E W Scripps Co (SSP) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the second quarter earnings call for The E.W. Scripps Company. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. Instructions will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Tim King.

Thank you very much, Katie. And good morning everybody. We thank you for joining us for this recap of The E.W. Scripps Company's second-quarter results.

We're going to switch things up a little bit this morning by starting with Tim Wesolowski, our CFO and Treasurer, who will provide additional details about the second quarter. Then Rich Boehne, our President and CEO, will talk a bit about our longer-term prospects. We will then open up the lines for your questions.

With me today are Tim Stautberg, who runs the Newspaper division; Brian Lawlor, who runs the TV division; and Doug Lyons, our Corporate Controller. The commentary you will 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 10-K and other regulatory filings.

Now, as I always remind listeners on these calls, you should visit Scripps.com for more information. You can get today's release and the financial tables. You can sign up for an e-mail that will alert you anytime we disclose financial information, or you can listen to an audio replay of this call. The link to the replay will be up there later this afternoon and we will leave it there through August 14.

Now, here is Tim Wesolowski for a look at the second quarter.

Good morning. After the challenges endured by our industry in 2008 and 2009, and all of the difficult decisions Scripps made in the 2009 and 2010 timeframe, it is gratifying to see results validate our strategic repositioning.

There are several positive contours to the Scripps story right now -- a vibrant core Television business, better than anticipated political prospects, a strong balance sheet and the ability to generate cash at a healthy rate. All of those aspects are evidenced in today's release, so let's go ahead and start with a close look at the second quarter.

Revenue was up 19% versus the prior year. Even if you back out the stations we bought late last year, revenues were up more than 3%. Reported expenses rose 8% due to the effect of the new stations, but on an apples-to-apples basis we cut our expenses about 4%. As a result, our operating income was $14.4 million versus an operating loss of $2.2 million in last year's second quarter.

Our net income of $5.4 million or $0.09 per share was a significant improvement over the loss of $0.04 per share a year ago.

Turning to the divisions, we will start with Television, where reported revenue growth was better than 50% thanks to the December addition of new stations in Indianapolis, Denver, San Diego and Bakersfield. On a same station basis, revenue was still up 16%.

I'm pleased to say that our spot business was very healthy. On a same station basis, both the local and national ad categories grew by more than 3.5% over the year-ago period. Auto advertising continues to lead the way, with growth of 30% in the quarter on a same station basis.

Why is our core TV business performing so well? I think a big reason is that our stations are doing a better job than in years of attracting new eyeballs and monetizing those increases. In addition, second-quarter market audits indicated that we outpaced the growth in 12 of our 13 markets.

You heard that right. In 12 of our 13 we outpace the market's performance. That tells me we're on the right track to grow our television franchises.

But in years like 2012, most of the attention is focused on political advertising, and rightly so. Political revenue in the quarter was remarkable in every way. The reported number of $11 million was 11 times higher than a year ago, but even on a same station basis our political revenue of $8.2 million was the highest figure ever for a Scripps second quarter. It was nearly double the amount of the previous election year and more than five times higher than in the last presidential cycle.

Political races are notoriously fluid, but all signs indicate this kind of performance will continue in the coming months, which is why we upped our guidance on political revenue for the year. But more on that in a few minutes.

Our reported retransmission consent revenue doubled to nearly $8 million. Having 4 new markets helps that performance, of course, but even on a same station basis our retrans revenue jumped 41% on the strength of existing escalator clauses and new contracts we negotiated in 2011.

We've told you before that the really big spikes don't come until after contracts with Time Warner and Comcast are negotiated at the end of 2015 and 2019. But you should assume this category will grow nicely between now and then due to the escalator clauses, as well as increased payments for the use of our signals by the satellite companies.

TV's digital revenues doubled to $3.5 million and were up more than 20% on a same station basis.

Just as the new stations pushed revenues up dramatically, they also increased our costs. Reported expenses in the quarter increased 30%, but if you exclude our new properties, expenses were down 2%. That is a little better than our guidance of flat expenses.

Core growth, a surge in political business and good expense control equals nice segment profit growth. Segment profit from the Television division was a hearty $35 million compared with $14 million last year.

Before I leave Television, let me just quickly give you an update on the acquired stations. We're more enthusiastic about these properties than we were when we announced the deal. The four ABC affiliates have embraced the changes we made and are performing as well as or better than we had planned.

We are bullish about the upside potential in these businesses and have seen nothing at all to diminish our excitement, and we believe the five Azteca stations have also have upside potential. So, as an investor you should know that we are extremely optimistic about that with this acquisition will mean for us over the long-term.

At the Newspaper division, our total revenue in the second quarter was $97 million, down 4.7% from the second quarter of 2011. We spent a little space in the first quarter release calling out Naples, so let me revisit that market for just a minute this morning.

