E W Scripps Co (SSP) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the E.W. Scripps fourth-quarter earnings call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to our host, head of Investor Relations, Ms. Carolyn Micheli. Please go ahead.

Thank you, Mike. Good morning, everyone, and thank you for joining us for this recap of The E.W. Scripps Company's fourth-quarter results. We are going to start this morning with Scripps' CFO and Treasurer, Tim Wesolowski. Then Brian Lawlor, the head of our TV division, will talk about the year ahead in television; and Rich Boehne, our Chairman, President, and CEO, will talk about our digital strategy.

Then we will open up the lines for your questions. Also in the room are Tim Stautberg, who runs the Newspapers division; Adam Symson, who is our Chief Digital Officer; and Doug Lyons, our Corporate Controller.

The commentary you will hear from our executives this morning may contain certain forward-looking statements. 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 Scripps.com for more information, such as today's release and financial tables. You also can sign up to receive emails any time we disclose financial information; and you can listen to an audio replay of this call. The link to the replay will be up there this afternoon and will be available for a week.

Now here is Tim Wesolowski, with a summary of the fourth quarter.

Thanks, Carolyn, and good morning. In the fourth quarter, our core local and national ad categories grew 17% coming off last year's record political year. We saw retransmission revenues grow by more than 40%. Of course, total revenue was down as we were comping against a record level of political revenue in 2012.

In our Newspaper group, the fourth quarter saw the second consecutive quarter of subscription revenue growth. We benefited from single-copy price increases and the fact that all of our markets have rolled out a subscription bundle.

As you know, we greatly expanded our presence in the digital video business with the purchase of Newsy on January 1. Newsy is a digital video new service based in Columbia, Missouri. We can showcase Newsy in our local markets, and it can help us build a national digital brand and footprint. Rich will talk more about our digital efforts in a few minutes, but first let's talk about the fourth-quarter consolidated results.

Of course, in 2013 was an off-election year, so revenue for the fourth quarter declined as expected. Revenue was down 15% over fourth-quarter 2012, to $221 million. That translates to a decrease of about $39 million. Keep in mind we did $55 million less of political in the quarter compared to fourth-quarter 2012.

Our cost and expenses for segments, corporate, and shared services decreased nearly 4% to $188 million. This was despite continued cost to build out our digital products and revenue streams. Excluding the incremental spend to support our digital strategy, costs and expenses decreased nearly 7%.

There were a couple of non-cash charges in the quarter relating to the debt refinancing and an investment loss. These two items reduced EPS by about $0.10.

In the fourth quarter, we reported income from operations before income tax of $7 million, compared to $40 million in the prior-year period. Net income was $7.9 million or $0.14 per share, compared to $27 million or $0.47 per share in the prior fourth quarter, again driven by record political spending.

The tax expense for the 2012 fourth quarter includes $1.8 million or $0.03 per share in favorable adjustments to the Company's tax reserves.

Turning now to the broadcast division, total Television revenues declined by about 24% to $115 million. Again, that is primarily due to expected declines in political advertising. As I mentioned, we booked $57 million of political advertising in the fourth quarter last year, and this year it was about $2 million.

Breaking down television advertising into our key categories, we saw significant gains from communication companies, hospitals, and the insurance industry. Automotive was also up a healthy 10%. Digital revenue for the Television division rose 8% to more than $4.5 million.

Q4 was a bit of a roller-coaster ride. The quarter started strong following September, when auto sales hit monthly highs; but the government shutdown in October quickly tempered our momentum.

In the San Diego market, for example, more than 30,000 government workers were furloughed. Most people aren't spending when they aren't working, so advertisers don't spend either.

We showed good fiscal discipline in light of this environment. Total segment expenses were down about 6%. That includes reduction in incentive compensation and, as in the third quarter, lower promotion costs for Let's Ask America and The List, which we rolled out last year.

Like I did in our call last quarter, I'd like to use the two-year cycle to highlight the progress made in our TV group. It's the best way to reflect the cyclical nature of political advertising.

Segment profit for TV increased more than 45% over the fourth quarter of our last nonpolitical year -- that is 2011 -- from $23 million to $34 million. Of course, this year includes the four former McGraw-Hill stations. But on a same-station basis, segment profit increased almost 25%.

Now turning to the Newspaper division, total revenue from Newspapers was $103 million, down less than 2% from fourth-quarter 2012. Subscription revenue increased for the second consecutive quarter; that is due to both the rollout of the subscription bundle and to single-copy price increases. Subscription revenue was $31 million, which is a nearly 5% increase over the fourth quarter of 2012.

Again, we saw disciplined cost control here. Expenses for the Newspaper group dropped 3.6% to $90 million. That includes another 5% drop in employee-related costs.

