E W Scripps Co (SSP) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the E.W. Scripps third-quarter earnings call. For the conference, all 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.

I'll turn the conference now to Mr. Tim King, Vice President of Investor Relations. Please go ahead.

Thank you very much, John, and good morning, everybody. Thanks for joining us for this recap of the E.W. Scripps Company's third-quarter results.

As is usually the case, we're going to start this morning with Tim Wesolowski, our CFO and Treasurer, who will provide additional details about the quarter before we hear from Rich Boehne, our President and CEO. We will then open up the phone lines for your questions, at which point we will be joined by 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 Form 10-K and other regulatory filings. You can visit the newly redesigned Scripps.com for more information, such as today's release and financial tables. You can also sign up to receive e-mails any time we disclose financial information, and you can listen to an audio replay of this call. A link to that replay will be up there early this afternoon, and we'll leave it there for about a week.

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

Good morning. If you live in a battleground state, as we do here in Cincinnati, you have noticed a big change in the last few days. For much of this year, it seemed that political commercials were only occasionally interrupted by our regular programming. While our friends and neighbors here in Ohio are thrilled to have their news and entertainment back, we loved the wall-to-wall commercials, and you can see why in today's results.

Total Company revenue in the third quarter rose more than 30% to $220 million, benefiting from the addition of the television stations we acquired last year and the gusher of political ads. Even backing out the new stations, our revenues were up 15% for a strong apples-to-apples comparison.

Reported expenses rose 14% to $185 million, but on a same-station basis they were up just 1%. Given some of the added costs I will talk about in a few minutes, that reflects solid expense discipline.

On the operating line we reported income of $18.3 million in the quarter. That is a substantial improvement from the third quarter of 2011, when we reported an operating loss of $8.9 million, before a newspaper impairment charge of $9 million.

Below the operating line, interest expense was about $3 million, as it has been every quarter this year. And our tax line requires some explanation this quarter.

I have told investors that our tax rate tends to be lumpy on a quarter-to-quarter basis. Proving that point, the rate of our tax provision in the third quarter was only 15% because we had a favorable adjustment to our tax reserves of nearly $4 million. We still expect to report an effective tax rate of about 39% for the year.

Our net income was $12 million or $0.21 per share, a sizable swing from the net loss of $0.19 per share in the year-ago quarter, or $0.09 excluding the charge.

Let's now turn to the operations, starting with the television division. I wanted to start with the integration of the former McGraw-Hill stations.

Tim King and I are asked about the acquisition in virtually every investor conversation we have. We have said all year we are pleased with the progress of the integration. The new stations have assimilated very smoothly into our culture and systems.

I have been part of many acquisitions over the years, but I have never seen anything like this before. Layer into that the fact that there were competitive elections in Colorado and Indiana, and an influx of ballot issues in California, and you get a sense of why we we're so enthusiastic about the new stations. I want to make sure you know that we remain happy with the acquisition and the integration is essentially over.

Looking now at the entire portfolio of stations, the top line in the third quarter featured some eye-popping comparisons, thanks to the absence of political last year and the addition of the stations. The reported revenue increase was nearly 80%, with the figure moving up from $70 million to $125 million. Excluding the new stations, revenue increased 41% to $99 million.

National spot advertising was up 6% on a same-station basis. And local spot advertising, which is about twice the size of national, was essentially flat. But those figures are skewed by the fact that the saturation of political business crowded out many of the spots you typically see from our core advertisers such as car dealers and restaurants.

You're used to this story. You hear us say it every two years at this time, but the effect is much more pronounced this year because of the sheer volume of political business that we booked.

Our political number in the third quarter across all 13 of our markets was $34 million. It was $28 million from the legacy stations. That is nearly twice our figure from the tidal wave election of 2010.

Here is another example to illustrate why this year was so remarkable. In 2010, we booked $48 million of political advertising at our legacy stations for the entire year. In this year's fourth quarter we booked $43 million in the month of October alone.

Granted we are talking about four additional markets. But last month, October of 2012, we almost matched the previous record for an entire election season.

Now that the election is over we can talk about our full-year political revenue, which was about $106 million. About $84 million was from our legacy stations which is an apples-to-apples comparison to our previous high-water mark of $48 million in 2010.

As stated earlier, we certainly benefited from having two stations in Ohio, two in Florida, and a station in Colorado's capital. As spending hit record levels around the country, those stations benefited from the competitive race, with candidate dollars pouring in during the closing weeks of the race. We had several million-dollar days in the final weeks.

You may be surprised that the biggest upside came from non-candidate political advertising, which represented a whopping 54% or more than $50 million of our total political dollars. Spending by committees, third parties, and ballot issues accounted for about $35 million in Ohio, Florida, and Michigan alone.

We were also pleased with the impact of the Olympics in the third quarter. Our three NBC affiliates delivered a nice chunk of incremental revenue for us in July as our viewers tuned in to watch the London Olympics. We booked $6.7 million in revenue related to the Games, 70% greater than during the last Summer Games in Beijing.

Our reported retransmission consent revenue rose more than 85% to $7.4 million. On a same-station basis our retrans revenue jumped 26%, and double-digit gains will continue into 2013. TV's digital revenues grew to $4 million or about 50% on a same-station basis.

The new stations help our reported revenue; but they also, of course, affect our expenses, which were up 35% in the quarter. Excluding the new stations, expenses were up less than 2%.

This was pushed upward by critical spending on marketing and promotion for the two new programs we launched for the access hour. Let's Ask America and The List have had a nice start out of the gate and are performing as well as or better than we would have thought at this early stage.