Naples was singled out after the March quarter for two reasons. The Naples Daily News reported year-over-year growth at a rate you haven't heard for newspapers and a longtime. And secondly, Naples always has a disproportionately large effect on the entire Newspaper group in the first quarter due to the influx of so many snowbirds in that part of the country.

And as we said last time, if Naples were excluded from the first quarter comparisons in 2011 and 2012, revenue in the division would've been down 3.8%. So when we tell you that second-quarter revenues were down 4.7%, it is really not such a dramatic change from what we reported in the first quarter.

Circulation revenue across the division had been stable for several quarters, but fell in the second quarter by about 4% mostly on weakness and single copy sales, especially on Sunday. The circ revenue total was about $29 million in the second quarter.

At $57 million, print and advertising revenue was about 7% lower than last year. This year-over-year decline was exacerbated by last fall's decision to eliminate unprofitable niche publications from our portfolio of offerings. If you back out those products from the calculation, the decline was more like 5.5%.

Local advertising declines were about 6%, pre-print was down 8% and national advertising, which is a very small piece of the revenue pie for Newspapers, was down 28%.

For the second quarter in a row, the long-challenged classified category was something of a positive surprise, slipping only at a rate of less than 4% in the quarter. That is the best year-over-year for year in more than five years. Within classified, the real estate category had the best performance. But none of the classified categories fell by as much as 10%. It has been a long time since we've been able to say that.

Digital revenue from our Newspaper operations was $6.5 million. That is the same figure that is in the first quarter, but it is about 3% lower than the year-ago period. Consumers in our newspaper markets continue to embrace our digital offerings. You will note that from our release in that mobile page views are up nicely, but product rationalization accounts for much of the revenue decline.

For example, we pushed much harder on daily deals in the year-ago quarter, but made the decision to wind down that effort last fall to focus on more profitable products. Our Newspaper management team has responded well to the challenging revenue environment. Total segment expenses declined by 3.6% in the second quarter, newsprint prices stayed essentially flat, but our cost for newsprint and press supplies moved up slightly due to outside printing costs tied to our zoned print-and-deliver initiative.

Segment profit from our Newspaper group was $4.6 million compared with $5.9 million in the year-ago quarter. Revenues in the syndication and other segment were $2.7 million, and the segment loss was $642,000. That compares favorably to a loss of $1.4 million a year ago, but it's the other portion of syndicated and other that requires an explanation.

You know that we have consolidated and are reorganizing our digital operations. Many of the expenses associated with these efforts are charged out to the divisions that benefit from the division-specific products and services. So you are starting to see products, and Rich will talk more about them in a minute, that are national in scope and not tied just to our local markets. In those instances, the associated expenses are going to be reported in the syndicated and other segment going forward.

As you build your models for the rest of the year, you should assume that the second half of 2012 will look more like the second quarter than the first quarter.

Now, let me turn to the non-operating items from the quarter. Scripps has one of the strongest balance sheets in the local media industry, featuring minimal leverage and the ability to stay flexible thanks to cash on hand and additional borrowing capacity. We improved our cash position during the quarter, increasing our cash and cash equivalents by about $27 million to nearly $170 million at the end of June.

We had total debt of about $205 million at the end of the quarter, of which $16 million is current.

We accelerated our share buybacks during the quarter, repurchasing 1.2 million shares at a weighted average price of $9.25 a share. In the past six quarters we have purchased more than 8 million shares. There is about $7 million left on the $75 million authorization, and it is reasonable to expect we will use that up in the coming months.

We gave customary guidance for revenue expenses in the third quarter that I will quickly summarize.

We expect our reported TV revenues, including the new stations, to be up more than 70% again and our reported TV expenses to be up approximately 40%.

On a same station basis, we expect revenues to be up more than 30% and we expect expenses to be up in the mid-single digits. That reverses the trend of same station expense declines in the first half of the year. It is largely due to start-up costs and critical marketing support that we will give to launch Let's Ask America and The List, the two homegrown programs we'll use to replace expensive syndicated programming in the hour before network prime time.

So the TV division gets something of a double whammy in the third quarter, because we will be paying for the cost of existing syndicated programming through September, as well as the startup and promotional costs for the new programming in September and into the fourth quarter.

Over at the Newspapers we expect revenues to be down in the low to mid-single digits and expenses to fall at similar rates. Expenses for shared services and Corporate will be about $8 million. And there are so many moving pieces in the back half of the year that we took the unusual step of giving expanded full-year guidance this time.

We now believe reported Television revenue will be between $470 million and $485 million. That range includes up to $110 million from the newly acquired stations, a bump from Olympic revenue that is significantly higher than the 2008 figure, and strong increase in political advertising.

You will recall three months ago we said we should report at least $42 million in our legacy stations and $10 million from our new stations. You will see that recent trends and developments led us to raise those figures to $52 million from a legacy stations and $18 million from our new stations. That combined $70 million of political business is included in the $470 million to $485 million we expect in total Television revenue.