Fourth-quarter segment profit for Newspapers was $13 million. That is up $1.5 million from the same quarter last year.

Advertising and marketing services revenue was $66 million, down about 6%. That is an improvement over the third-quarter decline of about 8%.

Classifieds were down nearly 7%. Local advertising was down 4.5%. Preprint and related products were down about 4%, and digital revenue was down 4% to $6.3 million as our combo sales -- that's digital advertising that is tied to print -- were hurt by declines in some of our categories.

I would like now to look at our cash position and share repurchase program, then I will turn it over to Brian for a moment before I talk about our guidance. At December 31, our cash on hand was $221 million and we had $200 million of debt. We refinanced our debt during the quarter with a new $200 million 7-year term loan B; and we also secured a $75 million 5-year revolver.

We continue to have the best balance sheet in the industry. After closing the $35 million Newsy acquisition in early January, we moved to a very modest net debt position.

We have only $26 million left of a $100 million stock repurchase authorization that our Board approved in November 2012. In 2013 we repurchased 5.1 million shares for $74 million; in Q4, we purchase about 250,000 shares for $5 million. We ended the year with 56 million shares outstanding.

Now, here is Brian to talk about our recent acquisition and the outlook for the TV division.

Thanks, Tim. The Scripps TV division is setting up for a busy, profitable year in 2014. The year ahead brings some promising political races in our markets and a nice step-up in our retransmission revenue.

Above that, the two Granite stations will begin contributing to our bottom line as soon as the deal closes. The addition of these two stations extends the Scripps reach to 14% of the US population, so we get broader scale.

We also get deeper. In Detroit, we will locate the staff of the MyNetwork affiliate, WMYD, come into the facility of our ABC affiliate there, WXYZ. We will expand our WXYZ newscast into new time periods; pursue partnerships with additional sports franchises in this big sports town; extend our original shows, Let's Ask America and The List, onto WMYD; and tap into our strong existing partnerships in that community.

As I said on the investor call announcing the deal, we are thrilled to be doubling down in Detroit. Duopoly stations operate at high margins, and this particular duopoly is a pairing with one of the industry's strongest local television operations.

In Buffalo, we take over an ABC affiliate with tremendous potential. It has a strong legacy, having served Buffalo for over 50 years; but it has underperformed recently and is ranked third in audience. We are confident we can restore its standing as a market leader.

In addition to audience growth, we have a terrific opportunity to increase the station's digital content and sales across all platforms. We aren't certain when that deal will close, but we model the first 12 months of revenue to be about $30 million and segment profit to be about $10 million as we build the foundation for long-term synergies.

We now have a full two years of operating the former McGraw-Hill stations, so I would like to give you an update on how these markets are performing. The three largest -- Denver, Indianapolis, and San Diego -- had an aggregated share of their local news audience of about 17% when we bought them. In just two years we have already grown that share to nearly be 20%.

As you know, better ratings means better revenue. During that time, we have also exceeded the revenue and the cash flow projections we modeled at acquisition. We plan to take what we have learned about driving news audience and revenue growth on a newly integrated station and apply it to Buffalo as well.

In addition to beginning to integrate the Granite stations, we are looking to 2014 as a strong election year. Six Senate races, nine gubernatorial races, and eight highly competitive House seats are at the heart of the activity in our markets. We looked at the competitiveness of those races, and we forecast $65 million in political advertising this year.

We expect several key races in Arizona, in Colorado, Florida, and Michigan to drive much of that political spending. Of course, the outcome will depend on how many races stay competitive.

2014 looks to be a good year for another margin booster as well, retransmission fees. As we have noted a number of places, we expect to receive more than $50 million in retransmission revenue this year. Looking ahead to 2015, we expect that number to nearly double.

A third of our subscribers come up in 2014, including one large contract midyear. The rest of the subs were new at the end of the year, giving us the nice jump for next year.

Finally, in 2014 we will continue to pursue additional duopolies while we continue to look at other stations to buy as well. Now I will turn things back over to Tim.

You've seen our detailed guidance in the release this morning, and I just wanted to touch on a couple of things. First of all, the impact of the Granite stations is not in our guidance since the timing of the closing is uncertain.

We expect our tax rate to be about 30%, although not spread evenly across the year. Our political estimate of $65 million is in line with the last non-presidential election year, after we adjust for the McGraw-Hill stations.

As we said last month, we expect retransmission revenues to be more than $50 million in 2014. In order to help you frame the longer-term growth in retrans, we said that we expect the 2015 number to nearly double from 2014.

Our expectation for the shared services and corporate line, which includes some of the incremental investment in our digital operations, is in the mid $60 million range. You may recall, that is in line with our initial guidance for 2013.