It is not easy to follow programming that has developed a fan base for 30 years, Wheel of Fortune and Jeopardy. But Let's Ask America and The List are doing nicely and building audiences that advertisers like.

On the bottom line, segment profit from the newspaper division surged to $42 million, up from $8 million in the year-ago period. At the newspaper division our total revenue in the third quarter was $92.4 million, down 3.7% from the third quarter of 2011.

Circulation revenue was down 2.8% from the year-ago period, which was generally consistent with the year-over-year performance in the second quarter. The circ revenue total was about $28 million in the third quarter.

Print advertising revenue declined about 5% compared with the 2011 quarter. Preprint revenue was basically flat to last year, while declines in local advertising were about 6%. Declines in the smaller category of national advertising were about 40%.

Classified advertising slipped at a rate of 3%, the smallest year-over-year decline in more than five years. Within classified, employment was down 7.6% and automotive was down 8.5%. The real estate category was actually up 1.3%, led by an improvement of the real estate market in Naples, Florida.

This is the second time this year we have singled out Naples for strengthening conditions. Time will tell if the improvement in the real estate market has legs, but we are glad to see so many encouraging signs from this important market.

Digital revenue from our newspaper operations was $6.5 million or about 1% better than last year. Digital revenues that are not tethered to any print products grew 5%.

For the fourth year in a row, the newspaper management team has shown great discipline over expenses. Total segment expenses declined more than 5% in the third quarter. Newsprint prices stayed essentially flat, but our cost for newsprint and press supplies decreased 3% due to lower volume.

Segment profit from our newspaper group was $4.2 million compared with $3 million in the year-ago quarter. So segment profit was up despite revenues being down.

Revenues in the syndication and other segment were $1.9 million and the segment loss was $1.8 million. It is not the syndication business itself that led to the loss. The explanation lies in the newly consolidated digital operations.

Rich has talked about the importance of delivering the best and most-trusted local news products in digital formats in all of our markets. That is happening now, and you will hear plenty more about it in the months and years ahead. This isn't a fad; it is our core business strategy.

The expenses associated with local products are recognized in the appropriate divisions, but we also incur costs associated with products and services that are national in scope. Those costs will be reported in the syndicated and other segment going forward. So it's a safe assumption that you will see segment losses on this line in the fourth quarter and throughout 2013. We will try to do a better job of scaling that for you in our February call, but you should assume that our increased emphasis on digital innovation in 2013 will mean an increased level of digital investment next year as well.

Now let's turn to the nonoperating items. We dramatically improved our cash position during the quarter, increasing our cash and cash equivalents by about $40 million to nearly $210 million as of September 30. We had total debt of about $200 million at the end of the quarter, of which $16 million is current.

The press release confirmed what we hinted at three months ago, which is that we exhausted the 2010 share repurchase authorization. During July and August, we bought back about 700,000 shares at a weighted average price of $10.13. Over the course of that authorization, we repurchased 8.7 million shares at an average price of $8.60 or about 15% below our current share price.

But I suspect the real buyback news today is not the end of the old authorization but the beginning of a new one. As you saw in the release, the Board has authorized a new repurchase program for the next two years that allows us to buy back as much as $100 million of our equity.

We intend to use our cash currently on hand for about half the buyback, with the other half coming from cash proceeds from the potential exercise of employee stock options. All told, more than 8 million options are either near their strike price or in the money at today's share price, so it is reasonable to expect that many of them will be exercised in the coming years.

We intend to offset that dilution with this buyback program. Think of this second piece as sort of a pay-as-you-go program, as we intend to use cash from option exercises in the future to fund stock buybacks over the next two years. The repurchase program is in effect now, and we'll keep you posted of developments on a quarterly basis.

I'll now wrap up my section this morning by reviewing our guidance for the fourth quarter. We have taken some of the guess-work out of this by giving you the actual political number of $57 million for the quarter. That's part of the total TV revenue pie that will be about 80% larger than it was in the fourth quarter of 2011.

On a same-station basis we expect revenues to be up more than 35%. TV expenses in the quarter should be up between 40% and 45%, or up in the mid single digits on a same-station basis.

Over at the newspapers we expect both revenues and expenses to be down in the mid single digits, with the decline in expenses being a bit more then the decline in revenues. Expenses for shared services and corporate will be about $9 million.

Now, let me turn it over to Rich.

Thanks, Tim. Good morning, everyone. Well, the polls in California have only been closed for, well, less than 60 hours, but serious electioneering in the Senate will begin in just a few short months. And in no time at all, aspiring presidential candidates will be back in the cornfields of Iowa and back in the VFW halls across New Hampshire. So while the American voters take a breather, we will begin planning for the next cycle, because election years are prime time for us here at Scripps.

Unlike the candidates, who face a zero-sum game -- meaning they either win or they lose -- we use elections to win at every level of our Company, accumulating wins across everything we do. And we do that regardless of which party, candidate, or interest group claims the victory.

Through careful election-year planning, we set out to enlarge our audiences on all platforms, demonstrate our value to voters and to advertisers, and expand our revenue base in ways that are sustainable through the two- and four-year political cycles. In 2012, the planning and investments really paid off.

Ratings local TV news -- that is our bread and butter -- were substantially improved over last year. For example, in the July sweeps, eight of our stations expanded their news shares in the important early-morning newscasts amongst the coveted demo of adults 25 to 54. Eight of our stations also increased their share with that demo in the early evening news.