Full-year expenses at the station should rise about 35% and be up slightly on a same station basis. Again, this reflects the need to build audiences right out of the gate, with strong promotional support for our game show and news magazine.

We still believe Newspaper revenue will be in the ballpark of $400 million while expenses decrease at a mid-single-digit rate.

You should now plug into your models about $10 million for our Syndication and Other revenues. As I noted earlier, adding certain digital expenses into this bucket will bring the cost associated with that segment to about $13 million.

The cost for shared services and Corporate will move up to about $35 million for the year. That is a little bit higher than the quarterly run rate of $8 million that is in your models, and that is attributable to some employee development programs such as talent management and training, and a variety of initiatives designed to improve our information technology infrastructure.

CapEx is still expected to be about $25 million, and depreciation and amortization will be approximately $50 million. When all is said and done we expect to end the year with a little less than $200 million in debt and a little bit more than $200 million in cash. Now, let me turn it over to Rich.

Thanks, Tim. Good morning. Thanks for joining us. Tim gave you lots of detail on the numbers. Bottom line, second half of the year should be strong, thanks to record political ad spending and improved performance at our TV stations.

Our goal during a political season is to get more than our share of the available revenue. We're doing that through improved local news ratings, which drives more revenue in all ad categories; an in-house system for managing political revenue; and across-the-board efficiencies that convert those additional revenues to cash flow.

We made a lot of moves in the TV division to prepare us for this opportunity in 2012, and so far these gutsy decisions have paid off. I want to take just a few minutes to step back from the political frenzy and look ahead to what you can expect from Scripps after our nation's voters have selected the next President.

As Tim explained, the TV division is well along toward several other goals whose value transcends the political spending cycles. Bridging the third and fourth quarters this year is our transition from some very expensive and underperforming syndicated programming to a couple of new homegrown shows. When Wheel of Fortune and Jeopardy leave our air in seven markets on September 17, we will take direct long-term control of these valuable access time slots and set a course that could substantially improve our profit margins.

Now for the record, there's nothing wrong with Wheel and Jeopardy. I've arrived at home from work many an evening over the years and enjoyed a bowl of canned soup while Vanna turned the letters and Alex announced the categories. But that hour is a precious asset, one which we believe can generate much higher long-term return through a more entrepreneurial approach to programming.

Once we get past the timing effect of twin expenses late in the third quarter, our cash flow from that hour should begin to improve as Let's Ask America and The List begin building audiences. Long-term, if these shows find audiences beyond just our markets, they could be very profitable.

Getting there requires us to accept creative risk. Scripps has a long history as a TV programmer, so these content models we are very comparable with, given the larger opportunity.

In the Newspaper division we're also comfortable with the risk of reducing some revenue lines as a path to higher quality revenue and increased long-term profitability. Tim Stautberg and his team have been aggressively weeding out on profitable niche products, both print and digital, and focusing on strengthening the value of our core news brands and launching market-leading digital products for smart phones, tablets, laptops and desktops.

We've talked a lot in recent months about rapidly expanding our menu of digital products for local and national audiences. As you know, we have merged the digital resources of our divisions into one group based here in Cincinnati, creating expense efficiencies and freeing up resources for new investment. A third generation of apps is rolling out in our TV markets and an all new app for newspaper markets is launching this month in Florida.

Our Digital group is moving quickly to put all of these on, technical platforms so we can react to opportunities and get new products to market much, much faster, and many of those products are paid either one-time or on a meter, on more of a subscription model. The coming months will be dedicated to an overhaul of our digital revenue structure and a strong increase in the resources available to mine digital resources in all of our markets.

In addition to staffing up with key positions including a new digital revenue officer, we have also made some investments in new tools such as Click Fuel, which helps our ad sales teams bring order and value to the money being spent by our digital customers in local markets.

We're also encouraged by the early success of our national local combination of products led by Storm Shield, an emergency weather app that drives on its own in any market, but also partners well with local brands -- particularly TV stations that have years of success as weather experts. You can get Storm Shield on the iTunes store. The Android version launches in September and more information you can find today, at this moment if you like, at stormshieldapp.com.

Finally as Tim Wesolowski mentioned, our balance sheet is getting stronger. We're approaching a net cash position thanks to strong results from operations and some below the line opportunities. We continue to see our financial flexibility as a key strategic asset, allowing us to be counterintuitive investors, investing in product only see opportunities to increase our share of valuable audiences, local TV news being the very best example, and also investing to capture emerging audiences and revenue sharing and across the digital marketplace.

We have also demonstrated our faith and our own abilities to create value by buying back stock. As Tim said, we have nearly completed our $75 million current authorization and we will be considering our next move in discussions with our Board later this year.

That's it. Thanks for joining us this morning and now we will open it up for questions.

(Operator Instructions). Alexia Quadrani, JPMorgan.