We ended up spending less than our guidance last year as the hiring of sales folks was slower than we anticipated. We have been very selective in the hiring process. As a result, our actual spend for shared services and corporate last year was $53 million, or about $10 million less than our initial guidance.

Our first-quarter number will be about $18 million, which is a couple million higher than the level for the rest of the year. As always, some expenses get front-end loaded into Q1, such as payments to our employees' Health Savings Accounts.

The investment in digital can be divided in the same three buckets as last year: first, investment in salespeople which I call feet on the street, to help generate revenue; second, investing in content initiatives, including WCPO.com and our national news desk; and third, developing new products and services for consumers and advertisers.

In 2013 we added more than 100 people to our sales infrastructure, and we plan to add about 50 direct sellers in 2014. That should just about complete the sales buildout in our existing footprint.

Once again, because this effort will be cross-divisional, cross-market, and cross-platform, we are going to report many of the expenses in the shared services line. I do expect we will be providing additional color during this year about our digital operations. We will hear now more from Rich.

Thanks, Tim. Good morning, everyone. At this point 2013 seems like old news. But here at Scripps we use years like 2013, which as you remember is the weakest period among a normal four-year political cycle, as a springboard, a time to improve our business platforms in preparation for the anticipated surge in political revenue in the next 12 months and the buildup toward the presidential election in 2016. To improve our position heading into the favorable part of the television advertising cycle, we focused in 2013 on the place where we get the greatest leverage: local TV news ratings.

And the bet paid off. In November, nine of our stations finished first or second in the most valuable adult demographics in at least one of the major local news time periods. 10 of our 13 major network affiliated stations improved their share of local news viewing in at least one major time period over the same period in 2012.

Steady growth in local news audiences is one of our key strategies and one of our core competencies at Scripps. And we do it with quality content, enterprise reporting, that sets our stations apart.

Our Denver and Phoenix stations in 2013 won coveted Peabody Awards. And Denver and Tampa City each one prestigious DuPont Awards. Behind these awards were stories that changed lives and communities and pulled in larger and more valuable audiences for advertisers.

We also strengthened our local position and pushed margins in 2013 through our original programming strategy. Just as a reminder, we have three shows built on three somewhat different business models, and so far all three are successful.

What they have in common is their P&L effect, lower syndicated programming costs, and we keep more of the ad revenue in those timeslots. We built these shows to be economically sound just in our markets alone; any expansion of the audience beyond the Scripps footprint is all gravy.

Our game show, Let's Ask America, is launching in national syndication with MGM and is adding clearances and access hours just before primetime. 2014 is a critical year for this show; and so far, so good.

Our nightly information and entertainment program, The List, spread to eight Scripps markets last fall and will launch in our remaining markets in 2014. We produce this show every day in our Phoenix facility, and we post it in time for local stories to be inserted across the country. It's doing really well, and in some markets it's already ahead of some of television's most successful syndicated shows.

Our third show, Right This Minute, was the first to launch under our programming strategy. It is a partnership between Scripps, Cox, and Raycom. It's a highly profitable big hit, and it's now airing in 87% of the country.

The significant investments last year in Television carry us into the 2014 political season with one of the strongest and most attractive geographic footprints in the television industry. we also have bigger and more engaged television and digital audiences.

Over in the Newspaper division, 2013 saw the conversion of all of our markets to paid digital subscriptions and bundled print digital subscriptions. As a result, subscription revenue grew -- as in upward -- and we believe that should continue this year.

We backed this up with aggressive investments in digital content and sales assistance. By year-end, about 35% of our subscribers had activated their digital accounts, and in some of our newspaper markets that number is now approaching 50%. This is good early affirmation of our strategy to build local products that are worth paying for, with more features to come as we build the value of these bundled and digital subscriptions.

We are also moving into 2014 with an expanding portfolio of media businesses, having reached a deal early in the year to acquire two TV stations from Granite. And on New Year's Day we acquired Newsy, a digital video news service. As Tim said, our strong financial position enables us to make these investments at attractive rates of return and at the same time acquire more of we what we already own by buying back shares.

Now let me spend just a few minutes talking about our commitment to building these digital media businesses. Our primary approach is two-fold.

First, build local digital businesses that align with or expand our existing brands. We do business in some of the most attractive digital markets in America, and we are now serving those markets with products and platforms that we believe will set us apart as a leader in both audience reach and revenue.

We are investing in digital-only content and sales systems to support the products. This local strategy is primarily funded through the P&L, prudent expense that we expect to more than cover with incremental revenue; and we are well on our way.

At Scripps, as you probably know, we like investing through the P&L, building real businesses on top of or adjacent to where we already have strong brands. This relentless evolution of the core brand has created value for our Company's owners over many generations.