In our four newest markets -- Indianapolis, Denver, San Diego, and Bakersfield -- the election of 2012 was an opportunity to demonstrate both our commitment to high-quality news coverage and also our dexterity in handling the flow of political advertising. You probably read earlier this week about how we devoted countless hours during this election season to providing free airtime for candidates, delivering unparalleled campaign coverage and hosting issue-oriented debates. That was good for our business too, because it is good for our audiences.

Online, we stepped up with detailed political coverage that went well beyond what we did on air in the TV markets and in print at the newspapers. Digital audiences increased on a same-station basis by 26% year-over-year in the third quarter.

All of that contributed to strong growth where the listeners on this call are most focused -- in revenue and in cash flow. The Company's total revenue on an apples-to-apples basis grew by 15%. And more than 90% of that increase flowed to the segment profit line.

In the TV division, where political advertising set new records, total revenue on a consistent basis grew by 41%, and we converted nearly every additional dollar to segment profit. Now, that is a victory, and all the credit goes to our folks who created the election-year plan, determined to demonstrate our commitment to public service and the power of our media businesses.

Our role in elections is even more acute when you consider how our footprint matches up with the critical swing states that have determined the outcome of every presidential election for years. Nearly all of the dollars spent with Scripps on the presidential election were concentrated in just five of our 13 markets.

Bottom line is this. For Scripps, elections aren't windfalls, they are stepping stones.

The third quarter wasn't all about elections. We also saw the successful launch of two new shows in our markets, Let's Ask America, co-owned by Scripps and Warner Bros., and The List, a wholly-owned magazine program. Both air as replacements in access time periods for Wheel of Fortune and Jeopardy, which we rented for many years before deciding we could improve our profitability by creating and owning our own shows.

Six weeks into the season both shows are performing as expected or better. We still have a ways to go before declaring victory as an access programmer; but so far so good.

Over the past few months we rolled out a series of new mobile apps in TV and newspaper markets. In newspaper markets they are the precursor to bundled digital and print subscriptions that will roll out next year.

Also in the third quarter, we mourned the loss of Robert P. Scripps, whom as you know, died last month at the age of 94. Bob Scripps was the grandson of our Company's founder, a longtime member of our Board of Directors, a dedicated community servant, and a humble leader who was admired by all who knew him; and that very much includes me.

Even though his service as a Director ended more than a decade ago, his passing made news because it signals the termination of the Edward W. Scripps Trust, which has controlled this Company since the 1920s. Bob's passing, thanks to his legacy, was big news in the media industry; but his death will have minimal effect on our business.

Probably the most important thing for public shareholders to know is that the termination of the Trust does not alter our long-term strategies, nor does it affect in any way the current day-to-day operations here at Scripps. So, the recent news of the Trust's termination is really sort of a nothing-to-see-here kind of development for us here at the Company. We remain committed to being one of America's most effective media companies from both a journalism and business perspective. That commitment will not change a bit.

With the quarter behind us and the end of the year in sight, let's look ahead and I will tell you a little bit about where our attention is most focused. First, we are rapidly building a platform for digital businesses. After consolidating our existing digital operations here in Cincinnati, we began to step up our capabilities, first by beefing up our senior digital team through some excellent hires.

We then laid out a plan for building a sales strategy and team that matches the revenue opportunity in our markets. As a result, we will substantially expand our digital salesforce in 2013, increasing the revenue garnered by our newest version of digital products and services.

Those upgrades in digital resources coincide with and support our plans for bundled subscriptions in newspaper markets, which we believe is a critical move for those brands. Bundling print and digital, greatly diminishing the valuable content we give away for free, and pricing digital services competitive to print are all essential steps to a more balanced revenue pie and an improved bottom line for newspapers.

In the TV division our investments in quality journalism are yielding improved news ratings and revenue. That focus on local news will continue, including in our four newest markets acquired less than 12 months ago.

And positioning ourselves for success in 2013 and beyond is made easier by a balance sheet that is strong and getting stronger. Our financial flexibility is a strategic asset that allows us to invest in opportunities to capture emerging audiences and revenue streams across all the media platforms.

I think we will stop here. And operator, we are ready to take questions.

(Operator Instructions) Craig Huber, Huber Research Partners.

Yes, good morning. Maybe I will start with newspapers if I could. Your circulation volume for daily and Sunday for the newspapers, what was that percent change year-over-year, please?

Yes, Craig, it's Tim Stautberg. We were down in the quarter about 6% daily and Sunday both.

Okay. Then can you just talk, Tim, if you would, about the further opportunities here over the next year plus that take out a lot more cost in your newspaper division? I know you are focused on this a lot. But what areas can you take out of?

And do you think you could actually accelerate the cost savings percentage drop off next year? Assuming the economy stays about where it is right now.

Craig, I think it is getting harder and harder to take costs out of the newspaper group. We have been on a journey the last three, four years of doing that, and all the while trying to protect at the local level the most important activities, which are covering news, generating content, and also the relationships that we have with local advertisers.

So, it is getting harder and harder. We are down to people largely; and that is difficult, because at the end of the day we do need to have activities in local markets to continue to drive value.

There are other things over time that you can look at doing. But I think it's going to be more and more difficult in the coming years to take expense out, unless you start to make moves like Advance has done, where you're looking at reducing frequency in local markets. And that is probably the next opportunity to reduce costs, but that is usually a least-preferred option and one that you'd try to [fore] save for a while.

But do you think, then, having said that, that your cost at the newspapers will be down next year, netting out everything?