This is [Caroline Anastasia] for Alexia. Just a few questions, first, on your local ad trends on TV. They seem to have slowed a bit in Q2, so could you just talk about what you are seeing in the third quarter? And could you give some more color on how much political and retrans make up the 30% like-for-like revenue growth you're looking for this quarter?

Hey, Caroline, it's Brian. In the third quarter our local is -- pacing in the -- I would say mid-single digits, low to mid-single digits. All three months of the quarter are positive. There's still quite a bit of revenue to probably be booked, especially for September. So I think the trends that we have seen through second and third quarter will probably continue through third quarter.

They won't be as robust as they were in first quarter, but a lot of that will have to do with political displacement. And so, as you saw, the significant political revenue that we booked, $8 million of political and our same station, a lot of obviously is displacing local advertising. That will continue to happen through third quarter. But I think as we get through the election, we expect the spike to break back out and November and December.

What was the second half of the question?

Just how much political and retrans make up the retrans make up the 30% like-for-like revenue growth you guided to for Q3?

How about you give me a few minutes to crunch that for you?

Okay. Could you talk a little bit about your higher political expectations from your previous guidance and just how much visibility you have at this point, and if you see further upside potential of there?

Getting back to your last question, most of the growth will be in the political and the retrans. We will have, as I said, minor growth but I expect growth in the spot business. But most of the additional increase will come from the political and from the retrans. As -- what was that again?

Higher political expectations.

Oh, political is really being driven in three states. We have two stations in Florida, two stations in Ohio and Colorado, and those are three of the key swing states where there is heavy investment. And so we own big television stations in each of those markets, and really it is those five markets that are driving our political revenue.

Okay, and just one more. With the buyback authorization nearly completed, could we expect a re-authorization before year-end, and just any update on the Board's thinking toward a dividend given the strong cash flows you are seeing?

This is Rich. As you said, we probably will be done ahead of the next Board meeting, probably. So those will both be items for the agenda for discussion then.

One thing Tim Wesolowski always likes to say is let's make sure we actually have the cash first. And while we are expecting a strong back half of the year, we have sort of set a discussion around what to do with our cash for November and then again in February. So, no decision yet, but we will look at all of the options.

Okay, thank you.

Craig Huber, Huber Research Partners.

Yes, good morning. On your TV side, you gave us -- quantified how auto did in the quarter. Could you quantify maybe your other four or five top TV station categories for advertising, how well they did in the quarter? And I have some follow-ups.

Sure, hey, Craig. It's Brian.

Hey Brian.

The other for top categories besides auto, and auto moved to the number one category in the quarter for us, which typically it has lagged behind services. But we did have a heck of a second quarter with automotive. Services, retail, travel and leisure, and food services make up our other top-five categories. Services, travel and leisure and food stores were all up. The one category that was down out of our top five was retail, but the others remain pretty robust.

Okay. And then if you would also talk about this hour when you are replacing Wheel and Jeopardy. Can you quantify at all what positive EBITDA impact you think you guys will get the first 12 months out of the box?

You know, I think for competitive reasons we have tried not to really disclose that. Obviously we had a significant expense line for Wheel and Jeopardy. Our revenue over that expense showed modest increase.

I think we are producing these shows for a good bit less than what we are paying, but more importantly, we control 100% of the inventory. And I've got to be honest, we're just really excited about these shows. We've been working on them for 2.5 years.

We have researched them and focus grouped them like crazy, and we are very excited about the quality of the shows. They are testing very well. We're going into production on them now and we think we're going to have very good programs that we control 100% of the inventory, and we control 100% of the cost of them as well.

And also can you just quantify, if you would, in your TV markets how well your ratings have done here in this latest go-around versus a year ago?

We have had -- what we can control is the news ratings, and we've been very focused on investing in that over the last year and beyond. I didn't bring the numbers in front of me, but our morning news was up like in 11 or 14 of our markets. Our [six and our news] and our late news were up in like 70% of our markets. We have been showing some very good market growth there.

In addition to that, primetime has held up -- held consistently for NBC and ABC. We're getting a bump now out of the summer on NBC with America's Got Talent and obviously the Olympics. And we have been able to transition fairly well the Oprah time period with the programming we have there.

So I think overall we have been able to grow our share of our -- certainly our news audience in the markets and our overall sign-on and signoff shares in most of our markets.

And also if I could just switch over to the Newspaper side for a second, what was the daily and Sunday combined circulation percent changes across your papers in the quarter?

Craig, our daily and Sunday both were down about 5%, uniquely I guess the fact that both of those numbers were similar. And as was mentioned in the remarks, the Sunday single copy is an area of weakness that we are experiencing. I think it is something that the industry is also seeing now.

Okay, and then also just a housekeeping question, how much was your newsprint consumption down in the quarter?

