7 million related to the acquisitions, and $800,000 of stock-based compensation, same station expenses were up $10.1 million over 9.6%. The increase versus last year was due primarily to the higher reverse retransmission fees and compensation expense.

Corporate overhead for the quarter was $16.1 million, up $7.8 million versus the same period last year. Of that $4.3 million of the increase is one-time severance cost relating to the Fisher acquisition. The remainder relates to stock-based compensation up $800,000, higher salaries and benefits $1.6 million due to increased staffing, and other non-requiring acquisition related costs of $1.2 million.

Television broadcast cash flow in the quarter was $119.6 million, up $14.1 million or 13.4% from last year's third-quarter BCF. Broadcast cash flow margin on net broadcast revenue for the quarter was 39.5%. EBITDA was $106.8 million in the quarter, up $7.1 million or 7.2% higher than the same period last year. The EBITDA margin on total revenues was 31.5% for the quarter. On a same station basis, EBITDA was $76 million, down 23.8% in the quarter or $23.7 million. This decline was due to the absence of $26.3 million of net political revenues in the quarter.

Net interest expense for the quarter was $39.8 million, up $4.5 million versus third-quarter last year. The increase was due primarily to acquisitions financing. Diluted earnings per share on $100.2 million weighted average common shares was $0.36 in the quarter, as compared to $0.32 in the same period last year. We generated $58.3 million of free cash flow in the quarter, of which for $15 million was distributed to shareholders.

Over the past year, we have converted 53.2% of our EBITDA into free cash. On a pro forma basis for all closed and announced transactions, our 2013 free cash flow would be just under $400 million and our early -- I meant to say just over $400 million, excuse me. And our early look at 2014 puts pro forma free cash flow at about $500 million or roughly $5 per share.

Now Lucy will take you through the balance sheet and cash flow highlights.

Thank you, Dave.

We have been just as busy on the balance sheet side as we were on the acquisition front. On October 11, we closed on a private offering of $350 million senior unsecured notes due 2021, which were priced at 100% of their par value and bear interest at a rate of 6.375%. The net proceeds from the notes, along with cash on hand, was used to redeem in full the $500 million par value of the 9.25% senior secured second-lien notes due 2017. The redemption included a $25 million make whole premium, which, along with the write-off of the deferred financing costs, will result in a $43.1 million loss on extinguishment of debt to be recorded in the fourth quarter. The redemption of the 9.25% notes with lower cost debt will result in about $0.11 of after-tax free cash flow per share on an annualized basis.

On October 23, we raised $450 million of incremental term loans consisting of a $200 million delay draw term loan A maturing April 2018, and $250 million of incremental term B loans maturing April 2020. We also obtained an additional $57.5 million of capacity under our revolving credit agreement maturing April 2018. The term loans are expected to be used to fund acquisitions and for general corporate purposes.

In September, holders of all outstanding $5.7 million original principle value of the 4.78% convertible senior notes due 2018, converted their notes into approximately 338,600 common shares pursuant to the indenture. In October, holders of all outstanding $5.4 million original principal value of the 3% convertible notes due 2027, were converted by the holders, which conversion was settled for approximately $10.5 million in cash pursuant to the indenture. In the fourth quarter, we expect to record a gain of approximately $900,000 on the settlement of the 3% notes.

Total debt at September 30 was $2.47 billion. Included in that amount was $81.1 million of the non-recourse BIE and non-wholly owned subsidiary debt that we are required to consolidate on our books. We ended the quarter with $229 million of cash on hand and have the full amount under the revolver available. Capital expenditures in the third quarter were $11.6 million, for the year we expect CapEx to be approximately $45.9 million. This is less than the $58 million we previously forecasted, due to the Barrington closing being pushed to an expected date of December 1, and timing of some projects that will roll into 2014.

Cash programming payments in the third quarter were $21.7 million and are estimated to be $88.7 million for the full year, lower than our previous guidance due to the timing of the Barrington close. Total net leverage through the holding company at quarter end was 3.97 times. This excludes the BIE and nonrecourse debt and is net of cash. The first lien indebtedness ratio was 0.64 times on a covenant of 3.75 times. The total indebtedness ratio through the television operating company was 4.02 times on a covenant of 7, and interest coverage was 3.57 times on a covenant of 1.25 times.