Still putting it together, but I would hope that we would be able to continue to reduce costs, yes.

Let me jump over to TV if I could. What was the -- for a couple of your key categories, I was curious what the year-over-year percent change was in the quarter, particularly for auto. How did that perform on the TV side, adjusting for the acquisition?

Hey, Craig, it's Brian. On a same-station basis our automotive was plus 11% in the quarter. Really if you break out the segments within that, the only segment that was down was the domestic dealer groups. All of the other segments are -- foreign, factory, dealers, or foreign dealer groups, factory domestic, factory foreign, and even individual dealers -- were all up pretty strong double digits. So I think overall the core category looks very strong.

Of our other top categories, travel and leisure was up double digits as well. And then services and retail were down, but low singles. And that really has to do -- like services, for example, is very locally focused. So as pressure is start to put on the inventory and our prices go up, many of our local lawyers, medical organizations, things like that, those price increases are sometimes hard for them to handle.

They are less price sensitive. They don't have one-day sales, so they are easy to just move out of the cycle by a couple of weeks. And I think that is what we saw there.

How is auto doing post the election at your TV stations, adjusting for the acquisition? And then more importantly, how is your overall TV pacings doing, adjusting for the acquisition, post the elections? Is it tracking up?

It is still really early. And I know that may sound odd on November 9, but we've had a lot of people just sit on the sidelines and wait until the elections are over.

December will be the first pure month without a political influence. We will be up year-to-year in our spot business in December. But, quite frankly, we have just -- even this week since the elections have started, our phones are ringing again. We're seeing people coming in at point levels beyond what we had seen in the past.

So there is still a lot of money to write within the quarter. So it is kind of hard to gauge everything. But as I said, December will be our first pure month and we expect our spots to be up year-to-year.

Great, thank you.

Alexia Quadrani, JPMorgan.

Hi, good morning. This is Nadia Lovell in for Alexia. In Q2 on the newspaper cite -- in Q3 on the newspaper side, you saw a bit of deceleration in the drop at newspaper advertising and circulation revenues versus Q2. You also mentioned that classified saw the smallest year-over-year drop in five years.

What are you seeing into Q4? Do you see any light at the end of the tunnel on newspaper advertising flattening out eventually?

Well, I think we have been looking for that light at the end of the tunnel for quite a while. So look, I think that it is so mixed out there in terms of the advertising revenue environment for newspapers -- it is mixed by markets, it is mixed month to month.

Things are getting better, slightly. But it is really difficult to project with certainty when that crosses and becomes growth again on the advertising revenue front.

We are certainly encouraged by some of the markets turning around. It was mentioned earlier the Naples market is really looking like it is on the road to recovery. The Treasure Coast across the state on the Atlantic side is also showing some signs of stabilization.

So we are encouraged, but it is still not a consistent trajectory. That said, we do believe that the opportunity to bundle our digital products in local markets that are programmed locally along with print subscriptions does give us the chance to drive revenue growth in the consumer-facing side of our business. And that is a big opportunity for us in 2013 and beyond.

Okay, thanks. At the time of the Q -- turning to TV, at the time of the Q2 call, you said local was pacing up low to mid single digits, with all the months positive though September booking was a bit light. Is it fair to assume that September was really pulled down by political displacement?

Absolutely, Nadia.

How much was local down in September?

Hold on, just one second.

We don't disclose individual months typically. We can give you a sense of September.

Mid singles.

Okay, thanks. Thank you on that. And then lastly, I know that you mentioned that the Scripps Trust ending doesn't really have too much impact on your business. But just for clarification, are there any changes in terms of the strategic direction of the business? Are there businesses and properties that you will have to get out of -- that you're able to get out of now, or you have to stay in?

Well, once the Trust has ended and once the assets are distributed there would be no restrictions at all around what we can and cannot. There were very minimal restrictions even with the Trust in place.

But in just my 27 years here with the Company we have been in and out of many different media businesses, including many different local businesses. And for the Company to succeed over the next 27 to another 100-plus years, I would expect us to be in and out of a lot of different asset classes and different kind of businesses.

So not much has changed other than just some -- will change other than just some very narrow restrictions about a few specific newspaper assets. But it is just not a -- it is not overall a dramatic change for the Company.

Then just lastly, when you talked about the replacements, two shows that replace Wheel and Jeopardy, have been doing well, is this a strategy that we might see you deploy across other dayparts, where you have homegrown shows replacing the traditional syndicated shows?

Nadia, this is Brian. The List and Let's Ask America are actually the second and third programs that we have launched as part of homegrown focus. We have a program called Right This Minute which we are partners with Cox and Raycom. That was launched I guess close to two years ago now.

That is a daytime show, half-hour or hour. It is cleared in all 13 of our markets as well as on Cox and Raycom stations around the country. I think it's in 40-something markets around the country.

So we continue to look for the best syndicated product that is available. But within the DNA of this Company, this is the company that started HGTV, I think we still understand what it takes to create programming that will inform and entertain people. And if we feel like there are some genres or concepts out there that we can develop, that are unique, that can engage an audience that is not being served by the syndicated market, we would look to develop that as well.

Thank you. That's all I have.

Michael Kupinski, Noble Financial.

Thanks for taking the questions and congratulations on a spectacular quarter, guys. With the integration of the McGraw-Hill stations now complete, obviously you guys can focus on the issues at hand, trying to get those ratings up, I think. Has there been any progress so far on that front?

And, if you could just talk about the opportunity and maybe the timeline when you think that you could start seeing some traction in ratings there.