Newsprint consumption was down slightly. I mean 1% or 2%. And again, we're doing a fair amount of commercial printing as well, Craig. So whatever weakness there might be on the advertising volume side, we would be making that up in some of the commercial printing jobs that we are running.

Last if I could, your print advertising was down 7.2%. How much of that was volume versus pricing on average, do you think?

As I mentioned before very little -- slight volume declines in the ad categories; most of it was rate. We made a big push to drive volume where we can in our local markets, especially the accounts that we have more control over in terms of at least a relationship. And so advertising is content in our print products.

So we try to make sure that we're doing a good job giving our advertisers enough impressions and enough impact in the local markets. Again, most of it rate in terms of the decline in revenue.

Lastly, Tim, if I could just ask you, some of your peers have called out in recent quarters that print advertising is being a more huddled around the timing of holidays, around the holiday weekends and stuff as opposed to more spread out over the course of the quarter as opposed to more spread out over the course of the quarter typically. Are you guys seeing that? Or is it more similar to what you guys have had?

That is a fair comment, especially around the pre-prints we see. We experienced huge volume in pre-prints around the Thanksgiving holiday and again around Easter. And then a lot of the larger major accounts, key accounts are really being much stingier in terms of pre-print distribution and making sure that there is exposure when shoppers are interested in coming into the stores. And so it only makes sense that around those holidays you would see those advertisements show up.

But net/net over the course of a quarter, is it net negative for your newspapers?

I think that that is the case, yes. But we are still dealing with headwinds from those large major accounts, major retailers that are looking to trim their marketing spend with newspapers, especially on the pre-print side.

Great, thank you.

Michael Kupinski, Noble Financial.

Thank you and thanks for taking the questions, and congratulations on a great quarter and what's going to shape up to be a really good year. Can you talk a little bit about the benchmarks that you might like to see for the new programs on your TV stations that you are developing? And at what point might you make further changes, whether that be on a ratings basis or financial basis?

Hey Michael. It's Brian. I think the benchmarks are really audience. And so we have laid out various models. Obviously having 100% of the inventory having versus roughly 70% gives us some level of flexibility where our ratings could actually go down, but our profitability would go significantly up still. And our revenue would go up. So I think we will continue to monitor that.

We're going to be launching our game show in seven of our markets on a Monday through Friday basis, and I think now we're clearing in about three or four markets on weekends. Our newsmagazine will be clearing in six markets.

We are prepared to -- through the entire process continue to research it and test it and focus group it and make adjustments as needed. We have some fixed expense associated with it, nowhere near the expenses that were associated with what we were paying for syndicated, and we have some flexible expenses as well. But I think we will continue to watch closely the ratings and the average unit rates we're able to get, and make adjustments as needed.

And then given the political, and obviously there's a lot of displacement on the political front, what generally would you like to see in terms of your core advertising growth rate? Does it typically -- with that type of influx of political that you are going to see in the fourth quarter, usually goes -- your core advertising goes down, I would imagine, and it seems like you're holding a little bit better than that.

Could you just remind us what your core advertising in the past may have done in terms of a strong political year that you are likely to have this year?

I think we work hard to prep our advertisers for what to expect, especially in key markets and key states where we know it is going to be competitive. But we work really hard to kind of move them around so that we are not completely ignoring -- those are our loyal customers and we want them to be there for the long term with us. And so they understand that in the five weeks, say, leading into the election in key markets, local news is in prime time. Those get pretty tight.

But we try to accommodate them there where we can. We move them into other day-parts. We have had some success in moving people into some of our digital platforms.

So, in several of our key markets we may have negative pacing. But as I said earlier, it's really -- most of our political is being driven by five of our 13 markets. And in the other markets, the political is relatively quiet and so we're able to drive our regular advertisers in those. So I think on a consolidated basis, I think low single digits year-to-year is probably what we will be looking at.

And then if you look at next year, and I obviously -- you haven't done budgets. But this is more of a general question. If you look at next year, given that so much of the advertising is by PAC money, which aren't bound by the lowest unit rates and so forth, how much of the pricing that you are obtaining this year do you hope to retain as you go into next year? In other words, do you have any goals or set pricing mechanisms for 2013 at this point?

I think, look, clearly the pressure and the PAC money does allow us to drive unit rate and we maximize that in the even years. We're working awful hard on our ratings performance in our newscasts and now the local programming. I think that hopefully those continued increases in those key day-parts will allow us to drive unit rate increases.

But inevitably we will have to give back some, just because of the unit rates and the pressure. But I think, again, we are used to living in this two-year cycle and adapting in the odd and even years. But I think our focus is on growing our news and some of our homegrown programming. That will allow us to drive unit rate on an odd to odd year basis.

Really you've got to throw out the back half of this year on a comparative basis.

On the TV Azteca stations, the fact that Fox is trying to get into the Spanish-language developing their own network, does this make it the TV Azteca stations more valuable? Are there opportunities may be to switch affiliations? Or what can you give us of your thoughts on what is going on in that area?

