E W Scripps Co (SSP) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the EW Scripps third quarter earnings release. For the conference, all the participants are in a listen-only mode. There will be an opportunity for your questions. Instructions will be given at that time. (Operator Instructions) As a reminder, today's call is being recorded.

With that being said, I will turn the conference on to Mr. Tim King. Please go ahead.

Thank you very much, John, and good morning everybody. I appreciate you joining us for this call. We will begin our call this morning with Tim Wesolowski, our Chief Financial Officer, who will recap the financial results of the third quarter and cover some routine non-operating data. Then, Rich Boehne, our President and CEO, will conclude the scripted portion of the call by discussing some other activities that have been on our plate recently. And when we open the lines up for your questions, we will be joined by Brian Lawlor, who runs the TV division; Tim Stautberg, who runs the Newspaper division; and Doug Lyons, our Corporate Controller.

The commentary you'll hear from our executives this morning may contain certain forward-looking statements and actual results for future periods may differ from those predicted. You can read more about some of the factors that may cause results to differ from what you are about to hear by referring to the 2010 Form 10-K. As a reminder, you can always go to Scripps.com and click on the Investor Relations link at the top of the page. From there, you can print this morning's earnings release and tables as well as access a streaming audio replay of this call. It will be active later on this afternoon and we will leave it there for a few weeks. So having said that, here is Tim Wesolowski to begin today's discussion.

Good morning. The third quarter unfolded pretty much in line with our guidance in the August call. Non-political revenue with our TV stations was up at a healthy mid-single digit clip but was not up in the high-single digit as we suggested. But on the upside, our expense discipline at the newspapers was a bit better than our guidance. I will start with the review of the consolidated numbers before we give you divisional details. Our total revenues in the third quarter were $168 million, which is 8.6% lower than in the year-ago quarter. Those of you who follow this business know that the odd number years, particularly in the third quarters and fourth quarters, suffer from the difficult comparisons to the large amount of political spending on our TV stations in election years.

The decrease in newspaper revenues that effects the entire industry is also reflected in our top line. But the majority of the year-over-year decline was caused by the lack of TV political advertising. There was good news on the expense line. Total cost, which were flat on a year-over-year basis in the second quarter, fell about 2.3% year-over-year in the third quarter. Both the newspaper cost discipline I mentioned earlier and a decrease in expenses for corporate and shared services, largely due to lower stock grant expense and routine true-ups of benefit accruals, led to the favorable comparison in this year's third quarter. Our cost totaled $165 million.

On a GAAP basis, our performance was affected by the impairment charge you read about in the release this morning. During impairment testing, we determined that the undiscounted cash flows exceeded the carrying value of the long-lived assets which are principally the printing presses at a handful of our newspapers. The main culprit is a Ventura County Star where we built a new facility within the past decade, but similar conditions exist to a lesser degree at 3 of our smaller papers. The charge is $9 million on a pre-tax basis and as a result, we recorded an operating loss of $17.9 million for the quarter.

We recorded a loss from continuing operations before income taxes of $18.2 million. The provision for income taxes brought our loss from continuing ops net of taxes to $10.7 million or $0.19 per share. If you exclude the non-cash impairment charge which would be the apples-to-apples comparison with the performance in your models, our net loss from continuing ops would have been $5.1 million or $0.09 per share. A year ago, we were essentially breakeven on the operating line and we settled some state and local income tax claims. This resulted in adjustments to our tax reserves which gave us net income of $0.08 in the third quarter of 2010.

Let's turn now to the TV division to start our look at operations. Television revenue was down 11% year-over-year but there were 2 other revenue numbers that I think do a better job of explaining how our stations performed in the third quarter. First, backing out all political spending, ad revenue from core and new business increased 6.5% in the third quarter. And second, if you compare our third quarter performance this year with the third quarter of 2009 which was the most recent third quarter in an off-year cycle, revenue was up 17%. As we all know, 2009 was a very soft year, but I think growth of 17% from 2009 and growth of more than 6% of non-political dollars from 2010 is a good indication that our sales team is doing a great job of monetizing the growing audiences we are enjoying at the Scripps stations.

National advertising was down in the mid-single digit range in the quarter. Local advertising, which represents two-thirds of our spot revenue, was up 11% to $42 million. And even though political was understandably off by a wide margin versus last year, we did book $2 million in political ads. That's a very tough comparison with the $14.8 million we reported in the third quarter last year but it's about 25% better than our performance in the third quarter of 2009.