Mike, it's Brian. You are speaking to those four markets specifically?

Yes.

We have been busy working through processes, workflows, infrastructure over the first nine months to build them to be able to run a news organization with the kind of focus and the kind of structure that we think can gain traction in the markets. We have had a very good year in Denver. I think our television station in Denver has really stepped up.

It's obviously been a big news year in Denver, from significant fires to the shootings in Aurora, to -- heck, Peyton Manning joining the Broncos. And we have been able to really benefit from that. I think our brand is more established today by far, and we are seeing daily traction in our newscasts from when we took ownership of that.

I think San Diego remains a good opportunity. I think the foundational work is done there.

We have done a lot of work in Bakersfield, obviously our smallest market. But we felt like investment there could gain us a positive result. That is a diary market so we haven't seen any demos yet, but we launched that television station in HD. We've got a new set, new graphics, we have really reprioritized and refocused that television station. And I am really excited about the quality of the product that we have on the air there in the competitive landscape.

Then Indianapolis remains a market with a ton of opportunity for us. So we have been busy, again, rebuilding the infrastructure, realigning. They have got a great investigative unit there, a very strong focus. And I am happy to say that we are beginning to get some traction there as well.

So we knew it wasn't going to happen overnight. We knew that establishing brands was going to take time.

But we have been able to take advantage of some big news in the markets. We have got a unique new look in several of our markets with new graphics and others that I think are beginning to distinguish us.

And now as people are channel surfing they are looking at and seeing a very different product than they have seen in the past. And the good news is, we are not seeing declines anywhere. We are seeing moderate to strong traction I would say at all of those properties.

The Spanish stations that you viewed as kind of like an option value, any thoughts about the strategy at this point? Anything of strategic importance there that you feel that you want to continue to explore?

We've spent a fair amount of time especially in the last three or four months, Mike, really looking at that opportunity. We do think there is opportunity there.

For competitive reasons I'd prefer not to share with you what our plan is moving forward. But let me say that it remains an opportunity for us.

They weren't cash flowing a lot of money so it is not a material change on any of our forecasts here. It is all upside. But I think as we continue to refocus and prioritize -- not only on the broadcast side, but we see a significant opportunity on the digital side, you will be hearing more of our story as we move forward.

With retransmission coming in so strongly you anticipated that margins would improve for the Company. Can you talk about the scope of the level of investments that you're planning to make on the digital side and if you are still planning margin improvement over the 2011 levels?

It's Rich. Talk about -- break that into two pieces for me, or I didn't understand the (multiple speakers)

I was just looking in terms of the total Company margins. You were anticipating that margins should improve certainly for the broadcast side. But I was just wondering, with the level of investments that you are making in digital, on a total Company basis are we still anticipating that there will be margin improvement in 2013 over 2011 levels?

Oh, okay. Yes, well, two things. One, we are definitely planning to continue with our digital investments. You're starting to see some of that in the P&L today in 2013.

We are just working on our 2013 budget now, so it's a little early for us to take a swing or a guess at what total Company margins will be like. Also remember that you have the every-other-year factor going. Right? So next year is a nonpolitical year.

Yes, margins will be down. But I was just wonder if it would be up over 2011 levels.

Again, probably we are just a couple months too early to give you a good guess because we are just now starting on the budget.

Okay. You alluded to plans for investments in bundling digital, print, on the newspaper side. Do you have an initiative of the rollout strategy and things like that for the newspaper side?

Yes, Tim can speak to that.

Yes, Mike, that is in process right now, and there are a number of parallel paths of activity. Technological -- well, from a technology standpoint, the platforms, and the products themselves. You also have to make sure that from a customer experience standpoint it is a very frictionless experience, one username and password. A lot of those types of details we are working through to make it just a wonderful consumer experience across all these platforms.

And being in position to then have our newsrooms across the 13 markets programming to those different platforms, tailored to each in the way that consumers are using them and expecting to have an experience, all that needs to come together. So we will start rolling out in the first part of 2013 across all of our markets; and certainly by the third and fourth quarter, we will be out with our products bundled in every one of our newspaper markets.

Okay, great. And congratulations again on a great quarter. Thanks.

Edward Atorino, Benchmark.

Hi, good morning. Not a bad acquisition, I guess, huh?

Good morning, Ed. Thank you.

Got a couple of questions. So just picking up where my good friend just left off, if you look at 2011, if my records are remotely accurate, I think pro forma including McGraw was $400 million, give or take a little. Could you be up over that in 2013 given the falloff in political? Number one.

Number two, the newspaper expenses have been running sort of $85 million, $90 million a quarter. (inaudible) mid to high $80 millions per quarter going forward. And with the new programming, which I believe is lower cost, can you keep expenses in that same ballpark?

Then could you take a second and discuss the tax rate? Given the tax, how are you going to end up with a 39% tax rate? It would seem you would have to have some huge fourth-quarter tax liability.

Hey, let's start with the tax rate. Is that -- can we do that, Tim?

Sure.

And then we will come back around. Some of the other comps you were taking at a look at -- again, we have not anywhere near completed our 2013 budget, so it is going to be a little hard to give you straight-up answers on those.

That's fine.

So, the fourth-quarter rate -- the full-year rate that we talked about will be in the -- close to that 39% or so. As we talked about before, Ed, these tax rates get pretty lumpy as either reserves are released, as you get new information with what is going on throughout the year, with positions that you have taken in the past. So the tax rate for the fourth quarter is one that gets squished out, if you will, but because it is the full tax rate for the year minus what you have already expensed for the three quarters before.