Today, our most aggressive internal investments on the digital side are in TV markets, which tend to be larger and today offer more digital scale. That is also where we are challenging this notion that only local newspapers can receive payment for digital content.

Now, I am not sure who started that rumor, but we intend to test the theory starting in Cincinnati, where we have launched a paid digital business alongside our successful TV brand, WCPO. To our knowledge, it is the only paid digital business associated with a local TV brand in this country, although the content and the benefits are above and beyond what is available for free on our site or on the others that serve the greater Cincinnati audience.

Over the coming year, we will continue to roll out new features and benefits. For those who pay $7.99 a month to become a WCPO Insider -- and by the way, if you're walking in there right now with your credit card, I recommend you take the yearly deal of $79.99 and save yourself a couple bucks. Assuming we find some success in Cincinnati, we are looking at rolling out to other markets.

Most important for you to know that these internal investments follow rigorous research and are run by nimble teams that follow consumers' time and money on digital devices. Advertisers obviously are following, too; Nielsen says display advertising across the Web, mobile Web, apps grew by about a third last year; and it is still less than 5% of overall ad spending but showing by far the fastest growth.

This revenue opportunity for us is considerable. We earned more than $40 million in revenue from digital media in 2013. We would be disappointed if that number doesn't increase by more than a third this year as our digital-only salesforce kicks into gear.

Now remember, none of this revenue is from acquired businesses. It is all from organic expansion in markets where we can already do business. That should over time produce the best returns for shareholders.

The second leg of our digital strategy focuses on expanding to take advantage of growth in national mobile audiences and revenues. The addition of Newsy provides us a window to the growing national mobile marketplace and at the same time leverages our existing advertising, marketing, and technology platforms.

Newsy also supports and benefits our large local digital audiences. Newsy is a nice fit for Scripps; and at $35 million, it is an investment that can drive attractive growth and returns for our owners.

These digital investments, both internal through the P&L and external through prudent acquisitions that leverage our existing platforms, are good examples of how Scripps has created value over its history. We look forward to these relatively modest digital investments becoming significant value drivers in the years ahead.

That is a look at the results and at some of our digital growth and investments. And, operator, we are now ready for questions.

(Operator Instructions) Alexia Quadrani, JPMorgan.

Hi, good morning. This is Nadia Lovell in for Alexia. Just a few questions.

Can you provide some color on what percentage of your newspaper base saw price increases? And should we expect a similar lift in 2014? What is built into your assumption for mid-single-digit growth in 2014?

Good morning, Nadia. We will let Tim Stautberg take that.

Yes, we passed along a subscription price increase in all of our markets. So as we rolled out access to the digital platforms, that was concurrent with a pricing increase across all markets.

We also in select markets increased single-copy prices where it made sense. So we're seeing a nice lift of mid-single-digits and would expect that that would continue at least halfway, if not through the rest of this year.

So is it fair to assume that much of the growth in circulation is coming from price increases?

That's correct. Plus, we are adding digital-only subscribers, and in 2013 we finished the year with about 23,000 digital-only customers. We would expect that number to continue to grow in 2014 as well.

Okay. Then on the digital sales rep, is the performance of those hired sales reps meeting your expectation? When should we start seeing that translate into digital revenues growth on the TV side? What has the demand been like from an advertiser's standpoint?

Good. We will let Adam Symson (multiple speakers).

Hi, Nadia. Good morning. The dedicated team added a couple million last year as they were just getting phased then. As you recall, we really started to phase them in, in second quarter.

Almost all of the increase above modest increases that we expect to see on the TV and newspaper integrated side in 2014 will come from these new sales teams. So they are meeting our expectations as we get them ramped up.

Okay, thank you. Then lastly, on the TV side, can you provide some color on how your major categories did in the quarter and what's pacing it for the current quarter?

Yes, here's Brian.

Good morning, Nadia. Automotive was our top category in the fourth quarter. As we said in the statement earlier it was plus 10%.

Services, which often competes for our top category, both of those -- auto and services -- was more than 20% each of our total revenue. That was also up double digits. So services rebounded after a little bit of a slow start to 2013.

Retail was down just low-single-digit percentages. Food services was up just a touch. And travel and leisure, which is our fifth category, had significant growth, about 30%.

The other category -- it's not one of our top 5, but it's something that we talked about a couple times last year that really got a resurgence -- was the telecommunications category. And that was up 32% in the fourth quarter.

Then are some of those strengths that we saw in the fourth quarter, that momentum, continuing into the current quarter?

I would say that a couple of the key categories have softened a little bit in the first quarter. But really it is weather-related, Nadia.