Our retransmission consent revenue was up about a third in the quarter to $4 million. Those of you who have covered Scripps for awhile know that much of your retransmission consent rights are tied up for years to come in agreements reached before we spun-off Scripps Networks Interactive. We'll negotiate new deals at market rates as the old contracts expire including about 1 million new homes at the end of this year, a couple million more at the end of 2012, and then some big contracts in 2016 and 2020. So, we think this category will show nice growth for a long time to come. Another category with a small but fast growing base is our digital revenues which grew 11%. Rich will talk more in a moment about the changes coming to our digital operations.

Expenses in the TV division were up 2.7% year-over-year, down from the 3.3% increase we reported in the second quarter. The added cost of certain employee benefits that had been suspended in 2009 drove that modest expense growth. Programming costs were slightly lower versus last year; however, there will be significant relief in the programming line going forward now that Oprah's run in syndication has ended. We're often asked that the less expensive programming that we replaced Oprah with 2 months ago will draw smaller audiences. It's too early to say for sure. We're now in the first sweeps period since Oprah left our airwaves but initial indications lead us to believe that our audiences remain strong. We are very optimistic about the improved profitability in those time slots. As a result of the revenue and cost items I've just discussed, TV segment profit was $7.5 million in the third quarter of 2011, compared with $17.7 million in the 2010 quarter.

Turning to newspapers, I think the revenue performance of our portfolio was slightly better than you've heard from some of our peers during this earnings season but still, obviously, a very challenging period for the newspaper industry. Total revenue declined 4.4% year-over-year to $96 million. It's hard to find a silver lining in a 4% revenue decrease but compared to the year-over-year drops of about 5.5% in the first quarter and second quarters, and the results reported by some of our newspaper peers, our results indicate how hard our people are working to create productive marketplaces for our advertisers.

Print advertising revenue was $57 million in the quarter which was 7.9% lower than last year. This can largely be contributed to classified, down 10% for the period, and national, down 31%. The 3.4% decrease we experienced in local advertising is the smallest year-over-year decline in that important category in a very long time. The weakness in classified advertising persists; the category was down 10% to $18.7 million. All 3 of the main categories were down - - automotive was down 8.7%, real estate down 17%, and help wanted declined slightly.

Weakness in preprint has been pretty consistent and revenues were down 4.1% in the third quarter to $16.1 million. Circulation revenues continued to be stable versus prior year at $28.6 million. This was the third quarter that the newspaper financial tables provided a breakout of our digital revenues which include advertising on our newspaper websites, digital advertising provided through audience extension programs, and other digital marketing services. Reported digital revenues were down 8.2% and reported pure-play digital revenues were down 3.2%. But you'll recall that we began this year reporting revenue from certain of our digital offerings net of the amounts paid to our digital partners. So if 2010 revenues had been reported on this net basis, total digital revenues would have been about flat and pure-play digital advertising would have increased 6.4%.

On the expense side of the ledger, our newspaper costs which had been up year-over-year in the first 2 quarters this year flattened out at $94 million in the third quarter as a result of lower employee expenses due to a reduction in the number of employees and lower health care costs. Newsprint prices were up 5.5% during the quarter, driving a similar increase in our cost for newsprint and press supplies. Segment profit from our newspaper group was $1.6 million, down from 6.6 million in the year-ago period.

We typically don't spend much time talking about the syndication and other segment but this quarter requires a little more explanation than usual. On June 1, we completed the outsourcing of United Media syndicate function to Universal Uclick. In the second quarter, revenue was higher than it will be going forward and expenses were also higher because of transition costs. With that noise behind us, the third quarter of 2011 was more typical of how this segment will look in the future. Revenues were $2 million and there was very modest segment profit.

Now let's turn to a couple of non-operating items. You know that our balance sheet has been an attractive part of the Scripps story since the spin-off of the cable networks in 2008. At September 30, we had $0 debt and almost $150 million in cash. For the second consecutive quarter, we were fairly active in our share repurchases. During the third quarter we repurchased 2 million shares at a weighted average price of about $8 per share. Through September 30, we purchased [39 million] and have $36 million left in our current authorization.