We are always shooting for what we think the full-year rate is going to be, and then make adjustments each quarter as we learn new things.

Okay. Figure it out.

The number that we talked about for the full year is right, and then that makes a fourth-quarter number of just over 40%.

Okay. On the cost side on broadcasting, can you comment on that at all?

Sure. Hey, Ed. I appreciate your comments on the acquisition. I just want to say again we feel really good about the work that is being done there, and they are very much on plan with what we had modeled.

As you saw, we broke out in our release the political that was same-station and what we got out of our new television stations. And for those of you who followed them closely and continue to follow us, their political in third quarter may have been less than what you would have modeled compared to 2008.

But I just want to remind you that in Denver in 2008 they hosted the Democratic National Convention in Denver. It was a very heavy presidential state and had a massive Senate race that we knew was not going to be back this year. So they actually were -- overpaced what we expected out of their political activity. So we remain very pleased with the performance of them within the quarter.

In terms of just expenses moving forward, we have been talking for some time about programming. We had shared with you really at the start of the year that our 2012 programming costs would be down more than 20%, and we have absolutely delivered on that.

I will tell you that in this quarter, our programming expense was down 24% on a same-station basis, and our syndicated programming was down over 30%. So some of the savings in syndicated go to obviously our shared arrangements with our networks; we pay both NBC and ABC as a part of that. In addition to that, some of the money has gone into funding the new shows that we are developing.

But as I look out to 2013, I would continue to model programming expense savings from Scripps as a result of our structure. And that will obviously help offset expenses in other places and keep our expenses down.

Do you have partners? Are these all your shows, or are there partners?

So we have three shows on the air. The two access shows which have really been the story that we have talked about, The List is a magazine-type format. We own that 100% and produce that completely within the Company.

On our game show, Let's Ask America, we are actually 50-50 partners with Warner Bros., and that is produced out of Burbank and within their studios at Telepictures out there. So 50% partners with Warner Bros. on Let's Ask America and 100% ownership on The List.

Are there any shows you are looking at to kick off and put some more -- you can't talk about that, I guess. Hollywood would get upset.

Yes, I think at this point we have got a lot of work to do to continue to make these show successful. We are thrilled, quite frankly. Seven weeks in we're really happy with where they are at.

Obviously, we're going up against established brands in access. It is the same 20 or 25 shows in every market in America. So some of them, Wheel and Jeopardy and Entertainment Tonight and shows like that have been on for 20 or 30 years and have great brands.

So we have got a lot of work to do to get these shows to the point we want. But I've got to tell you, every day I come in and I open up the overnights, and usually there is a couple of surprises where we may see a big market like Tampa or Cleveland, for us to be outperforming and beating Wheel and Jeopardy on many days, I think has given us a lot of confidence that we've got two really good shows here that will have a long shelf life.

On the newspapers, you mentioned Naples. That is about as atypical a market in Florida as there is. So, how is -- if you took Naples out of the equation, how do -- get back to the question that Craig or somebody asked. How does the newspaper business look going forward? Is it starting to move sideways, or slowly eroding?

Well, Ed, I think that all of our portfolios are just a collection of individual markets, right? We happen to be blessed with some good geography now, right? But it was tough going back a couple years ago.

I would say in general the business is on the mend slowly, but there are going to continue to be headwinds on the advertising front. And our businesses are going to evolve.

I don't think I am breaking any news on this call. You have heard from others, probably in a more pronounced way, that focusing on our consumer-facing business is actually a really smart idea and worth investment, frankly, because it is a real opportunity to leverage the established -- establish the relationship that you have with hundreds of thousands of households and more than that in terms of consumers, relative to 10,000 or 20,000 advertisers -- who are all important. But actually we think our consumer-facing business is probably a lot more stable these days, and that is an area of focus for us and a lot of other newspaper companies.

Also on circulation, can you talk about your pricing strategy going forward in circulation?

Yes, we have not yet finalized that. That is all part of the bundling of digital products, full access, along with your home delivery subscription and just being very thoughtful and strategic about it by market. So it is probably not something that I can make a broad proclamation about.

But at the end of the day, there is great value in the content that we create, and we need to make sure that we are marketing that fact in our local markets. And, frankly, we hope that our consumers actually engage with us in our print products and across our digital platforms more of their day, more time with us. And that is going to be a proxy for value.

If you think about it in that way, there is a lot of opportunity for us and others.

In selling print in combination with digital, do you dilute your rate structure? You really can't get a lot of dollars out of digital. How does that play out in terms of your net dollars from the subscriber?

From the subscriber or from --?

I mean from your reader. You are selling -- I'm sorry, from the advertiser, I'm sorry, not the subscriber. Thank you.

Yes. Well, you know, I think in most of our markets today, when we go and talk to customers, local businesses, to help them communicate to their current and prospective customers, it is a mix of media for them. We certainly have very strong print reach, and we also have the ability to provide digital agency services to them.

We can put together SEM campaigns and manage those search engine marketing campaigns for them. They can be a combination of display advertising on our own websites. We can also sell into other websites through networks that give us a much broader reach on those websites, but from folks that are coming out of our local markets.

So, Ed, today there is a variety of solutions that we can present to local advertisers, and we tailor that program to each of them. We call them campaigns.

So you're able to get more dollars out of the advertiser with digital, same guy?

Yes, that's correct, and that is an important piece. Now, one could spend a lot of time on the economics of digital, which we don't have time for on this call.

Right.