If you look at automotive and retail, those are probably the places where we are seeing the most significant impact. I was in Detroit a couple of weeks ago, and they were wrapping up January as the snowiest month ever in the history of Detroit. So you don't sell a lot of cars when you're dealing with all that snow.

So I think, especially across our Midwest and our Northeast footprint, weather has had an impact in first quarter. But we are hoping March will grow out of that and by the end of the quarter some of those things will get back with some more positive pacing.

But telco, travel and leisure continue to pace very well for first quarter as well.

Thank you.

Craig Huber, Huber Research Partners.

Yes, good morning. I have several questions, please. The Newsy acquisition, can you just -- in your guidance, how much revenue and EBITDA are you expecting to get from that this year? And where are we going to see that at in your segment breakdown, please, those two numbers?

Hey, Craig, it's Rich. We don't break it out, but I will -- if you want to try to go looking for it, Tim, where would it be in the --?

Yes, so the Newsy acquisition, as we said earlier, was that it has revenue associated with it. It is not a pre-revenue business; they were operating at about breakeven. And we will be reporting the revenue from that in our syndication and other line, as it's more of a national product.

Can you just ballpark what the revenues are, just for modeling purposes? Just what the run rate is or something?

We just -- at this point, Craig, we've decided not to break it out. We will see what happens in the future.

Okay. Then, forgive the tone of this question, it's a little follow-on from the prior question as well. Your guys' big digital investments last year -- I think you said you hired 100 new digital advertising salespeople; and then we look at the digital -- you know where I'm going with this -- digital ad revenues down 4.4% in the Newspapers segment year-over-year and digital on the TV side up, call it 8% in the quarter.

Do you feel early on that you're -- I realize we're on a public call here. But do you feel you are getting enough bang per buck? I mean, down 4.5% for digital and newspapers, that is worse than your peers are tracking who did not make these investments.

Again, sorry for the tone of the question. I just want to hear your thoughts on that, please.

No, no problem with the town at all. Yes, we are. You are still ahead of where we would expect to see the real payoff on the revenue side.

But if you look at our core local digital businesses, they're -- have been profitable. We continue to make some additional investments on top of that, like what we are doing at WCPO to try to build new businesses.

But yes, we feel like we are in good shape today and we are ahead of what we expect to be a pretty good ramp on the revenue side, thanks to the investment.

What happens in Newspapers, some of that is tied to or follows the print business. I just -- I wouldn't necessarily look at that as any sort of report card on how we think our digital investments are going to pay off.

Okay. A nitpick question here. Tim, what were your daily and Sunday print volumes down, I assume, year-over-year in the quarter?

Yes, Craig. For the fourth quarter, daily was off 9% and Sunday was off 10% in terms of net paid.

Then, Brian, on the TV side, can you give us some help here what your thoughts are on where you think programming costs are going to be on a year-over-year basis? And also maybe talk separately about network compensation, how that incremental hit there may hurt you this year. If you could just ballpark those numbers.

Okay. Morning, Craig. Look, as you know, we have talked about it many times over the last couple years; we have really implemented a strategy to take more control over our programming future, stop renting as many shows, and really try and improve our margins through the programming that we put on our air.

And we have been very successful. We have reduced our syndicated costs across our entire division by more than half over the last couple years. I think you've seen that benefit on a quarter-to-quarter basis.

If you look at -- in fourth quarter which just wrapped up, again our syndicated costs were down double-digits. But our overall programming costs were up just a little bit over 1%; and that really has to do with the network spend that we have relative to the share of retrans with them.

So those trends will continue. As I model out 2014, you're going to look at double-digit declines in syndicated costs again. So we continue to find ways to grow our own programming. But network payments will be up double-digits.

And at the end of the day, I think our programming costs for next year will be up low singles. But the reality is we are paying more to the networks, but I think we are doing a very effective job of still keeping our programming costs nearly flat as a result of our own homegrown programming. So does that answer your question?

Yes, that's helpful. Appreciate that. Then, Tim, back on the Newspaper side, can you just update us further on the price increase you guys took on the subscription side and also -- on the home delivery but also on the newsstand. What was the rough average there for each of those price increases where you guys put in the back half of last year?

Craig, it wasn't a monolithic increase on the home delivery side. We are very strategic about passing along increases and especially making sure that there is a good value exchange for those increases. But I would say on average they were 10% to 20% increases, maybe some of them even on the higher end of that.

On the single-copy side, we increased single copy on Sunday and in some markets daily to where most of our markets we're at $0.75 or $1.00 on the daily basis and Sunday is closer to $2.00.

Okay. I will leave it there. Thank you.

Michael Kupinski, Noble Financial.