Assuming all announced transactions, including the Allbritton and New Age stations, plus expected synergies, our 2012, 2013 pro forma total net leverage is expected to be approximately 4.9 times on a blended basis, and our weighted average cost of debt at year-end 2013 pro forma for all of the financing transactions is expected to be a healthy 5.4%.

Steve Marks will now take you through the operating performance.

Thank you, Lucy, and good morning, everybody.

As Dave mentioned, net broadcast revenues of $303 million in the third-quarter adjusted for the early Fisher close, were within our guidance. On a same station basis, net broadcast revenues were up 11%, excluding political, and down 2% with political. Political revenues in the quarter were $2.7 million, as compared to $27.8 million in the third quarter of last year. Including our acquisitions, local broadcast revenues were up 53.3% in the third quarter. While on the same station basis, local net broadcast revenues were up 14% when excluding political.

Including the acquisitions, national broadcast revenues were down 7% in the quarter, while on a same station basis, national net broadcast revenues were up 0.7% when excluding political. On a same station basis the automotive category was up 9.3% in the quarter. Our fastest growing categories in addition to automotive were services, grocery, furniture, media, and home products, telecommunications and paid programming were soft.

Turning to our Outlook for fourth quarter 2013. We are expecting net broadcast revenues to be approximately $368.1 million to $372.1 million, up 28.2% to 29.6% as compared to fourth quarter 2012. This assumes $5.9 million of political versus $54.1 million in the same period last year. Excluding the acquisitions, same stations net broadcast revenues are expected to be down 11% to 12.4% but up 6.7% to 8.4%, excluding political. For the year same station net broadcast revenues excluding political will be up 8.3% to 8.8%.

Categories expected to grow on a same station basis are automotive, services, and medical, and home products. While retail, tel com, schools, and paid programming are expected to be down. Auto on a same station basis is expected to be up by high single-digit percents in the quarter.

Dave Amy will now take you through the remaining forecast.

Thanks, Steve.

On the expense side we are forecasting TV production and SG&A expenses in the fourth quarter to be approximately $192.3 million, including $2.5 million of trade expense, which was previously forecasted in barter expense. On a same station basis, expenses are expected to be up to 2.8% in the fourth quarter and 8.2% for the year. We expect EBITDA in the fourth quarter to be approximately $149.2 million to $153.2 million, an increase of 3% to 5.7%, including the absence of $48.2 million in political revenues. On a same station basis, EBITDA is expected to be down 27% to 29.8% but up 9% to 13.4%, with political excluded.

For the year, EBITDA is expected to be $464.8 million to $468.8 million. Based on our guidance, free cash flow in the quarter is expected to be in the low $100 million range and $260 million for the year on a reported basis, or approximately $400 million pro forma for all of our announced acquisitions.

So with that, I would like to open it up for questions.

(Operator Instructions)

Marci Ryvicker, Wells Fargo.

I have two questions and I apologize. There was so many numbers, so I just want to make sure I understand the core business. So as what you said Dave I think in your prepared remarks that Q3 core advertising same station was up 3%. And I was wondering what the pace may be in Q4 for core advertising? That is the first question. The second is, how do you do you view your ability to participate in accretive M&A now that the UHF discount has been essentially been eliminated? Thank you.

Okay, well I think you are focusing in on the fourth quarter there. Steve can take you through that. Based on the absence of political, what we were saying is that we expect EBITDA to grow from $149 million to $153 million. That is an increase in EBITDA of 3% to 5.7%. On the net broadcast revenues without political, when we exclude the acquisitions, we are expected to be down from a political standpoint 11% to 12.4% but when we exclude political that's up 6.7% to 8.4%.

And that includes retrans, correct?

Yes.

Would you, would it be fair to characterize the core business as accelerating on a core basis, just advertising from Q3 to Q4?