Before I turn it over to Rich, I will touch briefly on the fourth quarter guidance that was in the release this morning. We believe our TV sales force will continue to perform well. If you look back at the blowout political quarter we had in the fourth quarter of 2010, you will understand why we are calling for a year-over-year comparison to be down in the high teens. But backing political out of both years, we think TV revenues will be up in the high-single to low-double digit range. Couple that with expenses that should decline in the mid-single digit range and you should see nice profitability from our TV segment. Newspaper revenues should decline at a comparable rate in the mid-single digits as they did in the third quarter and expenses will, again, be down slightly. Expenses for corporate and shared services will return to their normal run rate in the fourth quarter of about $8 million.

With that, let me turn it over to Rich.

Thanks, Tim. Good morning everyone and thanks for joining us. As I said in the press release, we continue to aggressively reshape this Company, improving both our short-term and long-term opportunities for enhancing the value of this enterprise. Even in this difficult economic environment, Scripps is on its way to becoming a very different Company through a series of tough decisions, opportunistic investments and a commitment to the aggressive innovation of the media products we offer across the country.

Just last month, we announced the opportunistic acquisition of the McGraw-Hill TV stations which offer very good upside on current operations, meaning we believe we can increase cash flow by improving news ratings. Over and above what we can do on air, this deal gives us access to 3 of America's most attractive media markets -- Indianapolis, Denver and San Diego. I will talk more in a minute about our digital strategy but enlarging our playing field to include these vibrant markets is a long-term plus for Scripps. After the deal closes, we will have one of the strongest collections of local markets in the media industry. The strength of the individual McGraw-Hill market was a major draw for us when the group became available. We also gained a low cost option on the growing Spanish-language marketplace through the 5 Azteca stations in Colorado and California.

Consistent with our plans to reshape Scripps, we are structuring the McGraw-Hill deal in a way that preserves our opportunity to be an aggressive innovator of new businesses in our markets. At a purchase price of $212 million, which nets down to less than $190 million in actual cash outlay for Scripps after the tax treatment, we got a great deal based on an attractive cash on cash return on investment. Thanks to our strong cash flow and debt-free balance sheet, we also plan to finance the full price of attractive terms and hold on to our cash so we can continue develop new digital products and revenue streams and when accretive, continue to repurchase shares.

Preserving our cash is vital, because as you read recently, we are accelerating the rollout of digital products in our markets. We are encouraged by recent developments, particularly in the Mobile marketplace that can be applied to models for local news and advertising customers. We recently moved to combine all of our digital resources across the country into one team that will roll out new products and services across our markets. That includes products and services that are complementary to our print and on-air businesses as well as offerings designed for digital-only consumers that we don't serve today. With this move, digital products now become core to our strategy.

Now as Tim said earlier, we had a number of moving parts and together, they really muddied up the results in the third quarter. First, we took a non-cash charge for the value of some newspaper equipment which simply says a few of our presses are not worth as much as they were when they printed a whole lot more classified ads. Not a surprise, just an affirmation of what we are doing to make the printed newspaper business less complicated, more focused on its core attributes, more efficient and ultimately as profitable as it can be while still offering readers and advertisers an incredibly valuable service.

Secondly, and also negatively affecting the year-over-year comparisons was our success as a TV platform for political advertising last year. We knocked it out of the park in 2010 and expect to do it again in 2012 but the off-year comps are brutal which you saw in full force in the third quarter. We are adding to the McGraw-Hill deal some more hot territory for political advertising and we intend through good planning and execution to get more than our share across the Company. We do political advertising extremely well; it's one of our core strategies. Also particularly in our TV markets we continue to invest in local news content. That costs money, but the payoff in ratings and revenues supports the case.

Looking past all the noise in the third quarter, you see a Company with strong cash flow, a great balance sheet, the opportunity to invest for attractive returns, a shifting mix of businesses and a collection of attractive local markets which can facilitate a strong yield on our commitment to the aggressive innovation of media products. With that, we will open it up for questions.

(Operator Instructions) Craig Huber with Access 342.

Yes, good morning. A couple questions I want to ask you of the McGraw-Hill TV station acquisition. Do you think you could update us, as you had more time to think about this, what do you think the cost savings potential is for the TV stations by the end of the first year on an annual basis?