Thanks for taking the questions and congratulations on a solid quarter; and thanks for the additional color on your retransmission revenue outlook. I was wondering if you can -- I know that some of the trades have been reporting about a new show that you guys are planning in daypart; and I was wondering if that was factored into your recent guidance, Brian, that you just gave in terms of your cost outlook for programming going into next year.

And then maybe if you can just add a little color about the show itself, and what you expect it to replace, and that sort of thing.

Hey, Mike. It's Brian. Are you talking about the news program that has been rumored out there?

Yes, that's right.

Yes. We've got a couple of markets where Ellen currently runs at 4 o'clock. And through some negotiations a couple years ago, Ellen is leaving our markets. So we stepped back and looked at the opportunity, and we think that there is a big upside in terms of producing some news programming.

But I think the way we are approaching it is not to just do another newscast. We're not going to take a 5 o'clock and just reload it and put it at 4. In many of our markets there is already a newscast at 4 o'clock that looks a lot like a 5 o'clock news.

So we have really stepped back and looked at it. What does a news -- what kind of news programming could we create that would engage people at a different level and be able to be scaled across multiple markets?

So we are looking at -- we are in development of a program, a news program, that we will be able to scale into six of our markets that I think will be unique and distinctive and really get to the root of a full engagement of news, and not in just a traditional repetitive way.

And yes, the startup costs and all of the investment in terms of people and all is built into our forecast which we have laid out. I just spoke in Craig's question about our syndicated costs going down double-digits; it's a pretty good double-digit decline. And that would be as a result of us releasing Ellen in several of our markets.

Perfect. Then given your strong balance sheet, obviously, you are really well positioned to make further acquisitions. I was just wondering if you are likely to seek more geographic expansion in your next acquisition or still focus on duopolies.

I think it is both. This is Brian, still, Mike. Duopolies are something because of the high-margin growth.

And, look, we are committed to the markets that we are in. So we would like to be stronger and be able to take a bigger piece of the pie out of that those markets. So duopolies is a top priority.

But beyond that, again I don't think we share the same rollup strategy as some of our peers. We don't plan to get bigger just for the sake of getting bigger.

But as you saw in Buffalo, when there is something strategic that can get us into a new market, that is the right-size market, that has a good revenue basin in it with a good economic foundation, that has a news brand that we think we can grow, those are the kinds of markets we look at. So it could be regionally.

Buffalo was a really nice fit. We are really right along that Lake Erie corridor with Cleveland and Detroit.

But it doesn't mean we wouldn't look into other clusters or other regional areas. But it's really about strategic fit and certainly making sure we are getting into markets with good economic basis.

In terms of the WCPO in Cincinnati, what are the benchmarks and/or metrics that you would like to meet in order to determine success for this subscription-type service and whether or not you would roll it out into additional markets? What would you be looking for?

Hi, Mike. It's Adam. WCPO is our most highly experimental initiative this year, and our goal is to build long-term value to be model. So the metrics that we're looking at are really pretty consistent with the way we measure the rest of our business: revenue, subscriptions, audience engagements.

But of course because it's focused on one market, we don't generally break out market data for competitive reasons. And Cincinnati is a highly competitive market; we are unlikely to be sharing the data there.

But the facts are essentially the same in this market as we look at a cross-section of the way we see our newspapers and our television markets: around audience engagement and then revenue generated from digital advertising as well as from digital subscriptions.

Okay, fair enough. That's all I have. Thank you.

(Operator Instructions) Edward Atorino, Benchmark.

What did you see from the Olympics and the Super Bowl, if anything, in the quarter?

Hey, Ed. It's Brian. Nothing in the Super Bowl. We don't have any (multiple speakers)

That's right. Yes.

In the Olympics, a little over $4 million gross revenue. It was up about $1 million versus our last Winter Olympics. And we look at that, about 45% of that being incremental.

On the advertising category, you mentioned healthcare being -- any of that related to Obamacare? Is Obamacare generating any incremental advertising? And where does it show up?

Yes, it is. It's showing up in our government line, so it's not in any of the categories. Well, it probably pops in two places. Just the straight-up government healthcare money hits our government line, so that we can track it specifically.

Some of it also hits, Ed, within our services category, because we are seeing an uptick in insurance and hospitals and doctors. Now that they have a better clarity on what Obamacare looks like, they are now able to provide certain services to people that a year ago there was a lot less clarity and they were standing on the sidelines waiting to get some guidance there.

So two places, the government line and our services category. And as I mentioned to you, services was plus double-digits in fourth quarter, so you can see the impact there.

Want to put some numbers on what it's adding to?

No, not really.

(laughter) Sorry about that. Thanks much.

Barry Lucas, Gabelli & Company.

Thank you and good morning. I have several this morning, and let me start with Mr. Stautberg. One line item that stuck out was real estate classified being up a sizzling 2% -- which is still up, and so I am not belittling it, Tim.