Yes, we've been watching that closely and it looks like Fox is going to launch their Spanish station in one or two of the markets that we will compete in Azteca. Look, I think having a vibrant Hispanic market place is a good thing for the local markets. It'll draw additional attention. I think it is an opportunity for us.

We spent the last six months getting our strategic plan together and being ready to launch that, and I don't see it changing much as a result of Fox's launch. They will have a long way to go to build that brand and start from scratch. And we're already a good established national and local brand in those markets.

And in terms of acquisitions, I know there's been some TV stations on the market obviously you passed on. What are your thoughts on acquisitions at this point and maybe making more TV acquisitions?

Are you talking about acquisitions in general?

Well, yes. Specifically that we have seen some multiples like in the 11 times range, and I was just wondering your thoughts on the multiples evaluations, whether or not you look at the stations that were on the market, whether or not you have an appetite for additional stations, that sort of thing.

We look at everything that comes along. And I guess just an editorial comment, we don't pay much attention to what multiples are. We focus on cash on cash return on investments when we spend the shareholders' money.

And so obviously we haven't seen any additional deals on top of McGraw-Hill that would satisfy what we think is the return on investment that we need to really make it work. But we do continue to look at everything.

Our priorities for investment are -- continue our digital buildout, which we think is absolutely essential to having leading digital products in all of our markets. Also investing in markets where we already to business, so we continue to look for opportunities for second stations or partnerships or other places to put money to work, to make more money where we already do business and know the marketplace well. And then we do look at additional markets as they come along, but we are not in the rollup gang.

We are not one of those that believes that the best way for us to create value for our shareholders is to try to roll up dozens and dozens and dozens of more TV stations across the country. We're very focused on the markets they would be in and the individual opportunities that those markets would yield. But we do continue to look, and we will see if anything comes along.

And then obviously beyond that, we tend to be an opportunistic investor and then continue to focus on -- should we restart a dividend and consider more stock buybacks.

The McGraw-Hill acquisition worked out well for you. Congratulations. Thanks.

Thank you.

Edward Atorino, Benchmark.

My question has been asked several times. Did you give the separate performance of the McGraw-Hill stations for the quarter? I might have missed that.

No, we did not.

Would you?

No.

Okay, I'm done.

(multiple speakers) don't talk about same station revenue growth. We talk about growth with and without McGraw-Hill on the revenue side. We talk about expense changes with and without McGraw-Hill. So, somebody with a sharp pencil and a calculator could get pretty close I think.

That's fine. Nice quarter.

Thank you Mr. Arturo. (laughter)

That's close.

That's two quarters in a row, Ed.

Gary Lucas with Gabelli & Co. Inc.

Just a couple of items primarily for Brian, Brian you mentioned that the Olympics are comping nicely versus '08. Could you give us the '08 number and maybe and/or a percentage change? Some of your peers are talking 25%, 30% plus over Beijing.

Beijing we had about $4.7 million in Olympic-related revenue. I'm looking at probably over a 40% increase over that number for this year.

Great. Auto has been a terrific category, but the comps have been relatively easy as a result of last year's tsunami. So any sense that you have post -- I don't know, September, when the Japanese nameplate started to get inventory back, and what is a more normal rate of growth in your mind for the auto category?

You know, I've got to be honest I didn't think it was that easy pickings last year. Even though the foreigns kind of dried up, the domestics took advantage of that and went after market share. So we had pretty significant double-digit growth through the back half of last year in the auto category.

So, for us to continue to show a 30% increase through second quarter and what appears to be pretty good return continuing in the third quarter, I remain very optimistic on the category. At some point -- we're now on post-2009. It seems like every quarter we are reporting 20%-plus percent increases in automotive. We have had some that have been 30% and 40%, so at some point it's got to stabilize. But I expect the growth to continue through the rest of the year, Barry.

Do you have anything you can add on the circulation side in terms of the weakness in single copy and what do you do about it?

A couple things. One, I think the Sunday pieces -- is maybe a fatigue on the coupon craze that it has hit stride. There were some reality shows on some of the cable networks and there was just a heightened interest in that. I think that is starting to wane a bit.

One of the other things we're focused on strategically very -- and we're kind of in the midst of it right now, but it is focusing more on store sales, retail locations as opposed to the old newspaper boxes and doing a better job in-store with marketing, point-of-sale, promotion, that type of thing, is a change for us but something that is underway right now to restart the growth on the Sunday single copy piece. So I think that is really important for us.

The other piece is preparing for the bundling of access to our digital platforms later this fall, getting ready for a bundled subscription model which I think will help us start to see an increase in Sunday net paid on the print side as well.

Okay. Last item for Rich; maybe we can come at the use of cash one other way. Rich, maybe you could just prioritize. If you had your druthers, where would you really prefer to spend the cash?