Craig, it's Brian. Obviously, we haven't taken operation of those stations yet so we really don't have our elbows into the operation yet. But I think that they are well-run stations. They don't appear to be overly [flat]. They're -- a number of employees seems consistent with how we run our television stations. I think the biggest synergy is going to be focused on ratings growth and we think that's the big upside. We're going to implement some of the strategies that are seeing so much success in our ratings performance. We think that, that is the biggest -- beyond that we have our Scripps programming strategy that we will be able to scale across their group and that will take a little bit of time but we see an opportunity for there. But as I said, in terms of the nuts and bolts of where there may be cost savings, we won't know that until we get into the operations further.

So that's 6.5 times multiple I believe you guys are talking about on 2012; you don't have much cost savings embedded in that number, you are saying?

We don't.

Couple of other questions, housekeeping one first. What is the D&A number on an annual basis for this McGraw-Hill TV station acquisition?

Craig, it's Rich. We will pull that out and give that to you.

Okay. Then Rich, if I could ask you please, given that this announcement with the TV station acquisition, is the pace of your share buybacks here in the coming two quarters to four quarters going to materially change, you think, versus the last two or three quarters?

Not necessarily, Craig. We just haven't focused on that yet. We tend to be an opportunistic buyer so it's probably a little early to know exactly what pace we will be at over the next couple of months. But also, we have a Board meeting next week as well where we will talk about it.

Then my last question if I could, on the newspaper front, given I guess it's 1.7% newspaper EBITDA margin in the quarter, obviously, it's a seasonally smaller quarter. One of big opportunities for the Company going forward is to clean up your cost on the newspaper side and drive the revenues per head even higher here. You have a new person, Tim (inaudible), running the division here. Could you just talk a little bit about what -- how as you look out over the next 12 months, the major cost savings left to do in this area, particularly things you haven't already talked about?

Yes, Craig. It's Tim. And it's probably premature to get too detailed in answering that question. But to your point, clearly, our margins are something that need some work. But we were going to get there not just by picking a margin number and telling everybody that's what we have to get. We are going activity by activity, revenue streams. We are looking throughout the newspaper division at what our core activities are today and what they need to be in the future to be successful. A big piece of this is looking at continuing to simplify our business and the activities that we are engaged in. And frankly, I think focusing perhaps on fewer products but doing them exceedingly well will set us up for great success. It will be a mix of print offerings and also better digital products than we have today but it's taking friction out of the system. It's simplifying activities. It's focusing on profitable revenue activities as opposed to just market share.

So it is a big mix of things that we are engaged in right now. I've got a lot of folks in the newspaper division I'm working with today to get ourselves positioned for a successful 2012. But I can't point to one big [get], to use Brian's phrase. It's really going to be a combination of a lot of thoughtful things and we do have the benefit of being in some great markets. We think long term but today they are still struggling and we want to be careful not to starve those resources in markets that we think have great long-term potential.

Do you think, Tim, as you look out to next year that you could take out on a net basis, say 5% to 7% of your non-news print cash cost in your division next year?

Well, let me just turn it a different way and say that we're going to look to grow cash flow in 2012 relative to where it's going to wind up in 2011.

Very good. Thank you.

Alexia Quadrani, JPMorgan.

Could you provide us a little more color on the TV side of what the major vertical (technical difficulty), is it typically auto and then on the newspaper side, was the progression throughout the quarter pretty constant in terms of the ad revenue declines or was there any notable change month to month?

Thanks Alexia. Let's start with Brian.

Hi, Alexia. In terms of core categories, automotive actually moved back to being the top category in the TV division in third quarter. That's the first time in a couple of years and it was up 15% in the quarter. I would tell you all 5 of our top 5 categories showed growth. Services remain second, followed by retail, food services and travel and leisure. All 5 of them were up year-to-year.

And on the auto side, was it domestic, foreign? Was there -- I guess I was trying to get a sense of the Japanese auto come back.

Yes, I can give you more color there; domestic dealer group was up about 25%, very strong growth. Our individual dealers up even higher than that. Our factory domestic, again, higher than that. So really, the negative side was the foreign dealer group down a couple of mid-single digits but every other aspect of the auto category was up.

And then on the newspaper side? The month-to-month performance?

Yes, Alexia, it was surprisingly consistent through the third quarter, hanging around that mid-single digit range.

And that's what you are seeing in October as well? (multiple speakers)

Well, we haven't wrapped up October yet. We are still making final entries there. But October appears to be consistent with our forecast for fourth quarter?

And you think you can keep this circulation revenues just based on the third quarter?