But is that primarily Naples, or is it broader than that? Might one infer, could one infer that we're seeing the bottom in that category?

Yes, Barry, what is encouraging is it's broader than Naples, and it's broader than just our Florida markets. Naples is once again the one that is up the most in terms of percentages; but we saw several of our other markets either flat to last year or up a little bit.

So I think that is an encouraging sign that we are bottoming out. I think a lot of the national news and press around real estate prices and affirming of that business supports that. So we are encouraged by that.

I think Rich several years ago on a call said that Florida was on sale. And for the folks that jumped at that, I think they have seen a nice return. But we are very encouraged by the broader base of support on the real estate end.

Great, thanks. Brian, not to carp too much, but given the lay of the land that you described in terms of competitive races in your really attractive political markets, flat with -- flattish political on a pro forma basis with 2010 would strike me as potentially being a little bit light. So how conservative are you being in your estimates there on political?

Look, I think that for what we know, we're dead on. So there's lots that you don't know.

We know we have got six great Senate races. A couple of them -- Michigan is going to be a stopgap race for the Democrats. We have got lean races in Colorado; and McConnell will be a target. We've got some really nice gubernatorial races; a couple of them -- Michigan, Colorado, Florida -- we think are going to be really competitive.

So, look, we've put a real hard pencil to what we know, how we -- which of those races we think will be supported by the parties, where we think that there will be some PAC money that comes in and so forth. Always the question is: where is the issue money going to come from? What are going to be the issues?

Is California going to get a wacky issue or two, which can always be fruitful for a broadcast company? So those are the things we don't know yet.

Also, we call the races as we see them now. If something -- we use a metric of 8 points. If one of the races moves beyond 8 points, it suddenly loses its competitiveness and we start to see the outside funding dry up. So we try and model all of that.

So we think that the number we have put out there is dead on to what we see today. But if things pop up that we don't know, that could make some of these races more additive. And really it will depend on where -- what issues pop up and who is supporting those that can really break us out.

Great. One last one for you, Brian, and maybe to a certain extent to Tim and Rich. But you have described your appetite, let's say, for adding duopolies in new geographies.

But, A, what do you see in the M&A pipeline at this point? And maybe for Tim and Rich, what level of balance sheet use would you be comfortable with for something really attractive -- let's say another McGraw-Hill, or even larger -- if something like that came up?

I will start first, Barry. Just, obviously last year was a wild year in terms of M&A, and a lot of the players you would have expected to put their groups on the markets did. A lot of that was private equity that had been hanging in there for a long time that now could get the return they wanted.

So I think a lot of the -- excuse the term -- the low-hanging fruit moved along. As we look now, I think that there remains opportunities; but I think it will probably be more strategic.

There may be potentially less stuff that gets put up for auction but as much stuff that gets done. But it will be more strategic in the approach to it, where people will be looking for those perfect fits versus just scale.

Barry, it's Rich. I will give you the non-technical answer, then Tim can give you the technical answer. Where our limit is, is where we would start to feel a tightening around our flexibility. We would not be opposed to adding some debt, but clearly we want to be able to make digital investments, which we think are essential and a great opportunity. And we just would not want to lever up to the point where we have covenants in place or any restrictions that just box us in and not allow us to make these true P&L investments and other small investments that we think can generate awfully strong returns over the long term.

Here I will let Tim give you the technical answer to that.

Sure. We are not afraid of taking on a modest amount of debt to further the strategic initiatives, such as going deeper in our markets, expanding our footprint, continuing with the digital initiatives. And as far as the amount of leverage that would really be -- we're not comfortable going much beyond 3 times leverage without a route, a path to pretty quickly bring that down.

one of the beautiful things about this business, as you know, is every other year we get a lot of cash coming in from the political activities. So it happened with McGraw-Hill; it's going to happen this year with Granite as well.

Make an acquisition in a political year, and you can pay it off pretty quickly.

Thanks much. Last one, and I'm going to squeeze this one. But looking at the expectations for Granite in the first year, and there are obviously transition costs, relocation costs. Why wouldn't those two stations, particularly as you create the duopoly, generate a higher margin than the corporate average for the broadcast business?

I think they will long-term, Barry. This is Brian. They clearly will long-term.

There is significant cost to, especially in Detroit, move that television station into our station, to move the technical operation and rebuild it within our current infrastructure. So that is significant. In Buffalo we're going to make some investments to be able to grow the news and get them aligned, so that we are not sitting at number 3 in news two or three years from now, but we expect to be taking a run at number 1.

So everything we put out in terms of the $30 million in revenue and the $10 million of segment profit is really pre-synergy. And there is a fair amount of investment that we will make to align those stations.