But the fact is, look, our print products are still reaching into 40%, 50%, 60% of the homes on a weekly basis depending upon the market. That is a very strong business, a strong platform.

And then to just add on to that the ability to have a relationship on smartphone and tablet and Web and other devices, other apps, that we haven't even thought of today or invented, it is exciting for us. I think we will look back several years from now and find this moment as a real pivot for the newspaper brands in our local markets.

Thanks very much. Just a great performance. Thank you very much. Bye-bye.

Howard Rosencrans, Value Advisory.

Hi, guys. Congratulations on the quarter. In terms of the buyback decision and how you came to that amount, I mean, it seems to me you generated -- you got, I don't know, $1.60, $1.70 this year in free cash flow. You are not really making a dent in using the balance sheet, in using the business. Stock seems pretty cheap. You guys seem to be doing the right things to say the least.

In every respect everything is moving in the right direction. You are now comfortable. You fully integrated the McGraw-Hill, although there is more synergies but your assimilation plans are ahead of the game.

I hate to sound disappointed in anything, but it seems to me you could have been more aggressive with the buyback. Is there -- or handed us some money. Is there a possibility you will -- does this really take us through '14? Or if we can really make some strong progress in '13 are we going to finish this off, assuming the stock stays here and do another one?

Hey, Howard, it's Rich. Let me start and then Tim might want to jump in as well. We have been a pretty steady buyer, and I think we continue to be, and tend to be a pretty steady, opportunistic buyer.

But there wasn't any specific magic around the time period or the number other than the commitment to continue to be a buyer and show the faith in the value of our own shares. Obviously, if we work through this and it makes sense we will look at doing it again. So not a lot a statement in necessarily the size or the time frame at this point.

Other than that, as you say, we do continue to build up cash. We would like to think we could find good opportunities to put that cash to work inside the businesses or in businesses we would acquire. But ultimately, we are very realistic people and I think very sober and good allocators of capital. And where we think we will find the best return is where we will put the money.

As you mentioned, we have not come to a point where we feel like the right decision is to return capital to the shareholders at this point. But ultimately that is one of the options that we consider all the time.

Okay. A president did get elected who is probably not -- is going to start taking more money from us. So in terms of -- for modeling purposes, you have -- you talk about the exercisability of the options, and that is where half the money is going to flow from also. So that is also another factor which seems to me to support that you could have done more.

But anyway, for modeling purposes, should we assume that your share count -- and I know we can't decide on what comp is going to be and what the issuance is going to be in ensuing years. But should we assume that your share count goes down by about half of what the authorization -- of what -- or half of what you buy, assuming that about half of the money comes from option exercise? Or --

So all of the money that we get from the option exercises will be used to absorb the shares that are issued with that. So those will sort of offset each other.

There will be additional shares that get issued from time to time for restricted stock amounts. I would think for longer-term modeling purposes I would hold it more or less flat, and with some ups and downs from there.

So, just for simplicity, if you were to buy $50 million in '13 and $50 million in '14, for simplicity you would assume we should keep the share count flat?

I would assume that the amount that gets used for the option exercises, that part of it is flat. There will be some that are issued in '13; my guess is somewhere around the same number that were issued in '12. And then a portion of this $50 million amount that we will be using of cash that is on our balance sheet would be used on an opportunistic basis.

Okay. Very good. Thank you very much and congrats again on all the great work in really every segment of the business.

Thanks, Howard.

Barry Lucas, Gabelli & Company.

A follow-up from Craig Huber.

Yes, hi. If I heard you right I though you said in your existing TV stations the cash costs in the quarter year-over-year were up slightly less than 2%, which is quite good, particularly given the revenue growth. Stellar, I should say. But that also implies that your McGraw-Hill TV stations' EBITDA was about $6 million year-over-year, if I did the math correctly; and it implies like a 22% to 24% EBITDA margin for the McGraw-Hill stations. Is that correct?

We don't speak to specific, but I think you are probably in the right range, Craig.

Okay. Then also just as a follow-up to a question that was asked earlier. You guys know better than I do how many years it takes to turn around households' habits of watching television, and moving the ratings up or down significantly. How many years do you guys realistically think it will take to move the ratings at your McGraw-Hill stations up closer to where some of your better existing TV station ratings are at now, please?

Craig, it's Brian. Obviously it's a process. I don't sit here and think that we need to get to number one in order to be able to monetize the investment we made in these television stations. If you look at any given market, a single rating point in late news or early news is $1 million plus; especially in a big market like Denver, maybe $2 million. In markets like Indianapolis and San Diego, it is probably a good bit over $1 million.

So look, there are some good television stations that we are competing against that we have chosen to take on with some legacy brands. The good news is we don't need to get to number one to be able to realize huge opportunity and huge financial upside.

So for every rating point we can move and every time we can move our television stations from fourth to third or third to second -- and I am speaking beyond just those four television stations -- there is significant revenue that drops to the bottom line. So I spoke earlier about the process and where our focus has been for the first nine months. We felt like we really needed to realign the television station and integrate a digital strategy and culture inside of the news organization so that we wouldn't just be a strong television brand but the market-leading news and information brand.

Most of that heavy lifting has worked. Now it is a matter of execution and consistency and having the right people to do the work. We have the right people. We have begun the right processes. And as I said I think we are seeing lift in several places already.

I am proud of the work that our folks are doing and the way they have adapted into our culture. And I absolutely see lift in 2013 from all four of those television stations.