Our hope is that we are starting to see some stabilization in that circulation revenue number and that's going to one that we are going to key off of going forward. As we look at our business mix, changing that circulation subscriber revenue is a nice revenue stream that we've, probably over the years, have ignored in terms of its stability. But we are actually focused on it intently this year.

Okay. Thank you very much.

Ed Atorino with Benchmark.

Alexia just took my question on the categories so I will pass and try to think of a brilliant question for later. (laughter)

Thanks, Ed.

Barry Lucas with Gabelli & Company.

Good morning -- excuse me. A couple of questions and then maybe a comment. But if we could just talk a little bit about newspapers some more, Tim. On the longer range, and we will start with that, the opportunity prospects, probability of being paid for content online and where are you working or experimenting and when do you expect to see some results?

Sure, Barry. As I have stepped in here and spent the last three months -- past three months or so, talking to our folks and especially the recent move that we've made consolidating our digital activities under one umbrella across the enterprise, we are focused on programming in our newspaper division to 4 platforms -- print, the web, handheld smartphone devices and tablet devices. Those 4 platforms, we believe, are what we're going to build our future on and getting paid for our content is a key piece of that. We are looking at a lot of the experiments that are going on in the industry and encouraged by what we see others doing. We are also busy on our own working on some offerings for digital customers, smartphone app in Memphis and a tablet app there. We will continue to tweak those and then my hope is that in 2012, we will be able to roll out across our newspaper group of those products that we need to start to solidify our relationship with our readers and digital customers in local markets.

I believe and I'm hopeful that we will see, I guess, affirmation of that, that people in local markets, customers are willing to pay for our product. And that we should be able to bundle like the cable companies bundle our services for delivering local news and information content across these platforms. So yes, it's an important part of our strategy going forward. I think that would lead us to seeing higher circulation revenue over time. We will have probably a bundled offering for print subscribers and then we will probably also be charging digital-only customers and see how we go. But it's a key piece of our strategy going forward.

If I can add a few, Tim. I'm looking at classified revenues, 4-11 coming in somewhere around $75 million, maybe a bit more, $80 million, for the full year, down almost two-thirds from where it was four years or five years ago. Are we closing in at the bottom one? And two, how much of that is, if any, is reasonably [recoverable]?

That's the big question, right? And I don't know that I have a great answer for that, Barry. I mean, there are some categories that we would hope are starting to hit bottom. I think automotive is one where, in our local markets, we are important to the local dealers and we just need to get after it. Employment, boy, I don't know if we are starting to find some footing there as well. Real estate, I'm encouraged by it over time but we still seem to have a ways to go in some of our Florida markets. But on the other side of that, I think that's an area where we could see some recovery, especially in Naples and Treasure Coast. So I hope that we are starting to get to the bottom of the classified category but I can't project that with certainty that we won't.

Thanks. One last [snarky] comment for the other Tim. If cost savings are coming from reduced bonus accrual or stock comp or whatever it is, we'd much rather have it the other way that your spending money there will make it a little bit more. Thanks.

No argument here, Barry.

So noted.

Michael Kupinski with Noble Financial.

Thanks and thank you for taking the question. The Spanish language stations that you are picking up from McGraw-Hill, I was just wondering, are you dusting off plans about building a Spanish language network? Or is that just a passing thought, wait and see how the stations perform? And then, are there other Spanish language opportunities in those markets, particularly on the digital side that you are exploring?

Michael, it's Rich, for I will spare Brian the burden of having to worry about a Spanish language network (laughter) since probably only you and I lived through those early episodes. I think that, at this point, would be very ambitious for us to think about. What we acquired was just a very, very low cost option to that marketplace but we're going to stand back, put together a team here, maybe with a little bit of outside help and take a look at the Spanish language marketplace and see if it's indeed an opportunity for us to expand out, particularly in the markets where we already do business and have a large component of Spanish-speaking households. But I will also let Brian touch on it.

As far as I'm concerned, we're a local media Company that focuses on local markets and that's where we are driving great value for our communities and value for our shareholders. So we are looking forward to starting to participate in the Spanish language television markets within these communities that we are already in. We see real good opportunity in some of these markets. We were excited as we've travel around and spent time in Bakersfield and San Diego and Denver to learn about some of the initiatives that they have underway. And again, we make a major investment in these markets, we are broadcasters. We are there to serve the entire market and not just the English-speaking population. And so the opportunity to extend our commitment to those communities and be able to serve folks that we normally wouldn't have that opportunity to do is of great interest to us. So we're going to take this opportunity pretty seriously and really dig in and see how we can make those communities better and make an investment that will create value for all of our shareholders.