So that I think you will see a very different story in the second 12 months, where they will be completely synergized, completely integrated. We will have news up and running in Detroit on that station as well as some other franchises. And we will have our foundation built, just like we did in the McGraw-Hill stations, in Buffalo.

So, look, I think it's coming in about our average of our division margin in year one. But this will clearly be a margin driver for us moving forward.

Great. Thanks very much, Brian.

Michael Kupinski.

I can remember that in your last political advertising guidance in 2012 you guys raised guidance like three times. So I was just wondering in terms of the swing factor; you mentioned issue advertising.

But is there any particular market that maybe you guys think that you might have underestimated in terms of the opportunities for political?

Look -- hey, Mike, I am hoping I raise it three times. That wouldn't be a bad thing.

As I said to you, right now, honestly, the number we put out there is how we see it. As I mentioned there's a couple of pretty good Senate races that -- especially Colorado just recently went to lean, Udall's race. So when we started modeling this a couple months ago we thought that he would probably that probably in hand; and that has moved to probably be projected now to be a bit more competitive. So if that stays in that case there may be some upside there.

Look, on the governor race, we have got 10 of them, and there is a lot of opportunity. Arizona and Maryland are both term limit seats, so those are open; and I think we have modeled those appropriately.

I guess the ones that could get crazy would be Michigan, Florida, and Colorado. I think all three of those existing governors are going to have to defend their position. And a lot of it will depend on how much party money gets brought in from the outside to be able to support it.

I guess the other thing would be McConnell on the Senate side. I think that the Democrats would potentially target him because of his role in the Republican Party.

So we have modeled some of that. But depending on -- as we look out there's about six or eight key races in the Senate across the country, and we have two of them. If something happens in Virginia or Pennsylvania that changes, it could bring more money to some of our races.

So look, we've talked about this before. We think we do political really well. We believe that we have a unique skill set that no other broadcast company has because of the way we handle political.

We think we have some of the smartest political folks in the industry who manage our business and forecast all this stuff. And we are really comfortable with the numbers we put out there now.

It can clearly change, as they did in 2010. We got a lot of momentum; people started buying 60s instead of 30s but maintained the point levels; it doubles the money.

But -- and again, that last year, we wound up basically half of what we had modeled. Some things dried up; and the government healthcare and all kind of stagnated that.

So part of it is a guessing game; a lot of it is science. And we feel like we know the science part really well.

One of the interesting aspects of the Comcast/Time Warner merger is it seems like your Company is probably more influenced or affected by that merger than anyone else. I was just wondering in terms of -- have you had any discussions with Comcast at this point, what the opportunities might be to lessen the impact of the Time Warner retransmission negotiations? Things like that.

Hey, Michael. It's Rich, and I will let Brian jump in. At this point, we haven't had any direct talks with Comcast.

It does potentially have an impact on us. The size of that impact we don't really have any idea, because we don't know what the new Comcast footprint is going to look like. I assume we will know that in the coming days.

But it really just shifts a little bit of retrans revenue out a couple years. It doesn't have a -- it's not like it cuts off our retrans revenue substantially in any way. But I assume at some point we will have some discussions with them once we see what the footprint looks like.

They have been good partners to us over the years. We anticipate that that will continue.

Perfect, thank you.

Craig Huber.

Yes, I got two follow-up questions, just general housekeeping stuff. What was the underfunded status of the pension at year-end? And what do you expect to be the contribution this year and perhaps as you look out next year? I know it's early.

Sure, Craig. We will be filing our 10-K later today. In round numbers it is about $50 million; so it declined from about $100 million to about $50 million.

We'll be -- we don't have any required minimum contributions in 2014 or 2015. And contributions that that we will be making out beyond that will depend on changes in the funded status going forward, but we expect will be very manageable and modest.

The other question, please. The income tax rate, I think you said you were expecting it to be roughly 30% for this year. A more important question is, on that, when do you think your income tax rate that you are going to book on your income statement is actually more normalized, to 38%, 39%, 40% level?

Really it depends on when -- we have got some issues that we have got reserves against. And it really depends on when those roll off, so it still might be a couple more years before we got a more normalized tax rate.

Okay, thank you.

Edward Atorino.

There is an FCC meeting I think scheduled for the end of this month to talk about JSAs. Do you have any opinion, thoughts, insights, worries, etc.?

No, Ed. It's Brian. Look, we will be watching it as closely as everybody else in the industry. We don't have any JSAs; so if there is some adverse ruling that were to come down it wouldn't have an impact on our Company.

If anything, it could potentially provide some opportunity for our Company if people are forced (multiple speakers)

Yes, I was just wondering how you saw it playing out. Okay, yes. Thanks.

There are no further questions at this time.

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