We are having an enormous -- October was just enormous for us and we expected that because of the crowding out of the political last year. Crowding out of the spot due to political last year. So October met our expectations and then some. And it was an extremely strong month for us. November and December interestingly enough picked up pace last week, going into the month of November and I do believe that fourth quarter will show a better plus in core business than third quarter. We are firing on all cylinders in terms of the core business, it's an extremely decent quarter for Sinclair in fourth quarter.

Marci, with regard to the forward-looking M&A given that were essentially at the cap I think it's safe to say that there is still plenty of work for us to do from the standpoint of creating structures inside marketplaces. A perfect example of that is the transaction we just did in Portland, Maine. I kind of referred to these as almost bolt ons, to the primary stations in the market place. So I think when you think about just that kind of work that has got to be done, let alone the possibility of creating alternative structures and partnerships with other companies to put businesses together, will provide us over the longer term, a lot of opportunity to certainly create more value.

Great, thank you.

Doug Arthur.

Two questions if I could, this is Tracy Young. First question is Allbritton. Could you give us a sense now you said it wasn't in your guidance for Q4, but should we still expect a January 1 close? And then second question is, political is expected to be up next year versus 2010. Is there any way that you can give us a pro forma for 2010? Thanks.

On the Allbritton question, we have pushed back guidance. That is now late in the first quarter, early in the second quarter. Just because we have DOJ approval we need to get with the government shutdown and some of the backlog down at the FCC. And then as far as political, so 2014 is going to be interesting because not being a presidential year, you really have to start going and looking at race by race up against 2010. When you look at -- we have, if you look at just tossup races, we have about the same about of tossup senatorial races, but in 2014 we will have fewer congressional and fewer governor tossup races than what we had in 2010. So pro forma for 2010 assuming we had all the acquisitions in there including Allbritton and New Age, everything, political would've been $145 million. Pro forma, we think we would be more like a 2010 number in 2014 then 2012 pro forma.

Great, thank you very much.

Aaron Watts, with Deutsche Bank

Hello, everyone. Two questions for me. I guess the first is, obviously you have made a lot of acquisitions in a condensed amount of time. Could you maybe just talk a little bit about the integration process and how that is going versus your expectations. I guess that ties into some of these synergies you thought you would get, but also just absorbing all of these assets, looking at best practices, all that good stuff, if you could just provide some color there?

Just give you a little bit of color from a sales perspective over last I guess18 months to 2 years, with all these acquisitions. And speaking of most recently, where we just got our audits in for third quarter. The stations that we have been matriculating into our portfolio are performing outstanding. And these are some of our biggest billing stations in our resume. Salt Lake City had a banner third quarter, maybe the highest revenue share that they ever had. Cincinnati, same thing. Banner third quarter, maybe be highest quarter per-share that they've had in years. Albany, New York, a banner third quarter, highest revenue share that they have had in years. Grand Rapids, same thing. West Palm Beach, same thing. Harrisburg, same thing. The one thing that has been truly interesting is matriculating these properties into our culture. And I am reading you the results. They are performing absolutely outstanding. So we're very excited about our new properties and having them fold into our culture and the performance has been exceptional.

I think the mechanics of integrating these businesses is always a challenge but the fact of the matter is it's something we do; we do it very well. It just takes time and it takes time to change the cultures at some level in these businesses to get them moving in the direction that we want. And we expect that as far as part of the understanding when we buy these things, it takes little time to get them were we want them and get the proper people in places, in the right places and get them focused on doing what they need to be doing. I don't not think you should expect anything other than business as usual for us and it will stay business as usual.

Okay, great. And then, David, maybe one more big picture for you. So read about and see the networks try and monetize their content over a lot of different distribution platforms. Also hearing about viewing by appointment becoming more prevalent, maybe even more so in the future. I'm curious your thoughts on what that means for your business, a television broadcaster and how that impacts viewing and advertising in the future.