Did any of those markets already have digital initiatives or is that just starting right now?

The Spanish language? Which --

Spanish language, yes.

Limited, but we do see a bigger opportunity there.

Okay. And have you thought about what type of investments that you might need to make there -- to make that happen?

On the digital side or just in terms of broadcasting on the Spanish platform?

Well, actually both.

I think that it's early. Again, we're starting to model out opportunities as to increasing a component of local news in those markets. But whether those are digital products or broadcast products or I think we will take our time -- we have a lot to learn still as it relates to being a Spanish broadcaster. So, we will take our time; we'll educate ourselves and then we'll make smart decisions.

Okay. And then in terms of the -- you mentioned the political on the McGraw-Hill stations that you think there is a great opportunity there. Certainly, a lot of the political dollars are spent around the news product. I was just wondering, can you update us where the ratings are for some of those markets like Denver or San Diego, for instance, where you think that you might get a substantial political revenue component? If you could just update us where they are in news particularly on those stations?

Yes, Mike, it ranges from second to fourth depending on the market and the news cast. I think that as we look out at the opportunity related to political, I think everyone is going to -- in each of those markets will benefit greatly. Obviously Denver, Indiana or (inaudible) California will do well with presidential. As I look at Indiana, they -- you have an open gubernatorial seat that got a big race with Lugar for the Senate; Denver's got a bunch of House races; California, Feinstein's up for the Senate. We know that there will be some [pack and issue] money there so while we have a long-term plan to grow our news rank in each of those markets, I don't know how quickly we will be able to implement that (technical difficulty) certainly by primaries or in the general election next year but we expect robust markets which means everybody will benefit in those markets.

Okay. Perfect. Thank you.

Craig Huber, Access 342.

Yes, hi, just a follow-up to the question on auto. I think you said it was up 15% in the current quarter you just finished. What do you expecting to be up here in the fourth quarter year-over-year for your TV stations?

Craig, right now, we are actually pacing double digits to last year's final. And so we've already booked more than what we finished out last year and, of course, it's not unusual for auto companies to come in and add year-end spending. So we are certainly looking at a positive fourth quarter as well.

Maybe you could tell us what was October then perhaps for auto TV?

Yes, I can --

I just [need a] ballpark, please.

For automotive?

Yes.

It was huge. We were up almost -- well, I'll tell you, we were up over 50% in October.

Okay. And then just remind us, if you would, in the first quarter and second quarter, how much auto percent change was year-over-year in your TV stations.

Second quarter was minus 2%. And hang on, give me one second and I will have that for you. So second quarter was minus 2%. and first quarter was plus 10%.

Okay. Very good. Thanks. That's all I had. Thank you.

Ed Atorino.

I told you I would be back. (laughter) I got two questions. First, a quickie. Any early political, particularly, in some of your, I guess you call them battle ground markets, number one? And second, could you give us a little granularity, I hate that word but that came up on the Oprah savings going into 2012 and -- or are you bolstering your programming to replace Oprah with other stuff?

Ed, I'm glad you looked up to the building of 2 brilliant questions. (laughter) Let me ask for a clarification on your political in terms of early spending. Were you looking for this year or for early next year?

How about both?

I think we had a respectable performance in the third quarter and even into fourth quarter this year. Just, we reported about $2 million in the third quarter and fourth quarter we only had about five weeks or six weeks there. But we will have a couple of million bucks there as well. We had some -- probably one-half of that money came from Ohio where we had 2 big ballot issues, a union rights issue and a public health care issue. Probably 30% of it or roughly came from Florida where some big parties or big packs were targeting Senator Nelson during the debt-ceiling debate. Then probably Michigan was the other 20% where they have a new bridge to Canada that was highly contested. So that's how things shook out. In terms of first quarter, really, there is still a couple of primary dates that remain to be set. Florida, Ohio are still moving things around a little bit. So I think some of it will depend on that. The reality is things will really kick in once the Republicans set their candidate.

Good luck.