Well, thanks Barry. (laughter) You have to be opportunistic and it's hard to draw up a list, because you can only invest against opportunities that you have. But absolutely essential to us is continuing a buildout of high quality market-leading digital products.

Now the good news is that is not consuming a lot of cash. Some of that is thanks to the efficiencies that we have created by consolidating into one group and rolling out platforms and products across all of our markets.

So, where that does come into play is making sure that we have the financial flexibility to invest through our P&L, much like this Company has done for many years, to build new revenue streams and products on the digital side. So that this absolutely top priority and essential, but again, it is not consuming a whole lot of cash.

The second after that would be investing in the markets where we already do business. We have a terrific -- we think we have one of the industry's best portfolios of markets, and we see as a significant opportunity taking more money and more audience out of the places where we already do business. And that would be investing in second stations and the duopolies and other kinds of partnerships or businesses where we already have an advantage, where we know the market place well where, we have smart people already on the ground. So that is really second priority.

The third is looking at additional markets, opportunities like McGraw-Hill. But they are few and far between. And as I said and I think as you know, we are very disciplined buyers and focused on getting strong cash on cash returns when we lay out valuable cash for a deal.

So if we can see opportunities for additional markets, I think we'd take advantage of them. But we are very cautious, disciplined investors. So then, share buybacks -- we continue to believe in. It is a good deal.

We don't buy back shares to demonstrate some support of our stock. We buy back shares if we think they are an excellent investment. So far we have -- that is the reason we have invested the last $75 million in cash and we will consider whether to do another chunk after that.

And then we always discuss with the Board is our cash position such that we should consider some sort of return of capital through some sort of dividends, either a regular or a special dividend. Obviously so far we haven't pulled the trigger. But we will talk about it again in November and then obviously toward and after the beginning of the year, when we think our cash position is going to be very strong.

So, good strong cash flow streams that continue to build value is a top priority either through digital or additional assets. And then after that, we will look at returning capital. Does that answer your question?

Yes, Rich. Thanks very much.

Howard Rosencrans, Value Advisory.

Can you give us a little more color in terms of digital? You gave us some color, but when will we begin to -- you talked about Storm Shield. I'm sure you mentioned you have a political app coming. I'm sure you mentioned it; I apologize I missed it.

And just your -- can you give us some more discussion of digital? When will we begin to -- the political, I guess we will probably see the windfall of that associated like right now or later, or when will we really see the impact of digital and when does it really start to grow?

I'm not -- or I guess more so your app side than your -- or however much you are inclined to give us perspective on what the sort of mobile ad picture would look like. But I think that sort of mobile ad picture is what everybody talks about, so I am more interested in your app side, I guess, in terms of where digital can go.

Sure, Howard, it's Rich and I will let Brian talk about political in just a second, although political on the digital side is a nice little business at this point. But it is tiny compared to what we see on air, although obviously digital political revenues probably will grow over the years.

This is -- in 2012 was the year that we sat back and have reorganized all of our digital resources into one group. As I said, we are now building out a revenue structure and building up a lot of additional resources to take advantage of digital revenues in our local markets. So as you get into 2013, I think you will start to see the beneficial effects of the investments we have made on the revenue side and we will just continue to build through 2013.

I'm not sure in 2013 how much you will see us pull money to the bottom line, but you will definitely be able to start measuring our process much more easily on the revenue side. So, this year is reorganize and build. Next year you should be able to start tracking revenues and hopefully seeing value at the same time.

What I'm trying to understand is you have the app, which -- wait, am I mistaken? You have some sort of political app that I -- did I -- as well?

No, I'm sorry, Howard. We do not have a specific political app that takes advantage of spending by the candidates. We do have a social games company, 519 Games, and we're (multiple speakers)

Right. That is what I was referring, yes.

Yes, and that game that is specifically focused on news and politics is out in some markets now and should be out in broad release well before the election. But again, that is a pretty small venture at this point and you're not going to see the material effect at least in 2012 on our financials.

Our hope is we are building a social games business there. We are a 50% owner with Capitol Broadcasting down in the Carolinas, and so by the time we get around to the next political cycle hopefully we have built enough of a company that it could have a material effect.

Okay. Can you just tell us then what you are doing on the digital front that -- either the magnitude of the focus you are doing or just specific things? How does your digital focus or plan really differ -- in terms of getting the news out there, differ from -- again on the Newspaper side, differ from what your competitors are doing in publishing? Or do you just feel like you're going to be able to execute better?

Let me give you sort of a broad picture. At least in our minds, the arm race has commenced in local markets and we're not the only ones obviously rolling out digital products.

I would say we are probably one of the most aggressive in building, in particular, products for mobile -- for tablets and smartphones, and believing that local news products on digital platforms will be a primary platform for news delivery in the future, and one that we have to weed starting now.

Great, thank you very much.

Michael Kass, Blue Mountain Capital.