I think notwithstanding all of the stuff that is going on in the market place, I think what you have to do is just focus on our numbers. And our numbers kind of tell the story don't they, that notwithstanding all of the stuff that is going on in the market place in all of the opportunities and places people couldn't watch television, and all the delayed basis things they can watch television, the fact of the matter is, we are doing fine. If all these things did not exist, would we be doing better? I think that is a fair statement. The market is what it is. We just have to learn to adapt to it and be thoughtful about how to compete against it, that's all. It is what we do every day. It doesn't come as any shock or surprise. Again, our numbers tell the story that are reflective of the real marketplace and all the competition that is out there.

There was a just a conference, just a -- kind of a webcast call in from one of the other banks the other day that was all about over the top, and what is going on with viewing, et cetera, and it was pretty interesting how at the end of the day the consultants that put the research together, come back to over the air broadcasting and say, without over the air broadcasting, none of these models work whether it is cable or whatever. It all gets back to the demands by the consumer are over the air television.

We are still the dominant place people go to find out what is going on. Are they going to 42 other places? Of course they are. We all do. But the fact of the matter is, is at 5 o'clock in the afternoon, or 6 o'clock, or 11 o'clock at night, 7 o'clock in the morning, where are they going? They are coming to us because they want to know what's going on in the local marketplace. All news is local, all sports is local, the vast majority of all advertising is now local. And we are a local business.

Great actually while I have you let me ask you one more question. Over the last week or so, a lot of the distributors have announced earnings and held calls, been asked about Aereo and their technology and I think there is been some rhetoric that they would consider that technology of programming costs continued to rise. I am curious with retrans and subscriber fees becoming a bigger piece of your revenue pie, how much of a threat is that down the road or do you think that is more rhetoric?

I think there is an awful lot of rhetoric out there right now. Look, I think it's, the broadcast networks and our interests are aligned. That is the bottom line. We are in the same business. We have a vested interest in staying together and protecting our assets and I think we will do whatever is necessary to do that when the time comes. Aereo is what it is and we have said this in the past that if Aereo were a real business, I am not here to tell you that it is or isn't at this point in time, but if it were a real business, there are no barriers to entry in that business. I said this a year or two ago that if we decided, the local broadcaster decided they wanted to go into that business, then we would and we can do it probably cheaper than they can. We do it in conjunction probably with the networks and as an industry, so I don't -- there's a lot of noise out there floating around there and most of it is to be ignored.

Great. Thanks for the time.

Alexia Quadrani, JP Morgan

Thank you very much. Just one quick question. There is the seem to be a change in tone recently at some of your peers recently comment about the possibility of participating in the upcoming spectrum incentive auction, I guess particularly with some of their class A or lower power stations. Can you update us on your stance on the auction participation?

Yes, our stance hasn't changed. I have no reason to believe we will have anything for sale. I can understand those folks that have low power television stations that are critical to their platform or their class As. But on a relative basis they are not material to us.

Hopefully the class As that we do have, they get picked up were analog when we picked them up we have put some money behind in converting them over to digital broadcast and they really complement our stations in the markets where we have them. They bring in significant, well for low-power they bring in significant overall, it's not a lot of money to us, but its a couple $3 million of cash flow a year, but for the marketplace it is significant. There is real value there. I do not even know that a sale or an auction of our low-power would really generate the kind of return that justified putting them up for auction.

Okay, thank you very much.

Lance Vitanza, CRT Capital.

This is actually Brad in for Lance. Maybe a quick question on the Affordable Care Act in general. Do you guys see that impacting advertising revenues coming on later on in the quarter next year and beginning of next year?

I would hope so. There was a big, obviously when we talked last, we were talking about expenditures for fourth quarter. They haven't been bountiful and obviously there's problems with the product right now. So I would expect that once they get the product fixed, they'll put together a advertising campaign for it that will support it, so I do expect the expenditures in 2014 -- it is hard to pinpoint exactly how much money is going to be spent, but they should be active and obviously they have got a marketing problem on their hands right now. So I expect them to attack it via advertising. And it should bode well for us.

Just a footnote. On the way in this morning into the office, I was listening to NPR and there was an excerpt from the woman who is in charge of the whole website development and operation for the government. And she made kind of a very broad statement, but never the less the point of it was that they essentially ceased all of their advertising because the website basically failed. So they don't see any point in promoting something that doesn't work, but once it is fixed they expect to be back in the market again spending a lot of money.