That then, they'll start to obviously support that person, the other side will start to target that person as well. So I think we will see some early primary spending first quarter but really, once the Republicans set their person, then we expect the game to be on. In terms of programming, we are expecting pretty some significant savings in fourth quarter. I think we've before said that, that will be over 20% savings and again, we are investing in the development of a lot of our own programming when not necessarily pushing that money back to syndicators and so you will see a great savings in fourth quarter. You will see double-digit savings as we go through all of 2012, based on the Oprah savings, some the investments and some of our own programming and again, as you get to the fourth quarter of next year, we will be parting ways with Wheel and Jeopardy and introducing 2 [Scripps-owned] new products there. So we will have a very positive impact on the bottom line as well.

So your total television cost dollars are going to be coming down pretty largely?

Including syndication or all-in?

The reported number in the income statement.

Yes, I think the guidance we have for fourth quarter is mid-single digit savings or expense declines in fourth quarter.

And that goes into 2012?

It will.

Terrific. Thank you very much.

John Kornreich with JK Media.

Hi, good morning. I remember 15 years, 20 years ago commenting how low your margins were in TV and at that time, they were merely in the high 20%. And 15 years, 20 years later, and I viewed that as an opportunity 15 years, 20 years ago. Now it looks like the opportunity is even greater, I guess, because in a political year, the last year, your margin was only 20%. This year, your margin is 13% through nine months and if you take out retrans, those 100% margin dollars, you have an advertising TV margin of 8.5% for nine months. So when I look at the question -- when I look at your station line-up -- Detroit, Cleveland, Cincinnati, Phoenix, Tampa, Baltimore, Kansas City, West Palm, you must have a handful of stations that are barely making any money. Where are the opportunities to take those breakeven stations and make something out of them to pull up the whole margin of their division?

Hi John, it's Rich. You are good at math. (laughter) You go back 15 years, the station margins were a little below the industry but that's because we were using the stations to build the cable networks. And in many cases, well, across the board, we created incredible value over on the network side using the stations as a platform. Coming out of the separation, the companies, the TV margins are on the move upward and obviously, you pulled out the retrans piece and that's a big number in the full margin. But just looking at the margin on the advertising revenues, it just -- if you look at the comparable quarters across the even and odd years, the margins continue to move up and will continue to move up with Brian and his team and their plan in place. So I feel very good about where we are heading on the margin side and the station.

Are there couple of station markets that are significant problems? I think of in the Baltimore was the low margin market.

Go ahead, Brian.

No. I think we've really turned around Baltimore. Baltimore has been a success story for us; it was profitable last year, expected to be as we built out budgets moving forward. So Baltimore is not a problem. And I would tell you that we are profitable across the board at our television stations.

Okay. And as your response to Ed Atorino's question indicated, I suppose next year which is going to be a big revenue year, you will bring down to the [BCF] line more than 100% of your revenue increase. Just to reiterate that; is that correct?

Yes.

Thanks a lot.

Alfred Anderson, Andersson Family Partnership.

Good morning. This is Alfred M. Anderson. I have several questions I hope you can bear with me. The first part is a little bit of a preamble. In the past year or two in several meetings I've heard that Scripps had no major expansion plans, and now they are -- the Company is planning $200 million plus acquisition of some McGraw-Hill TV stations. I also understand that the Company is planning on outside [funding] for the entire acquisition. When I inquired about returning some of the proceeds from the United Media sale to shareholders, I was told that the Company was keeping its powder dry, presumably to cope with unforeseen circumstances and maintaining its existing operations. The Company had, at the last update in August, about $170 million of cash and no debt and was operating from the positive cash flow position. As a shareholder, I'd like to know and the question has three parts and I'll do them one at a time -- first, are there any plans to inaugurate a quarterly dividend to shareholders or pay a one-off special to shareholders in December?

I'm sorry. You want to do them one by one, Alfred?

Yes, I think that's probably the easiest way.

Sure. Let me go back a little bit to where we have been talking about expansion plans. When we look at deploying capital, we look at the highest and best use. So in recent months, we have been, in some fashion, returning capital to shareholders offers by repurchasing shares which, as we've talked about in meetings where you have been, we prefer to special dividends. And we have been repurchasing shares at a fairly aggressive rate over the last few quarters especially. And then also,, we do think in this economic environment, you keep some dry powder meaning that there is nothing wrong with keeping some available cash should we have to endure difficult situations brought on by the broader economy. The McGraw-Hill acquisition, again, and we looked at as one of those highest and best uses. We not only looked at it on its own merits and looked at it versus purchasing, repurchasing more shares using the same amount of money to do that.