Again, I don't think this is a three or five or four or five year thing before this Company and our shareholders begin to see value of that investment. I absolutely expect a return on our investment in 2013, and it will only grow beyond that.

So I think the work is done and, quite frankly, we are already starting to see the beginnings of the ratings lift that we expect.

Then lastly, quick question. You guys gave the political number for the fourth quarter. What was that number for just the McGraw-Hill station for political 4Q, please?

Hang on, Craig. We can give you a ballpark number.

You know, Craig, as I'm looking that up, I just want to again say that -- very different environment for them this year. I think the big driver of them in the past, especially if you go back to the '08 cycle, was a very aggressive, very competitive Senatorial race in Denver and of course the fact that they were the host of the Democratic National Convention in the third quarter of '08, which brought a lot of extra money into the market.

I am looking at probably $12 million, something like that.

In the fourth quarter?

Yes, just in the fourth quarter.

For McGraw-Hill? Great. Thank you very much.

Barry Lucas, Gabelli.

Thank you. I apologize; I had to jump off the call for a moment. A couple of items.

Brian, I thought you mentioned that The List is cleared in basically your existing footprint. Any other groups picking that up?

Hey, Barry, it's Brian. The List is cleared in six of our markets, and Let's Ask America is cleared in seven of our markets. So in seven of our markets we previously had Wheel and Jeopardy, and in those markets we obviously discontinued that relationship. In six of the market we have launched The List.

Because of the dynamics of the way access 7 to 8 p.m. falls on the East Coast versus the Central Time Zone, where you are only get the half-hour, that is why we have one less half-hour cleared in one of our markets. But many of our access programs beyond Wheel and Jeopardy have contracts that go out one more year or two more years, and so we have to wait for all of those to term up before we are able to expand into our entire 13-market footprint.

The List, as I mentioned, is wholly owned. Let's Ask America is a partnership with Warner Bros. I think that is the show that is more likely to see syndication certainly sooner; obviously with Warner Bros. that is an expertise for them, and there is a reason why they have made an investment in our show. They love the show and they believe it is scalable. So I think we will be modeling that in the very near future.

That's exactly what I was getting to, Brian. So this first season with Let's Ask America, is that like a tryout period? Or Warner Bros. is working on it out of town before they bring it to Top 10 markets like New York?

Well, not a trial period for us. We are all in. But I think -- no; when we decided to launch this show in partnership with them, again there is a lot of access or even daytime programming contracts usually go out a couple of years. So we knew that out of the gate, as we were beginning the development of the show, that Scripps was going to be the launch group.

We were building this for ourselves, that we could be successful. But we clearly on a game show saw the scalability of a show like that. So I think Warner Bros.' partnership all along in this was -- let's get this show launched, let's make it great. And if we are successful in doing that and attracting an audience, that there will be audiences in 200-plus markets around the country, and I think that is our mindset right now.

Great, thanks. I would like to come back to Howard's question, Rich, if you could. Is this -- I don't want to say it is reticence, because you went through one buyback program and have authorized a larger one.

But is this still a function of dry powder? Is there more M&A out there? If you are successful, as Brian is indicating, with integrating the McGraw-Hill stations and driving those results, is there more opportunity on the TV broadcast side that you want to be able to do? Or given the level, as an example, the level of incremental cash flow that comes out of even just the fourth-quarter political, take that cash and buy back the stock, or give it back to us in other ways.

Sure, so let me step all the way back and start with one of the principles that we really hold true to in a period like this. We still see it as not a terribly stable economic period and believe there could be yet or will be disruption and opportunities that we might want to take advantage of that are hard to see today. So a fair amount of financial flexibility is key to our strategy over this period.

So I think you all can expect us to try to do what we can to protect that and obviously build up a little bit of cash.

The commitment to buying back our own stock I think is ongoing. Investing in ourselves as we see the opportunity we think is a very good strategy.

As I said to Howard, I wouldn't focus so much on the snapshot metrics of what we authorized yesterday, whether it is not big enough or too small or too big or the buckets that we aimed at are wrong. It is just a signal that we continue to believe that investing in ourselves is the right thing to do.

And if we burn through it and want to do more, we will do more. So most important, we absolutely do have that commitment to investing in ourselves.

As far as a special dividend, as you know we have not historically been -- I have not personally been a big fan of special dividends. I like stock repurchase better as a way to return capital. But we are ultimately long-term rational and so we will just see how it plays out.

We would like to -- we continue to look at opportunities for other stations, primarily, almost exclusively, in the markets where we already do business and would like to pick up second stations or make other investments there. We are not -- would not broadly be considered a rollup. We are not just out looking at any kind of TV station in any markets.

We're just focused mostly on where we do business we're in, maybe a few other markets that we think have a good long-term opportunity for us. But I think as you know, having worked with us for a long time, I think we are very sober, good allocators of capital and good buyers, so we are not -- we don't pay more than something is worth, which is why quite often we find ourselves on the sidelines, unwilling to pull the trigger if we don't think the return is there for you all.

So financial flexibility will continue to be important to us. We will look for good opportunities. But we are not going to come to you with a deal unless we think it shows you a strong return on investment.

We will continue to buy shares. And we will continue to obviously look at -- is it the right time and is the best option to return capital in some other ways as well?

Great. Thanks for the color, Rich.

Edward Atorino.

No, that's okay. I will talk to you later. Bye.

And to the presenters, no additional questions in queue.

All right. Well, John, we appreciate your help this morning and thanks to all the investors for sticking with us for an extended period here. We appreciate your interest and hope everyone has a good day.

Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.