Thanks for taking my question and congratulations on the results. Was hoping you guys might be able to provide a little bit of the puts and takes on programming expenses in TV as you rolled from last year to this year to next year. I'm just trying to reconcile the decline in programming expenses from Oprah last year, when that cycles through versus the decline you are talking about for the decrease in syndicated content, and then the ad expenses you are booking for this quarter, or this quarter going into fourth quarter.

Hey, Michael. It's Brian. I think consistently through the year we have talked about the fact that we expected our syndicated programming expenses to be down more than 20% in calendar year 2012, and that continues to be accurate. We expect to be down more than 20% as we work our way through the year.

As we get into next year, we will have the expense of Wheel and Jeopardy through the first three quarters that we will be able to realize a benefit from being able to produce programming at a reduced level. We have been able to capture a lot of our gain from Oprah through the first three quarters of this year, and now as that laps itself, we will begin the Wheel and Jeopardy process.

You know, it won't be as significant next year. There are other investments we have made. One of the things you may have noticed is that ABC announced a year ago that they were going to be turning back an hour of daytime to their affiliates, and with that time period we have invested in most of our markets Katie Couric. And so that is a couple of million dollar investment into a time period that we typically -- prior we did not have control of. But we think there is a great ROI on that kind of investment and big upside.

We have also made some investments in new partnerships with NFL deals in Phoenix and Detroit. We have created long-term deals which add to our programming costs. So there are other things that will fill in some of the programming as well as our investment in just the production of our shows.

With all of that rolled up, we still expect our programming costs to be down, even with all those additional investments. But every one of those investments has a positive ROI with a good strong revenue stream associated with it. And so every one of those decisions we have made as it relates to programming is a margin driver that I think will drop to the bottom line and will continue to get a good return for the Company.

So if you try to bridge the guidance you're giving for overall TV expenses being up low single digits in the back half versus the negative 4% or so that would be implied by a 20% drop in programming expenses, is all of that -- I mean, is roughly half of that the new programming expenses that you are talking about and roughly half advertising for those programs? Or are there other factors kind of complicating the mix in terms of non-programming expenses?

Yes, I think there's some nonprogramming expenses, employee costs and things like that, that are just factored into us running the division. But I mentioned in the back half of the year, the addition of Katie Couric is several million dollars, the NFL rights.

One of the other things that we felt really important, Michael, as I said earlier we are really excited about these new shows. We believe we have some very strong shows that will really get noticed in the market.

But of course, they're unknown brands at this point, and come September they will be launching against some established shows. Wheel and Jeopardy will be on other stations in the markets and other things. So we built a pretty robust promotional and marketing platform to launch these shows and really get their brands established.

In fact, we kind of doubled down. And in the last month, based on our strong earnings and our forecast for the back half of the year, we actually invested more money beyond what we had originally budgeted, just because we, A, are committed to really launching and establishing these shows well. And B, we believe the additional money will create an immediate return on those shows.

Great. And then just real briefly on capital allocation. Are you guys comfortable now with the net leverage or the gross leverage that you are kind of guiding to for the end of the year? I just wanted a sense of -- if the post-acquisition, you anticipate paying debt being the high priority versus shareholder returns. Or if you have kind of gotten -- or are comfortable with the gross leverage where it is now, provided that you maintain a healthy cash balance?

Well, certainly where interest rates are today at record lows, combined with the modest level of gross debt that we've got and the cash balances that we have, we are comfortable with where we are. We have had a lot of discussion about where we are going to be prioritizing our investments and our cash going forward.

I guess the context of all of this is, we've got about -- by the end of the year we anticipate having about $200 million of cash and $200 million of debt, so it's hard for me to call that lots of excess cash. We've got ample capacity to make investments and grow into our businesses, and we will be prioritizing these investment choices that Rich walked through here.

And debt repayment is certainly an option, but honestly where interest rates are as low as they are, I think we would get higher shareholder returns by making some prudent investments.

Are you guys just liquidity constrained in the shares you can buy back? You guys have talked about that in the past a bit. I'm just wondering how you factor that in with the Board in terms of deciding how to allocate capital.

This is Rich. I will go back (technical difficulty) a couple of years in the past. It has not tended to be our focus. I guess, at least speak for myself, tend to be sort of a fundamentalist. And if we think the shares are undervalued or a good deal, we tend to go ahead and buy them and we have not focused so much on the float. But I'm sure each time we re-up, we will obviously look at it and see how we think the stock trades.

Thanks a lot.

And there are no further questions at this time. Please continue.

Okay, thank you very much for your help this morning, and thanks to all the investors who called in for spending time with us. That concludes the call. Thank you for your attention.

Thank you. Ladies and gentlemen this conference will be available for replay after 11 AM today through August 14 at midnight. You may access the AT&T Executive TeleConference replay system at any time by pressing 1-800-475-6701 and entering the access code 252990. International participants dial 320-365-3844. (Repeats numbers).

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.