And the return on McGraw-Hill acquisition came out superior to a large and aggressive repurchase of shares. And the good news is we can do both and continue to do both. So this was a great opportunity in a low-cost interest environment to pick up the McGraw-Hill station, show a good return and at the same time, continue to return capital shareholders through stock repurchase. At this point, we have not talked about dividend policy going forward. I know we will as we budget over the next few weeks and then early in the year, heading toward early in the year Board meeting, we'll talk about dividends. But at this point obviously we don't have any plans or any announcements to make about dividends, either a special or reinstatement of the quarterly.

Okay. Part B touches on that same subject and that is, are any plans to expand the share repurchase program and if so what is the rational for that approach rather than a dividend to shareholders?

Well, I can tell you why we like share repurchase; returning through a special dividend is value neutral. It is just saying that you don't have a good use for the money. You can't think of any or you don't see any so you return it to the shareholders. In this case, we believe there was good use for those funds and acquisition of the McGraw-Hill stations and over and above that, we think share repurchase is the best avenue because it rewards everybody. It gives anybody the option to sell at prevailing rates. And it also reduces the share count increasing the value of the company to all the remaining owners. I'm sorry, I didn't answer your question, Alfred, do we have plans to expand it? At this point, we have not talked about any dramatic change in either direction for our share repurchase plan but we continue to stay in the market.

Okay. Still on first question, third part, has any thought been given to separating the newspaper and TV operations in the separate free-standing companies or divesting those newspapers that are not meeting the satisfactory return on employed capital?

We have not -- we get that question quite a lot, Alfred. No, we have not had any plans or talked about separating. The assets -- even today, we, even though we have a newspaper division and a broadcast TV division, we tend to look at them based on the merits of the products that we offer and the merits of the individual markets. We are in some very good newspaper markets. Tim has talked about his plans to turn those around and we hope there is pick-up in the economy, especially in Florida. So no, at this point we haven't talked about separating them.

Okay. Next question is, I believe the Company invested over $20 million on a newspaper printing plant near Naples Florida. How is that investment working out?

Well, actually, Alfred, we invested a little more than $20 million; it was about a $90 million project. How many years ago? Somebody remember --? It came online in 2009. At the time, we had a production plan plant that was in a very geographically dangerous position and worn out and didn't make any sense to rebuild on our current location so we had to move. And it was a very costly project for a newspaper that had produced an awful lot of cash flow for this Company over the years. So today, Florida is pretty soft. But we still believe that Naples and Bonita and that whole region is going to be a great place to be in the media business over the long term. So I would say today, that was an expensive investment but long term, we believe very much in southwest Florida.

Thank you. Final question relates to the outside financing of the McGraw-Hill TV station acquisitions. What progress have you made? What interest rate do you expect to have to pay? Who are you going to finance it with it? What period are you going to repay the capital and so forth?

Sure. We're not done but I will let Tim Wesolowski give you an update.

So we made good progress on the syndication of the financing for the acquisition. SunTrust Bank initially provided us with a commitment for the entire amount of the loan to finance the acquisition. And we are currently in the process now, Alfred, of syndicating that loan out plus adding some capacity for a revolver as well and the interest rate that we are looking at on a loan right now, it will be one that floats with LIBOR. We ere looking at a spread initially of 400 basis points above LIBOR and as you know, LIBOR is very, very low at the moment. As our leverage comes down, the rate comes down as well. We think there's very attractive financing for us. And think that by the end of next year, we will be paying below 400 basis points above LIBOR.

That sounds great. I have a similar facility myself with SunTrust. But the question is, is that -- you don't plan to repay any capital? You are just going to pay interest only originally?

There is a small [sinking] fund associated with this. It's a five-year deal and we will be making payments each year over that time period.

Do you know how much those payments are going to be? Are they going to be 20% of the amount borrowed over each of the five years, or is it --

They are a smallish amount. They start out about 5% of the amount borrowed and then go up from there.

Well, that completes my questions. I'm glad that you are taking advantage of the low interest rates scenario. Thank you.

To the presenters, there are no further questions.

Well, John, we appreciate your help this morning and to everyone else on the call, thanks for your attention and have a good day.

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