Great. One quick follow-up just in a political off year, next year, with no presidential election, how do you see advertising shaping up?

I think it is going to be a pretty good year next year. You've got to remember for us, and also quite frankly, with the affordable healthcare if they get their act together pretty soon, we are sitting as a company with 30 some odd Super Bowls with Fox as well as the Olympics in 15 markets, so we are going to get off to a real good start. There's no question about that. We have the product for it. And if you have been looking recently, the high ticket items like the Olympics and the Super Bowl have been going for huge increases year-after-year. Last year, NBC with the Olympics just did -- the local stations that were selling it -- just did a fabulous job in gaining share. So here we are sitting with between the Olympics and the Super Bowl, we are in over 40 markets with first-quarter activity that is high ticket items. And I think that will bode very well for setting up the year for us in 2014.

Great. Thank you.

Davis Hebert, Wells Fargo.

Good morning everyone. Thanks for taking the questions. Lucy, I wondered if you could just talk about the remaining funding needs on the outstanding acquisitions and what we can expect, whether it is incremental term loan et cetera, maybe. And if you already covered that, I apologize but there are a lot of numbers, so.

So as you recall we were initially in the market in early October looking to raise the funds for Allbritton in the bank market. When it looked like it wasn't going to be closing imminently we pulled that part of the financing. So once we have a little bit more clarity on timing of that, then we will come back out to the market. Assuming that the markets all kind of hold up where they are today, I would expect that we would go back to the bank market. And it looks like we would need, we still need to fund Allbritton; about $600 million of funding there. Assuming that we don't raise any additional funding for, as David mentioned, bolt on kind of acquisitions. At a minimum, it would be $600 million.

And then New Age as well, even though it is relatively small?

Yes, New Age is included in there.

In the $600 million?

Yes, we have the funding for New Age, for that $90 million.

All right thank you, and then on CapEx for 2014 you mentioned some projects potentially I guess being delayed into next year. Is it too early to give a ballpark figure on CapEx?

I would think that giving some of, some of the timing pushing into next year. If you are in that high $50s million to about $60 million, you should be pretty much in the ballpark.

Okay, great. Then one big picture question for David, ATSC 3.0, you guys have been sort of carrying the flag on that conversion. Can you give us update on where that stands? What we're talking about from a timeframe perspective?

I think the process is clearly underway. I think there is a broad recognition now in the industry by the engineering community that we're, if we're going to be competitive -- and the definition of competition here is not necessarily only delivering our content via fiber or over the air to cable or satellite systems, but being able to talk to literally every device in the marketplace that we know of that exists today. And the devices that we can't contemplate that are going to be coming in the future. I will just give you a kind of simple example that if you are familiar with the Google Glass. I am not here to tell you that there is that is going to be a successful product. But the fact of the matter is we can talk to that device if we choose to, if we have the right platform. You could be watching television on Google Glass if you wanted to. It is hard to contemplate literally all the technical capabilities and the different platforms that are going to evolve over time for watching video.

So the point there is, is that if we want to be in those businesses and we want to be delivering our content and lots of other content through our pipe to any device in the marketplace, we have no choice but to change our platform. And I think we are on the road to getting that done. I wish I could give you a timeframe that was accurate, but I think there is a coalition forming in the industry right now that is very much interested in getting this done as quickly as possible. There are some obvious challenges involved, there are fortunately some broadcasters and frankly we are one of these that has been saddled with VHF television stations that will always fact of the matter not function in that environment. We have to figure out how to help broadcasters who are stuck in that particular situation solve that problem. And we think it is a very solvable problem. Because I think what is in the interest of the industry is, is that we all do this together. And we recognize that if we are going to survive as an industry, we have every reason to get this thing done as quickly as possible. And I think we will.

Okay, thanks for the update.

Michael Senno, Credit Suisse.

Thank you. I just had two questions. One of them, you guys gave pretty solid guidance on the free cash flow for 2014. I just wanted to check. I think you said pro forma, but just make sure of that and it sounds like the reported would come in a little bit lower because of Allbritton getting delayed. But also looking for some color since I think that is well above what many of us expected. Just in terms of taxes, you guys provided some color on CapEx or is it really just underlying trends that are driving that? And then I have just one bigger picture question after that.

Yes, Michael, that is a lot of question there as far as what is happening. It was over $400 million for 2013 that we are describing is a pro forma for all of the acquisitions that we have either closed or have announced, and included in that is the -- when you get down to being specific about taxes, what we put in is our current tax expectation. So currently in 2013 on a pro forma basis that is just around $21 million in total taxes. Next year on that pro forma basis we are tripling that number. We're getting into the $60 million range for current taxes, so that can be a bit of an area where we may be on the same page or not since there is no specific defined formula for free cash flow. But that is how we calculate our taxes and in terms of our free cash flow calculation. Of course, Lucy had mentioned the $60 million in CapEx for next year. That again is assuming Allbritton closes on January 1. We would love to be able to close January 1, but since we are currently under a second review here with Justice that won't be a practical opportunity for us. It will be delayed further into the quarter

Michael, I would just also add as far as New Age, we are expecting that to close sometime during the first quarter. So when you start with the $500 million pro forma free cash flow, you are correct in that the actuals will come down from there just because of timing of Allbritton and New Age. And then also I think depreciation and amortization is another area that I think everybody needs to check their models. I think there is probably going to be more depreciation amortization than on a pro forma basis from these acquisitions than what may currently be in the models.

We do anticipate we do get a question about Allbritton as far as, are we including estimates in our numbers for building out the cable news channel. Those are included in the numbers that we are passing along to you. And we are not including in the CapEx the ATSC 3.0 advances if that does take place and we start seeing any investments into our stations during 2014. Those are not in our numbers at this point.

Great, thanks. Just a bigger picture question. I was curious on your thoughts about as you guys have now attained scale on content development or potential partnerships with some other local broadcasters in terms of distribution like, how far out that may be and what that may look like?

I think you should assume that we're, now that we have reached the scale that we have, that we are going to move as quickly as possible to start to create structures that will put us in the content business at the local level and to some degree the national level. As you have heard us talk about from time to time, a couple of years ago we acquired a company called Ring of Honor Wrestling as kind of a prototype test for creating first run local content. From a ratings perspective it is been a huge competitive success. It's really, it's almost shocking how good the ratings are on the programming and it runs at 2 o'clock in the morning or 10 o'clock at night on the CW compared to what anything that runs on cable and in some cases lots of local television shows it beats. And another opportunity that we have been working with now for about a year or so is high school sports. I just saw an e-mail that came through yesterday or the day before yesterday that a high school football game that we had on our CW in San Antonio, Texas, beat badly Fox baseball post season.

So when you think about broadcast I know there is a lot of people who kind of look at it and say who watches it anymore. But the fact of the matter is, is that when a high school football game beats a national sports franchise, it says something about what the importance of local television is. Think you have to look at us and expect us to start to figure out how to optimize and take advantage of our scale at all levels across our entire platform.

Thank you.

(Operator Instructions)

Doug Arthur, Evercore.

Yes, just going back to the broadcasting expense line item. I think you said it was up 9.6% pro forma. And you cited reverse. Is reverse the primary reason for that? And then, obviously you have more contract re-negotiations ahead, but as you look out into 2014, 2015 is that line item going to ease off and stabilize a little bit over time? Thank you.

Doug, that is the primarily expense driver. The reverse retrans. It has been all year with all of this talk quite a bit about that. When you look forward, so in 2014 we have Charter coming up for renewal, I believe in March or April of 2014. So depending which network that crosses over, it will be as revenue rises in the reverse, may rise commensurate with that. But remember the networks all have annual increases. So it will be a natural rise regardless.

Okay, thank you.

There are no further questions in queue at this time. I would like to turn the call back over to management for closing comments.

Thank you Latonia. And for everyone else for participating on our earnings call this morning. If you have any additional questions, just feel free to contact us.

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